SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X] Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CTI INDUSTRIES CORPORATION
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (check the appropriate box):
[X] No Fee Required
CTI INDUSTRIES CORPORATION
22160 North Pepper Road
Barrington, Illinois 60010
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO
BE HELD ON JUNE 29, 2001
To: Shareholders of CTI Industries Corporation
The annual meeting of the shareholders of CTI Industries Corporation will
be held at Wyndham Garden Hotel - Schaumburg, 800 National Parkway, Schaumburg,
Illinois, 60173, on Friday, June 29, 2001, at 10:00 a.m., Central Daylight
Savings Time, for the following purposes:
1. To elect 5 directors to hold office during the year following the
annual meeting or until their successors are elected (Item No. 1 on
proxy card);
2. To consent to a proposal to change the state of incorporation of the
Company from Delaware to Illinois by the merger of the Company into a
wholly-owned subsidiary of the Company which is incorporated under the
laws of Illinois, which reincorporation will cause certain changes to
the Company's Articles of Incorporation, all of which is more fully
described in the accompanying Proxy Statement (Item No. 2 on proxy
card);
3. To approve of a provision in the Company's Illinois Articles of
Incorporation (in the event of a merger pursuant to Proposal Two to
this Proxy Statement) not to be governed by Section 11.75 of the
Illinois Business Corporation Act of 1983, as amended (Item No. 3 on
proxy card);
4. To approve the adoption of the CTI Industries Corporation 2001 Stock
Option Plan (Item No. 4 on proxy card);
5. To ratify the appointment of Grant Thornton, L.L.P. as auditors of the
Corporation for 2001 (Item No. 5 on proxy card); and
6. To transact such other business as may properly come before the
meeting.
The close of business on May 7, 2001, has been fixed as the record date for
determining the shareholders entitled to receive notice of and to vote at the
annual meeting.
BY ORDER OF THE BOARD OF DIRECTORS
May 14, 2001 /s/ Stephen M. Merrick
--------------------------------------
Stephen M. Merrick, Secretary
YOUR VOTE IS IMPORTANT
It is important that as many shares as possible be represented at the annual
meeting. Please date, sign, and promptly return the proxy in the enclosed
envelope. Your proxy may be revoked by you at any time before it has been voted.
CTI INDUSTRIES CORPORATION
22160 North Pepper Road
Barrington, Illinois 60010
PROXY STATEMENT
Information Concerning the Solicitation
This statement is furnished in connection with the solicitation of proxies
to be used at the Annual Shareholders Meeting (the "Annual Meeting") of CTI
Industries Corporation (the "Company"), a Delaware corporation, to be held at
10:00 a.m. Central Daylight Savings Time on Friday, June 29, 2001, at Wyndham
Garden Hotel - Schaumburg, 800 National Parkway, Schaumburg, Illinois, 60173,
Illinois. The proxy materials are being mailed to shareholders of record at the
close of business on May 7, 2001.
The solicitation of proxies in the enclosed form is made on behalf of the
Board of Directors of the Company.
The cost of preparing, assembling and mailing the proxy material and of
reimbursing brokers, nominees and fiduciaries for the out-of-pocket and clerical
expenses of transmitting copies of the proxy material to the beneficial owners
of shares held of record by such persons will be borne by the Company. The
Company does not intend to solicit proxies otherwise than by use of the mail,
but certain officers and regular employees of the Company or its subsidiaries,
without additional compensation, may use their personal efforts, by telephone or
otherwise, to obtain proxies.
Quorum and Voting
Only shareholders of record at the close of business on May 7, 2001, are
entitled to vote at the Annual Meeting. On that day, there were issued and
outstanding 841,644 shares of Common Stock and 366,300 shares of Class B Common
Stock. Each share has one vote. A simple majority of the outstanding shares of
Common Stock and Class B Common Stock, as a single class, is required to be
present in person or by proxy at the meeting for there to be a quorum for
purposes of proceeding with the Annual Meeting. Holders of Class B Common Stock,
voting separately as a class, have the right to elect three of the Company's
five directors, and will vote together with holders of the Company's Common
Stock, as a single class, on the election of the remaining two directors. The
Company's Certificate of Incorporation grants the holders of Class B Common
Stock the right to elect four of seven total directors but only three directors
shall be elected by the Class B Common Stock at this meeting. The Company's
Certificate of Incorporation grants the holders of Common Stock the right to
elect three of seven total directors, but only two directors will be elected by
the Company's Common Stockholders at this meeting. The directors elected by the
Class B Common Stock reserve the right to appoint a director to fill the
vacancy. Neither the Common Stock nor Class B Common Stock possess cumulative
voting rights, and the election of directors will be by the vote of a majority
of shares of Common Stock and/or Class B Common Stock, as the case may be,
present in person or by proxy at the Annual Meeting. On all other matters,
including the change in the Company's state of incorporation, the election for
the Company not to be governed by
Section 11.75 of the Illinois Business Corporation Act of 1983, the approval of
the 2001 Stock Option Plan and ratification of auditors, a simple majority of
the shares of Common Stock and Class B Common Stock outstanding, voting together
as a class, will be required for approval. Abstentions and withheld votes have
the effect of votes against these matters. Broker non-votes (shares of record
held by a broker for which a proxy is not given) will be counted for purposes of
determining shares outstanding for purposes of a quorum, but will not be counted
as present for purposes of determining the vote on any matter considered at the
meeting.
A shareholder signing and returning a proxy on the enclosed form has the
power to revoke it at any time before the shares subject to it are voted by
notifying the Secretary of the Company in writing. If a shareholder specifies
how the proxy is to be voted with respect to any of the proposals for which a
choice is provided, the proxy will be voted in accordance with such
specifications. If a shareholder fails to so specify with respect to such
proposals, the proxy will be voted "FOR" the nominees for directors contained in
these proxy materials, "FOR" proposal 2, "FOR" for proposal 3, "FOR" proposal 4,
and "FOR" proposal 5.
Stock Ownership by Management and Others
The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock, as of March 23, 2001 by (i)
each stockholder who is known by the Company to be the beneficial owner of more
than 5% of the Company's Common Stock or Class B Common Stock, (ii) each
director and executive officer of the Company who owns any shares of Common
Stock or Class B Common Stock, and (iii) all executive officers and directors as
a group. Except as otherwise indicated, the Company believes that the beneficial
owners of the shares listed below have sole investment and voting power with
respect to such shares.
2
Shares of
Class B Shares of
Common Stock Common Stock
Beneficially Beneficially Percent of
Name and Address(1) Owned(2)(3) Owned(2) Common Stock(4)
- ------------------- ------------ ------------ ---------------
John H. Schwan 109,890 302,688(4) 34.02(5)
Stephen M. Merrick 73,260 296,095(6) 31.87(5)
Howard W. Schwan 54,945 91,463(7) 14.86(5)
Sharon Konny -- 11,000(8) 1.31
Brent Anderson -- 11,400(8) 1.35
Stanley M. Brown -- 6,952(9) *
747 Glenn Avenue
Wheeling, Illinois
Bret Tayne -- 5,837(10) *
6834 N. Kostner Avenue
Lincolnwood, Illinois 60712
Michael Schrimmer -- 102,000 12.12
1161 Lake Cook Road
Suite B
Deerfield, Illinois 60015
Frances Ann Rohlen 91,575 51,170 15.30(5)
c/o Cheshire Partners
1504 Wells
Chicago, Illinois 60610
Philip W. Colburn 36,630 39,422(11) 8.66(5)
All directors and executive 238,095 725,435 56.45(5)
officers as a group (7 persons)
- --------------
*less than one percent
(1) Except as otherwise indicated, the address of each stockholder listed above
is c/o CTI Industries Corporation, 22160 North Pepper Road, Barrington,
Illinois 60010.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the exercise
of any option, warrant or right. Shares of Common Stock subject to options,
warrants or rights that are currently exercisable or
(footnotes continued on next page)
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exercisable within 60 days are deemed outstanding for purposes of computing
the percentage ownership of the person holding such options, warrants or
rights, but are not deemed outstanding for purposes of computing the
percentage ownership of any other person.
(3) Figures below represent all Class B Common Stock outstanding. Beneficial
ownership of shares of Class B Common Stock for Messrs. Merrick, John
Schwan, Howard Schwan and Ms. Rohlen include indirect ownership of such
shares through CTI Investors, L.L.C. See "Certain Transactions."
(4) Includes warrants to purchase up to 20,641 shares of Common Stock at $2.73
per share, warrants to purchase up to 207,346 shares of Common Stock at
$1.688 per share, options to purchase up to 13,333 shares of Common Stock
at $8.25 per share granted under the Company's 1997 Stock Option Plan and
options to purchase up to 20,000 shares of Common Stock at $2.475 per share
granted under the Company's 1999 Stock Option Plan.
(5) Assumes conversion of all shares of Class B Common Stock owned by the named
person or collective into shares of Common Stock.
(6) Includes warrants to purchase up to 24,176 shares of Common Stock at $2.73
per share, warrants to purchase up to 186,612 shares of Common Stock at
$1.688 per share, options to purchase up to 13,333 shares of Common Stock
at $8.25 per share granted under the Company's 1997 Stock Option Plan and
options to purchase up to 20,000 shares of Common Stock at $2.475 per share
granted under the Company's 1999 Stock Option Plan.
(7) Includes warrants to purchase up to 25,641 shares of Common Stock at $2.73
per share, warrants to purchase up to 29,621 shares of Common Stock at
$1.688 per share, options to purchase up to 13,333 shares of Common Stock
at $7.50 per share granted under the Company's 1997 Stock Option Plan and
options to purchase up to 20,000 shares of Common Stock at $2.25 per share
granted under the Company's 1999 Stock Option Plan.
(8) Includes options to purchase up to 4,000 shares of Common Stock at $7.50
per share granted under the Company's 1997 Stock Option Plan and options to
purchase up to 7,000 shares of Common Stock at $2.25 per share granted
under the Company's 1999 Stock Option Plan.
(9) Includes options to purchase up to 1,667 shares of Common Stock at $7.50
per share, options to purchase up to 1,667 shares of Common Stock at $12.00
per share, both granted under the Company's 1997 Stock Option Plan and
options to purchase up to 3,000 shares of Common Stock at $2.25 per share
granted under the Company's 1999 Stock Option Plan.
(10) Includes options to purchase up to 1,667 shares of Common Stock at $7.50
per share granted under the Company's 1997 Stock Option Plan and options to
purchase up to 3,000 shares of Common Stock at $2.25 per share granted
under the Company's 1999 Stock Option Plan.
(11) Includes shares held by immediate family members.
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PROPOSAL ONE - ELECTION OF DIRECTORS
Five directors will be elected at the Annual Meeting to serve for terms of
one year expiring on the date of the Annual Meeting in 2002. Three directors
will be elected by holders of Class B Common Stock, voting separately as a
class, and the remaining two directors will be elected by the holders of the
Common Stock and Class B Common Stock, voting together as a class. Each director
elected will continue in office until a successor has been elected. If a nominee
is unable to serve, which the Board of Directors has no reason to expect, the
persons named in the accompanying proxy intend to vote for the balance of those
named and, if they deem it advisable, for a substitute nominee.
Information Concerning Nominees
The following is information concerning nominees for election as directors
of the Company. Each of such persons is presently a director of the Company.
Class B Common Stock Nominees
John H. Schwan, age 56, Chairman. Mr. Schwan has been an officer and
director of the Company since January, 1996. Mr. Schwan has been the President
and principal executive officer of Packaging Systems and affiliated companies
for over the last 13 years. Mr. Schwan has over 20 years of general management
experience, including manufacturing, marketing and sales. Mr. Schwan served in
the U.S. Army Infantry in Vietnam from 1966 to 1969, where he attained the rank
of First Lieutenant.
Stephen M. Merrick, age 59, Executive Vice President and Secretary. Mr.
Merrick was President of the Company from January, 1996 to June, 1997 when he
became Chief Executive Officer of the Company. In October, 1999, Mr. Merrick
became Executive Vice President. Mr. Merrick is a principal of the law firm of
Merrick & Klimek, P.C. of Chicago, Illinois and has been engaged in the practice
of law for more than 30 years. Mr. Merrick is also Senior Vice President,
Director and a member of the Management Committee of Reliv International, Inc.
(NASDAQ), a manufacturer and direct marketer of nutritional supplements and food
products.
Howard W. Schwan, age 46, President. Mr. Schwan has been associated with
the Company for 18 years, principally in the management of the production and
engineering operations of the Company. Mr. Schwan was appointed as Vice
President of Manufacturing in November, 1990, was appointed as a director in
January, 1996, and was appointed as President in June, 1997.
John H. Schwan and Howard W. Schwan are brothers.
Common Stock and Class B Common Stock Nominees
Stanley M. Brown, age 54, Director. Mr. Brown was appointed as a director
of the Company in January, 1996. Since March, 1996, Mr. Brown has been President
of Inn_Room Systems, Inc., a manufacturer and lessor of in_room vending systems
for hotels. From 1968 to 1989, Mr. Brown was with the United States Navy as a
naval aviator, achieving the rank of Captain.
5
Bret Tayne, age 42, Director. Mr. Tayne was appointed as a director of the
Company in December, 1997. Mr. Tayne has been the President of Everede Tool
Company, a manufacturer of industrial cutting tools, since January, 1992. Prior
to that, Mr. Tayne was Executive Vice President of Unifin, a commercial finance
company, since 1986. Mr. Tayne received a Bachelor of Science degree from Tufts
University and an MBA from Northwestern University.
Executive Officers Other Than Nominees
Sharon Konny, age 42, Manager of Finance and Administration. Ms. Konny has
been Manager of Finance and Administration at the Company since October, 1996.
From November of 1992 to 1996, she was an Assistant Vice President of First
Chicago Corporation, initially as Loan Servicing Manager of the Mortgage
Services Division and in December, 1994, achieving the position of Manager of
Financial Administration for the First Card Division. She became a Certified
Public Accountant in 1992.
Brent Anderson, age 34, Vice President of Manufacturing. Mr. Anderson has
been employed by the Company since January, 1989, and has held a number of
engineering positions with the Company including Plant Engineer and Plant
Manager. In such capacities Mr. Anderson was responsible for the design and
manufacture of much of the Company's manufacturing equipment. Mr. Anderson was
appointed Vice President of Manufacturing in June, 1997.
Committees of the Board of Directors
The Company's Board of Directors has a standing Audit Committee. The
Company has no standing nominating committee.
Audit Committee
Until January 29, 1998, the Company's Board of Directors acted as the Audit
Committee, which is responsible for nominating the Company's independent
accountants for approval by the Board of Directors, reviewing the scope, results
and costs of the audit with the Company's independent accountants, and reviewing
the financial statements, audit practices and internal controls of the Company.
On January 30, 1998, the Board of Directors elected a formal Audit Committee.
The current members are Stanley M. Brown III and Bret Tayne. On June 5, 2000,
the Board of Directors adopted a formal Audit Committee Charter which is
attached as Appendix A. During 2000, the Audit Committee held 1 meeting. Member
attendance at these meetings was 100%.
Report of the Audit Committee. The Audit Committee oversees the
Company's financial reporting process on behalf of the Board of Directors.
Management has the primary responsibility for the financial statements and
the reporting process including the systems of internal controls. In
fulfilling its oversight responsibilities, the Committee reviewed the
audited financial statements in the Annual Report with management including
a discussion of the quality, not just the acceptability, of the accounting
principles, the
6
reasonableness of significant judgments, and the clarity of disclosures in
the financial statements.
The Committee reviewed with the independent auditors, who are
responsible for express an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be
discussed with the Committee under generally accepted auditing standards.
In addition, the Committee has discussed with the independent auditors the
auditor's independence from management and the Company including the
matters in the written disclosures required by the Independence Standards
Board.
The Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The
Committee meets with the Company's internal and independent auditors, with
and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board of Directors (and the Board has
approved) that the audited financial statements be included in the Annual
Report on Form 10-KSB for the year ended December 31, 2000, for filing with
the Securities and Exchange commission. The Committee and the board have
also recommended, subject to shareholder approval, the selection of the
Company's independent auditors.
April 19, 2001
Stanley M. Brown, III, Audit Committee Chair
Bret Tayne, Audit Committee Member
The Board of Directors met 1 time during fiscal 2000. Each director
attended said meeting of the Board of Directors.
Executive Compensation
The following table sets forth certain information with respect to the
compensation paid or accrued by the Company to its President, Chief Executive
Officer and any other officer who received compensation in excess of $100,000
("Named Executive Officers").
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Summary Compensation Table
Long Term
Annual Compensation Compensation
----------------------- ------------------------
Securities All Other
Name and Salary Other Annual Underlying Compensation
Principal Position Year ($) Compensation Options ($)
- ------------------ ---- -------- ------------ ---------- ------------
Howard W. Schwan 2000 $135,000 $ 9,719(1) 20,000(2) $1,650(6)
President 1999 $129,900 $13,675(1) -- $1,650(6)
1998 $135,000 $ 6,145(1) 13,333(3) $1,115(6)
Stephen M. Merrick 2000 $ 75,000 -- 20,000(2) --
Executive 1999 $ 53,750 -- -- --
Vice-President 1998 $ 75,000 -- 13,333(5) --
- -------------------------
(1) Perquisites include country club membership of $5,000 in 1998, $7,360 in
1999 and $3,950 in 2000.
(2) Stock options to purchase up to 20,000 shares of the Company's Common Stock
at $2.25 per share.
(3) Stock options to purchase up to 13,333 shares of the Company's Common Stock
at $7.50 per share.
(4) Stock options to purchase up to 20,000 shares of the Company's Common Stock
at $2.475 per share.
(5) Stock options to purchase up to 13,333 shares of the Company's Common Stock
at $8.25 per share.
(6) Company contribution to the Company 401(k) Plan as pre_tax salary deferral.
Certain Named Executive Officers have received warrants to purchase Common
Stock of the Company in connection with their guarantee of certain bank loans
secured by the Company and in connection with their participation in a private
offering of notes and warrants conducted by the Company. See "Board of Director
Affiliations and Related Transactions" below. Stock option grants were made to
the Company's executive officers in the following amounts in connection with
their employment in the fiscal year ending December 31, 2000.
Option Grants in Last Fiscal Year
Individual Grants
Number of
Securities % of Total Options
Underlying Granted to Employees in Exercise Price
Name Options Granted Fiscal Year ($/share) Expiration Date
---- --------------- ----------------------- -------------- ----------------
Stephen M. Merrick 20,000 20.3% $2.475 3/6/2005
Howard W. Schwan 20,000 20.3% $2.25 3/6/2010
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Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Value Options at In-the-Money Options
Acquired on Realized Year End (#) at Fiscal Year End ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
Stephen M. Merrick 0 0 13,333/0 $0/0(1)
Howard W. Schwan 0 0 13,333/0 $0/0(1)
- -----------------------
(1) The value of unexercised in-the-money options is based on the difference
between the exercise price and the fair market value of the Company's
Common Stock on December 31, 2000.
Employment Agreements
In June, 1997, the Company entered into an Employment Agreement with Howard
W. Schwan as President, which provides for an annual salary of not less than
$135,000. The term of the Agreement is through June 30, 2002. The Agreement
contains covenants of Mr. Schwan with respect to the use of the Company's
confidential information, establishes the Company's right to inventions created
by Mr. Schwan during the term of his employment, and includes a covenant of Mr.
Schwan not to compete with the Company for a period of three years after the
date of termination of the Agreement.
Director Compensation
John Schwan was compensated in the amount of $44,000 in fiscal 2000 for his
services as Chairman of the Board of Directors. Except for John Schwan,
directors received no cash compensation for their services as directors. In
connection with their services as directors, Stanley M. Brown and Bret Tayne
were each compensated with options to purchase up to 3,000 shares of the
Company's Common Stock at an exercise price of $2.25 per share, expiring in
March, 2010, and in connection with his services as Chairman of the Company's
Board of Directors, John Schwan was compensated with options to purchase up to
20,000 shares of the Company's Common Stock at an exercise price of $2.475 per
share, expiring in March, 2005. All options issued to Messrs. Brown, Tayne and
John Schwan in fiscal year 2000 were issued under the Company's 1999 Stock
Option Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and with the NASDAQ Stock Market. Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
9
Based solely on a review of such forms furnished to the Company, or written
representations that no Form 5's were required, the Company believes that during
calendar year 2000, all Section 16(a) filing requirements applicable to the
officers, directors and ten-percent beneficial shareholders were complied with;
except that Mr. John Schwan failed to timely report three transactions on Form 4
for May, 2000 (which transactions were reported on Form 4 in July, 2000).
Board of Directors Affiliations and Related Transactions
In March 1996, the Company entered into a Stock Redemption Agreement with
John C. Davis which was subsequently amended June 27, 1997. Under the amended
Stock Redemption Agreement, the Company was obligated to redeem 34,188 shares of
Common Stock and had the right, but not the obligation, to redeem up to an
additional 76,923 shares of Common Stock owned by Mr. Davis at the price of
$5.85 per share at any time through January 31, 1998. Commencing March 1, 1998
through February 28, 2000, the Company was obligated to pay to Mr. Davis, for
the redemption of shares at $5.85 per share (i) an amount equal to 2% of the
Company's pretax profits each fiscal quarter (beginning with the quarter ended
February 28, 1998) and (ii) an amount equal to 2% (but not to exceed $8,000) of
the amount by which latex and mylar balloon revenues exceed $1.3 million in any
month. The Company's obligations terminate once a total of 111,111 shares of
Common Stock have been redeemed under the Stock Redemption Agreement. The
Company also has the right to redeem additional shares of Common Stock from Mr.
Davis during this period at $5.85 per share, provided that the total number of
shares subject to redemption under the Stock Redemption Agreement does not
exceed 111,111. As of January 1, 2000, 40,444 shares of Common Stock had been
redeemed pursuant to the Stock Redemption Agreement.
In March and May of 1996, a group of investors made an equity investment of
$1,000,000 in the Company in return for 366,300 shares of Preferred Stock, $2.73
par value. Each share of Preferred Stock was entitled to an annual cumulative
dividend of 13% of the purchase price, and was convertible into one share of
Common Stock. The shares of Preferred Stock, voting separately as a class, were
entitled to elect four of the Company's directors. CTI Investors, L.L.C., an
Illinois limited liability company, invested $900,000 in the shares of Preferred
Stock. Members of CTI Investors, L.L.C. include Howard W. Schwan, John H. Schwan
and Stephen M. Merrick, members of management, and Frances Ann Rohlen.
In December, 1996, Howard W. Schwan, John H. Schwan and Stephen M. Merrick
were each issued warrants to purchase 25,641 shares of the Company's Common
Stock at an exercise price of $2.73 per share in consideration of their
facilitating and guaranteeing a bank loan to the Company in the amount of $6.3
million. The warrants have a term of six years. In July, 1998, John H. Schwan
and Stephen M. Merrick exercised 5,000 and 1,465 of these warrants,
respectively.
In June, 1997, the Company issued in a private placement notes in the
principal amount of $865,000, together with warrants to purchase up to 92,415
shares of the Company's Common Stock at an exercise price of $9.36 per share.
The warrants have a term of five years. Howard W. Schwan, John H. Schwan and
Stephen M. Merrick, members of management, and John C. Davis purchased $50,000,
$350,000 and $315,000 and $150,000, respectively, of the notes and warrants. Mr.
John Schwan and Mr. Merrick applied advances of $200,000 each, made to the
Company in January, 1997, toward the purchase of notes and warrants.
10
In June, 1999, Mr. Davis' June, 1997, $150,000 Note was cancelled, and
reissued in the same principal amount with a new maturity date of February 28,
2001. Mr. Davis' June, 1997, warrant to purchase up to 16,026 shares of the
Company's Common Stock at an exercise price of $9.36 per share was cancelled in
September, 1999, and a new warrant to purchase up to 16,026 shares of the
Company's Common Stock at an exercise price of $1.688 per share, with an
expiration date of June 30, 2003 was issued in its place.
In June, 1999, the June, 1997, $50,000 $350,000 and $315,000 notes of
Messrs. H. Schwan, J. Schwan and Merrick, respectively came due. On November 9,
1999, new notes in the same principal amounts were issued to these persons, in
payment and replacement of the prior notes, with maturity dates for each of
November 9, 2001. In November, 1999, the June, 1997, warrants of Messrs. H.
Schwan, J. Schwan and Merrick to purchase up to (respectively) 5,342, 37,393 and
33,653 shares of the Company's Common Stock at an exercise price of $9.36 per
share were cancelled. At that time, new warrants to purchase up to 29,621,
207,346, and 186,612 shares of the Company's Common Stock at an exercise price
of $1.688 per share were issued to Messrs. H. Schwan, J. Schwan and Merrick,
respectively. These warrants expire on November 9, 2004.
Stephen M. Merrick, Executive Vice President of the Company, is a principal
of the law firm of Merrick & Klimek, P.C., which serves as general counsel of
the Company. Mr. Merrick was a principal in the law firm of Fishman, Merrick,
Miller, Genelly, Springer, Klimek & Anderson, P.C., which served as general
counsel to the Company until December 1, 1998. In addition, Mr. Merrick is a
principal stockholder of the Company. Other principals of the firm of Merrick &
Klimek, P.C. own less than 1% of the Company's outstanding Common Stock. Legal
fees paid to the firm of Fishman, Merrick, Miller, Genelly, Springer, Klimek &
Anderson, P.C. were $10,380 and $-0- for the fiscal years ended October 31,
1999, and December 31, 2000. Legal fees incurred from the firm of Merrick &
Klimek, P.C. for the fiscal years ended October 31, 1999, and December 31, 2000
were $90,634 and $124,308, respectively. Mr. Merrick is also an officer and
director of Reliv International, Inc. (NASDAQ-RELV).
John H. Schwan is President of Packaging Systems and affiliated companies.
The Company made purchases of packaging materials from these entities in the
amount of $251,203 and $235,299 during each of the years ended October 31, 1999,
and December 31, 2000, respectively.
The Company believes that each of the transactions set forth above were
entered into, and any future related party transactions will be entered into, on
terms as fair as those obtainable from independent third parties. All related
party transactions, including loans and forgiveness of debt, must be approved by
a majority of disinterested directors.
PROPOSAL TWO - REINCORPORATION OF THE COMPANY IN THE STATE OF ILLINOIS
The Company's Board of Directors has unanimously approved the
reincorporation of the Company in the State of Illinois. Through the
reincorporation, the state of incorporation of CTI Industries Corporation would
be changed from Delaware to Illinois.
11
To accomplish the proposed change in the state of incorporation (the
"Reincorporation Proposal") the Board of Directors has unanimously adopted a
Certificate of Ownership and Merger (the "Merger Agreement"), a copy of which is
attached as Appendix B to this Proxy Statement, providing for the merger of the
Company into a wholly-owned subsidiary of the Company that will be formed
pursuant to the Illinois Business Corporation Act (the "ILBCA") for this
purpose. The name of the Company after the merger will not be changed. For the
sake of clarity in the discussion of this Proposal Two, the Company before the
merger is sometimes referred to as "CTI Delaware" and the Company after the
merger is sometimes referred to as "CTI Illinois."
If the Reincorporation Proposal is approved by the shareholders, when the
merger is completed, the Company will have new Articles of Incorporation and
by-laws and will be governed by Illinois law. The foregoing will, in general,
result in certain changes in the rights of shareholders of the Company.
The same individuals are presently directors of both CTI Delaware and the
new Illinois subsidiary, and there will be no change in directors as a result of
the reincorporation.
The Reincorporation Proposal will not result in any change in the business
or management of the Company, nor will it change the Company's name or the
location of its principal executive offices. The Common Stock of CTI Industries
Corporation is listed on The Nasdaq SmallCap Market, and application will be
made to list the CTI Illinois Common Stock on the NASDAQ SmallCap Stock Market.
Following the merger, each share of Common Stock of CTI Delaware, $.195 par
value will automatically be converted into one share of CTI Illinois Common
Stock, no par value per share, and each share of Class B Common Stock, par value
$2.73 per share, will automatically be converted into one share of CTI Illinois
Class B Common Stock, no par value per share. CTI Delaware Common and Class B
Stock certificates will be deemed automatically to represent an equal number of
shares of CTI Illinois Common and Class B Common Stock, as the case may be.
Following the reincorporation, previously outstanding CTI Delaware Common Stock
certificates may be delivered in effecting sales through a broker, or otherwise,
of shares of CTI Illinois Common Stock. IT WILL NOT BE NECESSARY FOR
SHAREHOLDERS OF THE COMPANY TO EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR
STOCK CERTIFICATES OF CTI ILLINOIS.
If consented to by the Company's shareholders, it is anticipated that the
merger will be completed as soon as practicable after such consent. However, the
merger may be abandoned, and the Merger Agreement may be amended, either before
or after shareholder consent if circumstances arise which, in the opinion of the
Board of Directors, make such action advisable, although subsequent to
shareholder consent none of the principal terms may be amended without further
shareholder approval.
No Federal or state regulatory requirements must be complied with or
approval must be obtained in connection with the Reincorporation Proposal other
than Federal securities and state blue sky laws.
12
Reasons for the Reincorporation Proposal
For many years Illinois has followed a policy of encouraging incorporation
in that state, and, in furtherance of that policy, has adopted comprehensive,
modern and flexible corporate laws which are updated and revised periodically to
meet changing business needs. Illinois courts have developed considerable
expertise in dealing with corporate issues, and a substantial body of case law
has developed construing Illinois law and establishing public policies with
respect to Illinois corporations. The Board of Directors believes that Illinois
provides strong predictability with respect to corporate legal affairs and
allows a corporation to be managed more efficiently.
Further, since the Company's principal offices have been located in the
State of Illinois for over twenty years, it has paid a significant amount of
money in corporate franchise taxes in Illinois as well as Delaware. The Board of
Directors thus believes that the reincorporation of the Company in Illinois will
provide significant savings to the Company by eliminating the need to pay
substantial and increasing franchise taxes in the State of Delaware.
Certain Changes in the Company's Articles of Incorporation and By-Laws to be
Made by Reincorporation
The following discussion summarizes the material differences between the
Third Restated Certificate of Incorporation and by-laws of CTI Delaware and the
Articles of Incorporation and by-laws of CTI Illinois. Copies of the Articles of
Incorporation and by-laws of CTI Illinois are attached as Appendix C and
Appendix D, respectively, to this Proxy Statement and all statements herein
concerning such documents are qualified by reference to the exact provisions
thereof. If the Reincorporation Proposal is approved and the merger under the
Merger Agreement is accomplished, the shareholders of the Company will become
subject to the Articles of Incorporation and by-laws of CTI Illinois.
Vote Required for Routine Shareholder Action. The By-Laws of CTI Delaware
provide that acts of shareholders may be taken by a majority of the votes cast
on the matter where a quorum (a majority of the outstanding shares) is present.
The ILBCA and CTI Illinois' by-laws, in contrast, provide that such acts may be
taken by a majority of the shares represented in person or by proxy (rather than
a majority of the votes cast on the matter) at any meeting of shareholders at
which a quorum (a majority of the outstanding shares) is present. Thus, if the
Reincorporation Proposal is approved by the shareholders and the merger is
consummated, it would only be possible for the shareholders of CTI Illinois to
take such types of corporate action with a greater number votes than are
required by CTI Delaware.
Preferred Stock. Under both Illinois and Delaware law, a corporation may
have an authorized class of preferred stock, the rights of which may be
established by the directors without shareholder approval. CTI Illinois will
adopt a provision in its Articles of Incorporation whereby 2,000,000 shares of
Preferred Stock (the "Preferred Stock") will be authorized for issuance in the
discretion of the Board of Directors without further stockholder action. Such
additional shares will be issuable for proper corporate purpose, such as for
future financing and acquisition transactions. The Board of Directors of the
Company believes it to be in the best interests of the Company to
13
authorize the issuance of said Preferred Stock to ensure that an ample number of
such shares are available for issuance if such issuance becomes desirable.
The 2,000,000 shares of Preferred Stock of CTI Illinois may be issued in
one or more series at such time or times and for such consideration as shall be
authorized from time to time by the Board of Directors. The Board of Directors
will be authorized to fix the designation of each series of Preferred Stock and
the relative rights, preferences, limitations, qualifications, powers or
restrictions thereof, including the number of shares comprising each series, the
dividend rates, redemption rights, rights upon voluntary or involuntary
liquidation, provisions with respect to a retirement or sinking fund, conversion
rights, voting rights, if any, preemptive rights, other preferences,
qualifications, limitations, restrictions and the special or relative rights of
each series not inconsistent with the provisions of the Articles of
Incorporation. The Company's Board of Directors has no present plans to
designate or issue any shares of Preferred Stock.
Pre-emptive Rights. Under Illinois law and Delaware law shareholders do not
have pre-emptive rights to subscribe for additional shares, except to the extent
provided in the Company's Articles or Certificate of Incorporation. Neither the
Articles of Incorporation of CTI Illinois nor the charter of CTI Delaware grants
pre-emptive rights to shareholders.
Conversion Rights. Under Illinois and Delaware law, shareholders do not
have the right to convert one class of capital stock for another class of
capital stock, except to the extent provided in the Company's Articles or
Certificate of Incorporation, as the case may be. The Certificate of
Incorporation of CTI Delaware provides that Class B Common stockholders may at
any time convert some or all of their shares of Class B Common Stock into an
equal number of shares of Common Stock of CTI Delaware. The Articles of
Incorporation of CTI Illinois provide an identical provision that Class B Common
stockholders may at any time convert some or all of their shares of Class B
Common Stock into an equal number of shares of Common Stock of CTI Illinois. The
Articles and Certificate of Incorporation of CTI Illinois and CTI Delaware,
respectively, provide that in any event, all outstanding shares of Class B
Common Stock shall be automatically converted into shares of Common Stock upon
the conversion terms then in effect on July 1, 2002.
Indemnification. Under Illinois law and Delaware law a corporation may
indemnify directors and officers who are or are threatened to be made parties to
civil, criminal, administrative or investigative proceedings by reason of the
fact that such person was a director or officer of the corporation against
expenses, judgments, fines and amounts paid in settlement if such person acted
in good faith and in a manner reasonably believed to be in, or not opposed to,
the best interests of the corporation and with respect to criminal proceedings
had no reasonable cause to believe that the conduct was unlawful. Both statutes
provide that they shall not be deemed to be exclusive of any rights to which a
person seeking indemnification may be entitled under any by-law, agreement, vote
of shareholders or disinterested directors or otherwise. Both statutes provide
that a corporation may purchase insurance on behalf of any director or officer
against liability incurred by such person in such capacity whether or not the
corporation would have power to indemnify such person against such liability
under the statute. Under Illinois law, expenses incurred by a director or
officer in defending a proceeding may be advanced by the corporation prior to
final disposition of the matter if such person undertakes to repay such amount
unless it shall be ultimately determined that such person is entitled to be
indemnified by the corporation pursuant to the statute. Under Delaware law,
expenses incurred by a director or officer in defending a proceeding may be
advanced by the corporation prior to final disposition of the matter if such
person undertakes to repay such amount if it shall ultimately be determined that
such
14
person is not entitled to be indemnified by the corporation pursuant to the
statute. The By-Laws of CTI Illinois and the Articles of Incorporation of CTI
Illinois provide for the indemnification of directors and officers in accordance
with the foregoing statutory provisions. Under Illinois law, a corporation is
required to notify its shareholders when indemnity has been paid or expenses
advanced. There is no similar provision under Delaware law.
Personal Liability of Directors. Both Illinois and Delaware law permit a
corporation to have in its articles or certificate of incorporation a provision
which limits or eliminates the personal liability of directors to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, subject to certain exceptions. CTI Delaware currently has
such a provision in effect and, if the reincorporation is accomplished, CTI
Illinois will have such a provision in its new Articles of Incorporation. The
Company believes that such a provision permits directors to make corporate
decisions on the merits, free from any desire to avoid the risk of personal
liability. Such provisions under Illinois and Delaware law have no effect upon
any liability that a director may have to shareholders under Federal securities
laws or upon the availability to shareholders of equitable remedies.
Removal of Directors. Under both Delaware and Illinois law, directors may
be removed with or without cause by the vote of the holders of a majority of the
outstanding shares.
Filling Vacancies on Board of Directors. As permitted by both Delaware and
Illinois law, the By-Laws of CTI Illinois and the By-Laws of CTI Delaware
provide that vacancies in the Board of Directors may be filled by the remaining
directors. A director so appointed would, however, serve only until the next
meeting of shareholders at which directors are to be elected.
Cumulative Voting in Election of Directors. Cumulative voting gives
shareholders the right to cast as many votes as are equal to the number of
directors to be elected times the number of shares held, which votes may be
allocated among the candidates or voted for one candidate, as the holder
desires. As a result, shareholders holding a significant percentage of the
outstanding shares entitled to vote in the election of directors may be able to
assure the election of one or more directors. Without cumulative voting, holders
of a substantial number of the shares of Common Stock may not have enough voting
power to elect any directors. Under Delaware law, shareholders of a corporation
will only have cumulative voting rights if the corporation adopts or "opts into"
those rights in its Certificate of Incorporation. Under Illinois law,
shareholders of a corporation automatically have cumulative voting rights unless
the corporation declines or affirmatively "opts out" of cumulative voting rights
in its Articles of Incorporation. CTI Illinois has "opted out" of cumulative
voting rights in its Articles of Incorporation (See Appendix C to this Proxy
Statement). Thus, the effect of reincorporation would be that shareholders of
the surviving corporation (CTI Illinois) would not posses cumulative voting
rights with respect to the election of directors, just as the shareholders of
CTI Delaware do not currently posses cumulative voting rights with respect to
the election of directors.
15
Vote Required for Extraordinary Events. Under Illinois law, the affirmative
vote of the holders of at least two-thirds of outstanding shares entitled to
vote is required in order to approve mergers, consolidations, mandatory share
exchanges, sales of substantially all assets and amendments to a corporation's
Articles of Incorporation, unless the Articles of Incorporation supersede that
requirement by specifying a smaller or larger vote requirement. Under Delaware
law the affirmative vote of the holders of a majority of outstanding shares
entitled to vote is required in order to approve such transactions, unless the
Certificate of Incorporation provides for a larger vote requirement. CTI
Illinois' Articles of Incorporation will specify a simple majority vote
requirement for approval of such acts. CTI Delaware's Certificate of
Incorporation does not specify a larger than majority vote. As a result, such
acts will be subject to the same vote requirement in Illinois after the
Reincorporation.
Call of Special Meetings by Shareholders. The ILBCA and the by-laws of CTI
Illinois will permit special meetings of shareholders to be called by the
president, the Board of Directors or the holders of at least one-fifth of all of
the outstanding shares entitled to vote on the matter for which the meeting is
called. Delaware General Corporation Law ("DGCL") provides that special meetings
of shareholders may be called by the board of directors or such other persons as
may be designated by the certificate of incorporation or by the by-laws. Since
neither the Certificate of Incorporation nor the By-Laws of CTI Delaware
presently contain a provision permitting the shareholders to call a special
meeting, if the Reincorporation Proposal is consummated, the shareholders of CTI
Illinois will have the authority to call a special meeting of shareholders.
Shareholders Dissenter's Rights. Under DGCL, shareholders will be entitled
to dissenter's rights in a merger or consolidation involving the Company except
that DGCL does not provide for dissenter's rights: (i) for shares which are
either listed on a national securities exchange or widely held (by more than
2,000 shareholders) if the shareholders receive only shares of the surviving
corporation, shares of a listed or widely held corporation, or cash in lieu of
fractional shares, (ii) to shareholders of a corporation surviving certain types
of mergers when no vote of such shareholders is required to approve the merger,
or (iii) with respect to a merger of a parent corporation and a subsidiary of
the parent corporation, except that the shareholders of the subsidiary
corporation shall have appraisal rights in the event the parent corporation does
not own all of the shares of the subsidiary corporation. Shareholders of CTI
Delaware shall not have dissenters' rights with respect to this proposal for
reincorporation.
The ILBCA permits shareholders to dissent and receive payment for their
shares with respect to: (i) the consummation of a plan of merger, consolidation
or share exchange that requires shareholder approval or involves the merger of
that corporation into its parent corporation or into another subsidiary
corporation of its parent corporation; (ii) the consummation of a sale, lease or
exchange of all or substantially all of a corporation's property and assets
other than in the ordinary course of business; or (iii) an amendment to a
corporation's articles of incorporation that materially and adversely affects a
shareholder's rights because it alters or abolishes preferential or redemption
rights. The Company's shareholders would therefore be entitled to exercise
certain dissenter's rights in the event a Reincorporation Proposal such as the
one proposed were approved by its shareholders. Thus, if the Reincorporation
Proposal is consummated, dissenter's rights available to the
16
shareholders of the Company will be more expansive under Illinois law than they
presently are under Delaware law.
Federal Income Tax Consequences of the Reincorporation
Although it has not received an opinion of legal counsel with respect to
the tax effects of the merger under the Merger Agreement, the Company believes
that, for Federal income tax purposes, the merger will constitute a
reorganization under the Internal Revenue Code of 1986, as amended, and that no
gain or loss will be recognized by holders of the Common Stock as a result of
the merger. Each shareholder of CTI Illinois will have the same tax basis in his
CTI Illinois Common Stock as the shareholder had in CTI Delaware Common Stock
held by the shareholder immediately prior to the effective time of the merger
under the Merger Agreement, and the holding period of the CTI Illinois Common
Stock will include the period during which the shareholder held CTI Delaware
Common Stock, provided that such CTI Delaware Common Stock was held by the
shareholder as a capital asset at the effective time of the merger.
The foregoing is only a general description of certain of the Federal
income tax consequences of the merger to shareholders, without regard to the
particular facts and circumstances of each shareholder's tax situation. State,
local or foreign income tax consequences to shareholders may vary from the
Federal tax consequences described above. Accordingly, shareholders are urged to
consult their own tax advisors with respect to the Federal, state, local and
foreign tax consequences of the merger to them.
The Company also believes that it will not recognize gain, loss or income
for Federal income tax purposes as a result of the merger under the Merger
Agreement, and that CTI Illinois generally will succeed, without adjustment, to
the tax attributes of CTI Delaware as specified in Section 381(c) of the
Internal Revenue Code of 1986, as amended.
The Company is currently subject to an annual franchise tax in Illinois and
Delaware. If the Reincorporation Proposal is approved and the merger is
accomplished under the Merger Agreement, the Company will continue to be subject
to an annual franchise tax in Illinois, but the requirement that the Company pay
annual Delaware franchise taxes will be eliminated.
Vote Required
Adoption of the Reincorporation Proposal requires the written consent of a
majority of the total number of outstanding voting shares. Consent to the
Reincorporation Proposal by the shareholders will constitute approval of the
Merger Agreement by the shareholders as well as the new Articles of
Incorporation of CTI Illinois.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS CONSENT TO THE ADOPTION
OF THE REINCORPORATION PROPOSAL.
17
PROPOSAL THREE - APPROVAL OF AN ELECTION NOT TO BE GOVERNED BY ILBCA SECTION
11.75 - BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS
Delaware and Illinois each have an anti-takeover law that is similar in
concept and which prevents an "interested shareholder" (defined as a holder who
acquires 15% or more of a target company's stock) from entering into a business
combination with the target company within three years after the date said
shareholder acquired such stock (ILBCA Section 11.75 "Business Combinations with
Interested Shareholders"). However, a business combination is permitted (i) if
prior to the date the shareholder became an interested shareholder, the board of
directors of the target company approved either the business combination or such
acquisition of stock, (ii) if at the time the interested shareholder acquired
such 15% interest, it acquired 85% or more of the outstanding stock of the
corporation, excluding shares held by directors who are also officers and shares
held under certain employee stock plans or (iii) if the business combination is
approved by the target company's board of directors and two-thirds of the
outstanding shares voting at an annual or special meeting of shareholders,
excluding shares held by the interested shareholder. This provision applies
automatically except in the case of corporations with less than 2,000
shareholders of record and without voting stock listed on a national exchange or
authorized for quotation on the NASDAQ Stock Market. Additional exceptions allow
corporations, in certain instances, to adopt charters or by-laws that elect not
to be governed by these provisions.
The Company's Board of Directors believes that Section 11.75 of the ILBCA
will place an undue burden on the Company's management to seek supermajority
shareholder approval for transactions that were not subject to the same
limitations or restrictions under Delaware's interested shareholder statute. The
Company's Board of Directors has accordingly approved of and recommends that the
Company's shareholders likewise approve of the opting out of the applicability
of Section 11.75 of the ILBCA in CTI Illinois' Articles of Incorporation. Thus,
if the merger proposed in Proposal Two to this Proxy Statement is consummated,
and shareholders of the Company approve this Proposal Three, the Company's Board
of Directors shall place in CTI Illinois' Articles of Incorporation a provision
stating that the Company has elected not to be governed by Section 11.75 of the
ILBCA (See Appendix C), and the Company will not have the protection of such
provision. If this Proposal Three is not approved by the shareholders and the
merger described in Proposal Two is consummated, the provisions of CTI Illinois'
Articles of Incorporation electing not to be governed by Section 11.75 of the
ILBCA will be stricken.
Vote Required for Approval of Election Not to Be Governed by Section 11.75
of the ILBCA in the Event of A Merger Pursuant to Proposal Two.
The Company's Board of Directors has approved an amendment to the Company's
Illinois Articles of Incorporation (assuming a merger of CTI Illinois and CTI
Delaware) electing not to be governed by Section 11.75 of the ILBCA. However,
the amendment will not be adopted and included in CTI Illinois' Articles of
Incorporation unless the holders of at least a majority of the Company's total
outstanding voting shares present or represented at the meeting and entitled to
vote thereon vote "FOR" approval of the amendment.
18
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" SUCH AMENDMENT TO THE
POST-MERGER ARTICLES OF INCORPORATION OF THE COMPANY.
PROPOSAL FOUR - APPROVAL OF THE 2001 STOCK OPTION PLAN
General
In the opinion of the Board of Directors, the Company and its stockholders
will benefit substantially from having certain officers and key employees
acquire shares of the Company's Common Stock pursuant to options granted under
the Company's 2001 Stock Option Plan. Such options, in the opinion of the Board,
will be a highly effective incentive, and will create a commonality of purpose
between the Company's officers and key employees and its shareholders with
respect to the Company's strategies for profitable growth and share-value
appreciation. In the opinion of the Board, the Company's ability to provide
these stock options to its officers and other key employees in the future will
benefit the Company's long-term financial performance. In addition, the Board
believes the interests of the Company would be served if options could be
granted to consultants, advisors and other individuals who can contribute to the
success of the Company's business. The Board of Directors have previously
adopted after shareholder approval, the Company's 1999 Stock Option Plan.
Virtually all of the 133,333 shares of Common Stock that were authorized for
issuance under that plan have been exhausted. Accordingly, the Board of
Directors believes it is in the Company's best interests to adopt a new stock
option plan which, if adopted, will authorize the Company to award stock options
to its officers and other key employees and permit the Company to offer options
pursuant to the Plan to certain consultants and advisors.
The Plan and Participants
On April 12, 2001, the Board of Directors approved for adoption, the 2001
Stock Option Plan (the "Plan") which enables the Company to grant "incentive
stock options," as defined under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-qualified stock options. The Plan
authorizes the grant of options to purchase up to an aggregate of 100,000 shares
of the Company's Common Stock, to (i) officers and other employees of the
Company and its subsidiaries and (ii) consultants and advisors who render bona
fide services to the Company and its subsidiaries, in each case, where the
Committee determines that such officer, employee, consultant or advisor has the
capacity to make a substantial contribution to the success of the Company. As
used herein with respect to the Plan, references to the Company include
subsidiaries of the Company.
The purposes of the Plan are to enable the Company to attract and retain
persons of ability as officers and other key employees with managerial,
professional or supervisory responsibilities, to retain able consultants and
advisors, and to motivate such persons to use their best efforts on behalf of
the Company by providing them with an equity participation in the Company. The
full text of the Plan is set forth in Appendix E hereto, and the following
description is qualified in its entirety by reference to Appendix E.
The Plan will be administered by the Committee, which will be appointed by
the Company's Board of Directors and must consist of two or more members of the
Board of Directors, each of whom must be a "non-employee" within the meaning of
Rule 16b-3 under the Securities Exchange
19
Act of 1934. Under the terms of the Plan, the Committee will have the authority
to determine, subject to the terms and conditions of the Plan, and the persons
to whom options are granted, the number of options granted to each optionee and
the terms and conditions of each option, including its duration.
The Plan can be amended, suspended, reinstated or terminated by the Board
of Directors; provided, however, that without approval of the Company's
shareholders, no amendment shall be made which (i) increases the maximum number
of shares of Common Stock which may be subject to stock options granted under
the Plan, except for specified adjustment provisions, (ii) extends the term of
the Plan (iii) increases the period during which a stock option may be exercised
beyond ten years from the date of the grant, (iv) materially increases the
benefits accruing to optionees under the Plan, (v) materially modifies the
requirements as to eligibility for participation in the Plan or (vi) will cause
stock options granted under the Plan to fail to meet the requirements of Rule
16(b)-3. Unless previously terminated by the Board of Directors, the Plan will
terminate on June 1, 2011, and no additional options may be granted under the
Plan after that date.
Options Terms and Grants
Stock options may be granted to purchase Common Stock under the Plan at not
less than the fair market value of the shares as of the date of grant (or 110%
of fair market value in the case of incentive stock options granted to any
officer or employee holding in excess of 10% of the combined voting power of all
classes of the Company's stock as of the date of grant). No optionee may be
granted incentive stock options under the Plan to purchase Common Stock having a
fair market value (determined as of the date of grant) which exceeds $100,000
with respect to incentive stock options which are exercisable for the first time
by such optionee in any calendar year, under all stock option plans of the
Company as of the date of grant. The maximum number of shares for which options
may be issued to an employee of the Company during any calendar year may not
exceed 100,000. Other than the limitations set forth above, there is no
limitation on the number of non-qualified stock options which may be granted to
any optionee pursuant to the Plan.
Incentive stock options may be granted for a term of up to five years in
the case of optionees who own in excess of 10% of the combined voting power of
all classes of the Company's stock and up to ten years, in the Committee's sole
discretion, in the case of all other optionees. Non-qualified stock options may
be granted for a term of up to ten years.
The Plan provides that if a stock option or portion thereof expires or is
terminated, cancelled or surrendered for any reason without being exercised in
full, the unpurchased shares of Common Stock which were subject to such stock
option or portion thereof shall be available for future grants of stock options
under the Plan.
Pursuant to the terms of the Plan, the option price for all options must be
paid in cash, by check, bank draft or money order, with Common Stock of the
Company owned by the optionee and having a fair market value on the date of
exercise equal to the aggregate exercise price of the shares to be so purchased,
or a combination thereof.
As of the date hereof, no options have been granted pursuant to the Plan.
20
Options granted pursuant to the Plan will not be assignable or transferable
except by will or the laws on intestate succession. Options acquired pursuant to
the Plan may be exercised by the optionee (or the optionee's legal
representative) only while the optionee is employed by the Company, or within
six months after termination of employment due to a permanent disability, or
within three months after termination of employment due to retirement. The
executor or administrator of a deceased optionee's estate or the person or
persons to whom the deceased optionee's rights thereunder have passed by will or
by the laws of descent or distribution shall be entitled to exercise the option
within the sixth months after the decedent's death. Options expire immediately
in the event an optionee is terminated with or without cause or resigns;
provided, however, in the event the Company terminates the employment of an
optionee who at the time of such termination was an officer of the Company and
had been continuously employed by the Company during the two year period
immediately preceding such termination, for any reason except "good cause" (as
defined in the Plan), each stock option held by such optionee (which had not
then previously lapsed or terminated and which had been held by such optionee
for more than six (6) months prior to such termination) shall be exercisable for
a period of three months after such termination to the extent otherwise
exercisable during that period. All of the aforementioned exercise periods set
forth in this paragraph are subject to the further limitation that an option
shall not, in any case, be exercisable beyond its stated expiration date.
The purchase price and the number and kind of shares that may be purchased
upon exercise of options granted pursuant to the Plan, and the number of shares
which may be granted pursuant to the Plan, are subject to adjustment in certain
events, including stock splits, recapitalization and reorganizations.
Federal Tax Aspects of the Plan
Set forth below is a general summary of the Federal income tax consequences
associated with the Plan.
An employee will not be deemed to have received income upon the grant of an
incentive stock option or, except as noted below, upon the exercise of such
option. Unless Shares acquired upon exercise are disposed of within two years of
the date of grant or within one year of exercise, upon the sale of such Shares,
the optionee will generally recognize capital gain or loss measured by the
difference between the amount realized on the sale and the price paid for the
Shares. If a sale is made prior to either of such dates, an optionee's gain on
the sale of the Shares will be treated as ordinary income to the extent of the
lesser of the excess of the fair market value of the Shares at the time of
exercise over the option price and the excess of the amount realized on the sale
of stock over the option price. The Company will be allowed a deduction at the
time of sale in the amount of ordinary income recognized by the optionee. The
balance of any gain realized will be treated as long-term or short-term capital
gain depending upon the length of time the Shares were held by the optionee.
Generally, the excess of the fair market value of an incentive stock option
at the time of exercise (or, if the stock subject to the option is restricted
within the meaning of Code Section 83, at such time as the Shares become
transferable or are not longer subject to a substantial risk of forfeiture) over
the option price constitutes an item of tax preference for purposes of
calculating
21
"alternative minimum taxable income" and may result in imposition of the
"alternative minimum tax" for the participant pursuant to Section 55 of the
Code.
Non-qualified options granted under the Plan are not intended to qualify
for the favorable Federal income tax treatment accorded to incentive stock
options under the Plan. An optionee should not recognize any income for Federal
income tax purposes at the time of the grant of non-qualified options under the
Plan. When non-qualified options are exercised, however, the excess of the fair
market value of the shares of Common Stock acquired pursuant to such exercise,
determined at the time of exercise, over the option price will constitute
ordinary income to the optionee. Subject to applicable limitations, the Company
is entitled to a corresponding income tax deduction equal to the amount of such
ordinary income for the taxable year in which the optionee is required to
recognize such income for Federal income tax purposes.
Vote Required for Approval of the Plan
The Company's Board of Directors has approved the Plan. However, the Plan
will not be adopted unless the holders of at least a majority of the Company's
outstanding voting shares of present or represented at the meeting and entitled
to vote thereon vote "FOR" approval of the plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PLAN.
PROPOSAL FIVE - SELECTION OF AUDITORS
Grant Thornton, L.L.P.
Effective July 27, 1999, the Company engaged Grant Thornton L.L.P. as the
Company's principal accountants to audit the Company's financial statements for
the year ending October 31, 1999. Grant Thornton L.L.P. replaced
PricewaterhouseCoopers L.L.P. ("PwC") who had previously been engaged for the
same purpose, and whose dismissal was effective July 27, 1999. The decision to
change the Company's principal accountants was approved by the Company's Board
of Directors on July 23, 1999.
The reports of PwC on the Company's financial statements for the two fiscal
years ended October 31, 1997, and October 31, 1998 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope, or accounting principles.
During the Company's two fiscal years ended October 31, 1997, and October
31, 1998, and in the subsequent interim periods through July 27, 1999, there
were no disagreements with PwC on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PwC, would have caused it
to make reference to the subject matter of the disagreements in connection with
its reports on the financial statements for such periods.
22
PwC did not inform the Company of any reportable events during the
Company's fiscal years ended October 31, 1997, and October 31, 1998, and in
subsequent interim periods through July 27, 1999.
Audit and Other Fees
Subject to ratification by the shareholders, the Board of Directors has
reappointed Grant Thornton, L.L.P. as independent auditors to audit the
financial statement of the Company for the current fiscal year. Aggregate fees
billed to date for the last annual audit were $89,686.00 and all other fees
billed to date were $99,019.00 including audit related services of $99,019.00
and nonaudit services of $0. Audit related services generally include fees for
pension and statutory audits, business acquisitions, accounting consultants,
internal audit and SEC registration statements.
The Board of Directors have selected and approved Grant Thornton, L.L.P. as
the principal independent auditor to audit the financial statements of the
Company for 2001, subject to ratification by the shareholders. It is expected
that a representative of the firm of Grant Thornton, L.L.P. will be present at
the annual meeting and will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" SUCH
RATIFICATION.
Stockholder Proposals for 2002 Proxy Statement
Proposals by shareholders for inclusion in the Company's Proxy Statement
and form of proxy relating to the 2002 Annual Meeting of Stockholders, which is
tentatively scheduled to be held on May 26, 2002, should be addressed to the
Secretary, CTI Industries Corporation, 22160 North Pepper Road, Barrington,
Illinois 60010, and must be received at such address no later than December 31,
2001. Upon receipt of any such proposal, the Company will determine whether or
not to include such proposal in the Proxy Statement and proxy in accordance with
applicable law. It is suggested that such proposal be forwarded by certified
mail, return receipt requested.
Other Matters to Be Acted Upon at the Meeting
The management of the Company knows of no other matters to be presented at
the meeting. Should any other matter requiring a vote of the shareholders arise
at the meeting, the persons named in the proxy will vote the proxies in
accordance with their best judgment.
BY ORDER OF THE
BOARD OF DIRECTORS
Dated: May 14, 2001 /s/ Stephen M. Merrick
------------------------------------
Stephen M. Merrick, Secretary
23
APPENDIX A
AUDIT COMMITTEE CHARTER
OF CTI INDUSTRIES CORPORATION
1. Organization
There shall be a committee of the Board of Directors of CTI Industries
Corporation (the "Corporation") to be known as the Audit Committee. This charter
(the "Charter") shall govern the operations of the Audit Committee. The
Committee shall review and reassess the adequacy of this Charter at least
annually, and shall submit any revisions to this Charter to the Board of
Directors for their approval. The Audit Committee shall be composed of at least
two directors who are independent of the management of the Corporation. A
director shall be deemed independent if he is free of any relationship that, in
the opinion of the Board of Directors, would interfere with exercise of
independent judgment as a Committee member. To ensure that an audit committee
member satisfies the definition of "independent" according to Nasdaq's SmallCap
Marketplace rules, an Audit Committee member may not:
o have been employed by the Corporation or its affiliates in the current or
past three years;
o have accepted any compensation from the Corporation or its affiliates in
excess of $60,000 during the previous fiscal year (except for board
service, retirement plan benefits, or non-discretionary compensation);
o have an immediate family member who is, or has been in the past three
years, employed by the Corporation or its affiliates as an executive
officer;
o have been a partner, controlling shareholder or an executive officer of any
for-profit business to which the Corporation made, or from which it
received, payments (other than those which arise solely from investments in
the Corporation's securities) that exceed five percent of the
organization's consolidated gross revenues for that year, or $200,000,
whichever is more, in any of the past three years; or
o have been employed as an executive of another entity where any of the
Corporation's executives serve on that entity's compensation committee.
All Audit Committee members shall be able to read and understand fundamental
financial statements, including but not limited to balance sheets, income
statements and cash flow statements. At least one Audit Committee member shall
have past employment experience in finance or accounting, a requisite
professional certification in accounting, or other comparable experience or
background which results in said director's sophistication in financial matters.
A-1
2. Statement of Policy
The Audit Committee shall provide assistance to the Corporation's directors
in fulfilling their responsibility to the shareholders, potential shareholders,
and investment community relating to corporate accounting and financial
reporting practices of the Corporation, and the quality and integrity of the
financial reports of the Corporation. In so doing, it is the responsibility of
the Audit Committee to maintain free and open means of communication between the
directors, the independent auditors, the internal auditors, and the financial
management of the Corporation. In discharging its oversight role, the Committee
is empowered to investigate any matter brought to its attention with full access
to all books, records, facilities, and counsel or other experts for this
purpose.
3. Responsibilities and Processes
The primary responsibility of the Audit Committee is to oversee the
Corporation's financial reporting process on behalf of the Board and report the
results of their activities to the Board. Management is responsible for
preparing the Corporation's financial statements, and the independent auditors
are responsible for auditing those financial statements. In carrying out its
responsibilities, the Audit Committee believes its policies and procedures
should remain flexible, in order to best react to changing conditions and to
ensure to the directors and shareholders that the corporate accounting and
reporting practices of the Corporation are in accordance with all applicable
requirements and are of the highest quality.
In carrying out these responsibilities, the Audit Committee will:
3.1 Provide an open avenue of communication between the independent
auditor, the internal auditor, management and the Board of Directors. The
Committee shall have a clear understanding with management and the independent
auditors that the independent auditors are ultimately accountable to the Board
and the Audit Committee.
3.2 Meet at least one time per year or more frequently as circumstances
require. The Audit Committee may ask members of management or others to attend
meetings and provide pertinent information as necessary.
3.3 Review and recommend to the Directors the independent auditors to be
selected to audit the financial statements of the corporation, and approve the
compensation of the independent auditors. The Committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate, replace the
independent auditors (or to nominate the independent auditor to be proposed for
shareholder approval in any proxy statement).
3.4 Review and concur in the appointment, replacement, reassignment or
dismissal of the internal auditor.
A-2
3.5 Confirm and assure the independence of the independent auditors. The
Audit Committee has the responsibility for ensuring its receipt from the
independent auditors of a formal written statement delineating all relationships
between the auditors and the Corporation. The Audit Committee also has the
responsibility for actively engaging in a dialogue with the independent auditors
with respect to any disclosed relationships or services that may impact the
objectively and independence of the independent auditor and for taking, or
recommending that the full Board take appropriate action to oversee the
independence of the independent auditors.
3.6 Meet with the independent auditors and internal auditors to review the
scope of the proposed audit for the current year and the audit procedures to be
utilized, and at the conclusion thereof review such audit, including any
comments or recommendations of the independent or internal auditors.
3.7 Review with the independent auditors and the internal auditor(s) the
adequacy and effectiveness of the accounting and financial controls of the
Corporation, and elicit any recommendations for the improvement of such internal
control procedures or particular areas where new or more detailed controls or
procedures are desirable. The Audit Committee should also review with the
independent and internal auditors the coordination of audit efforts to assure
completeness of coverage, reduction of redundant efforts, and the effective use
of audit resources.
3.8 Inquire of management, the internal auditor(s), and the independent
auditors about significant business risks or exposures and assess the steps
management has taken to minimize such risk to the Corporation.
3.9 Review with management, the independent auditors and the internal
auditor(s) the interim financial report prior to the filing of the quarterly
report on Form 10-Q. The Audit Committee shall discuss the results of the
quarterly review and any other matters required to be communicated to the Audit
Committee by the independent auditors under generally accepted auditing
standards.
3.10 The Audit Committee shall review with management, the independent
auditors and the internal auditor(s) the financial statements to be included in
the Annual Report on Form 10-K, including their judgment about the quality, not
just acceptability, of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements. Also,
the Audit Committee shall discuss the results of the annual audit and any other
matters required to be communicated to the Audit Committee by the independent
auditors under generally accepted auditing standards.
3.11 Review with the Board of Directors and the independent auditors at the
completion of the annual examination:
(a) The Corporation's annual financial statements and related
footnotes;
A-3
(b) The independent auditor's audit of the financial statements and
his report thereon;
(c) Any significant changes required in the independent auditor's
audit plan;
(d) Any serious difficulties or disputes with management encountered
during the course of the audit; and
(e) Other matters relating to the conduct of the audit which are to be
communicated to the Audit Committee under generally accepted auditor
standards.
3.12 Consider and review with management and the internal auditor(s):
(a) Significant findings during the year and management's responses
thereto;
(b) Any difficulties encountered in the course of their audits,
including any restrictions on the scope of their work or access to required
information;
(c) Any changes required in the planned scope of their audit plan;
(d) The internal auditing department budget and staffing; and
(e) Internal auditing's compliance with appropriate accounting
standards.
3.13 Provide sufficient opportunity for the internal and independent
auditors to meet with the members of the Audit Committee with and without
members of management present to discuss results of examinations. Among the
items to be discussed in these meetings are the independent auditors' evaluation
of the corporation's financial, accounting, and auditor personnel, and the
cooperation that the independent auditors received during the course of the
audit.
3.14 Review legal and regulatory matters that may have a material impact on
the financial statements, related company compliance policies, and programs and
reports received from regulators.
3.15 Submit the minutes of all meetings of the Audit Committee to, or
discuss the matters discussed at each committee meeting with, the Board of
Directors.
3.16 Investigate any matter brought to its attention within the scope of
its duties.
3.17 Report Committee actions to the Board of Directors with such
recommendations as the Audit Committee may deem appropriate.
A-4
3.18 The duties and responsibilities of a member of the Audit Committee are
in addition to those duties set out for a member of the Board of Directors.
Effective this 5th day of June, 2000, by order of this Corporation's Board of
Directors.
/s/ Stephen M. Merrick
-----------------------------
Stephen M. Merrick, Secretary
A-5
APPENDIX B
CERTIFICATE OF OWNERSHIP AND MERGER
OF
CTI INDUSTRIES CORPORATION
(a Delaware corporation)
INTO
CTI MERGER CORPORATION
(an Illinois corporation)
It is hereby certified that:
1. CTI Industries Corporation (hereinafter called the "Corporation") is a
corporation of the State of Delaware, the laws of which permit a merger of a
corporation of that jurisdiction with a corporation of another jurisdiction.
2. The Corporation, as the owner of all of the outstanding shares of common
stock of CTI Merger Corporation, hereby merges itself into CTI Merger
Corporation, a corporation of the State of Illinois.
3. The following is a copy of the resolutions adopted on the 20th day of
April, 2001, by the Board or Directors of the corporation to merge the
corporation into CTI Merger Corporation:
RESOLVED that this Corporation be reincorporated in the State of Illinois
by merging itself into CTI Merger Corporation pursuant to the laws of the
State of Illinois and the State of Delaware as hereinafter provided, so
that the separate existence of this corporation shall cease as soon as the
merger shall become effective, and thereupon this Corporation and CTI
Merger Corporation will become a single corporation, which shall continue
to exist under, and be governed by, the laws of the State of Illinois.
FURTHER RESOLVED that the terms and conditions of the proposed merger are
as follows:
(a) From and after the effective time of the merger, all of the estate,
property, rights, privileges, powers, and franchises of this Corporation shall
become vested in and be held by CTI Merger Corporation as fully and entirely and
without change or diminution as the same were before held and enjoyed by this
Corporation, and CTI Merger Corporation shall assume all of the obligations of
this Corporation.
B-1
(b) No pro rata issuance of the shares of stock of CTI Merger Corporation
which are owned by this corporation immediately prior to the effective time of
the merger shall be made, and such shares shall be surrendered and extinguished.
(c) Each share of common stock, $.195 par value, of this Corporation which
shall be issued and outstanding immediately prior to the effective time of the
merger shall be converted into one issued and outstanding share of common stock
no par value, of CTI Merger Corporation, each share of Class B Common Stock,
$2.73 par value, of this Corporation which shall be issued and outstanding
immediately prior to the effective time of the merger shall be converted into
one issued and outstanding share of Class B Common Stock, no par value, of CTI
Merger Corporation and, from and after the effective time of the merger, the
holders of all of said issued and outstanding shares of this corporation shall
automatically be and become holders of shares of CTI Merger Corporation upon the
basis above specified, whether or not certificates representing said shares are
then issued and delivered. Each warrant, option or other derivative security to
purchase common stock of the Corporation which is effective immediately prior to
the effective time of the merger shall be converted into a warrant, option or
other derivative security to purchase common stock of CTI Merger Corporation, as
of the effective time of the merger. Such instruments shall be exercisable in
accordance with their terms and conditions. On each matter on which common stock
shall vote each common share shall be entitled to one vote.
(d) After the effective time of the merger, each holder of record of any
outstanding certificate or certificates theretofore representing common stock of
this Corporation may surrender the same to the Continental Transfer & Trust, CTI
Merger Corporation's transfer agent, at its office in New York, New York and
such holder shall be entitled upon such surrender to receive in exchange
therefor a certificate or certificates representing a like number of shares of
common stock of CTI Merger Corporation. Until so surrendered, each outstanding
certificate which prior to the effective time of the merger represented one or
more shares of common stock of this Corporation shall be deemed for all
corporate purposes to evidence ownership of shares of common stock of CTI Merger
Corporation.
(e) From and after the effective time of the merger, the Articles of
Incorporation and the By-Laws of CTI Merger Corporation shall replace and be the
Articles of Incorporation and the By-Laws of CTI Merger Corporation as in effect
immediately prior to such effective time and the name of CTI Merger Corporation
shall be changed to CTI Industries Corporation.
(f) The members of the Board of Directors and officers of this Corporation
shall be the members of the Board of Directors and the corresponding officers of
CTI Merger Corporation immediately before the effective time of the merger.
B-2
(g) From and after the effective time of the merger, the assets and
liabilities of this Corporation and of CTI Merger Corporation shall be entered
on the books of CTI Merger Corporation at the amounts at which they shall be
carried at such time on the respective books of this Corporation and of CTI
Merger Corporation, subject to such inter-corporate adjustments or eliminations,
if any, as may be required to give effect to the merger; and, subject to such
action as may be taken by the Board of Directors of CTI Merger Corporation, in
accordance with generally accepted accounting principles, the capital and
surplus of CTI Merger Corporation shall be equal to the capital and surplus of
this Corporation and of CTI Merger Corporation.
FURTHER RESOLVED that, in the event that the proposed merger shall not be
terminated, the proper officers of this Corporation be and they hereby are
authorized and directed to make and execute a Certificate of Ownership and
Merger setting forth a copy of these resolutions to merge itself into CTI
Merger Corporation and the date of adoption thereof, and to cause the same
to be filed and recorded as provided by law, and to do all acts and things
whatsoever, within the States of Illinois and Delaware in any other
appropriate jurisdiction, necessary or proper to effect this merger.
4. The proposed merger herein certified has been adopted, approved,
certified, executed, and acknowledged by CTI Industries Corporation and CTI
Merger Corporation accordance with the respective laws under which they are
organized.
Signed and attested to on April __, 2001.
/s/ Howard W. Schwan
----------------------------------
Howard W. Schwan, President of CTI
Merger Corporation
Attest:
/s/ Stephen M. Merrick
- -----------------------------------
Stephen M. Merrick, Secretary
of CTI Merger Corporation
B-3
APPENDIX C
Form BCA-2.10
- --------------------------------------------------------------------------------
(Rev. Jan. 1999)
Jesse White
Secretary of State
Department of Business Services
Springfield, IL 62756
http:llwww.sos.state.il.us
- --------------------------------------------------------------------------------
Payment must be made by certified check, cashier's check, Illinois C.P.A's check
or money order, payable to "Secretary of State."
ARTICLES OF INCORPORATION
- --------------------------------------------------------------------------------
This space for use by Secretary of State
SUBMIT IN DUPLICATE
- --------------------------------------------------------------------------------
This space for use by
by Secretary of State
Date
Franchise tax $
File Fee $
Approved:
- --------------------------------------------------------------------------------
1. CORPORATE NAME: CTI Merger Corporation
(The corporate name must contain the word "corporation", "company,"
"incorporated," "limited" or an abbreviation thereof.)
2. Initial Registered Agent: Stephen M. Merrick
------------------------------------------------
First Name Middle Initial Last name
Initial Registered Office: 401 South Lasalle Street 1302
------------------------------------------------
Number Street Suite #
Chicago IL Cook 60605
------------------------------------------------
City County Zip Code
3. Purpose or purposes for which the corporation is organized:
(If not sufficient space to cover this point, add one or more sheets of
this size.)
The transaction of any and all lawful business for which corporations may be
incorporated under the Illinois Business Corporation Act of 1983, as amended.
4. Paragraph 1: Authorized Shares, Issued Shares and Consideration Received:
Number of Consideration
Par Value Number of Shares Shares Proposed to be
Class per Share Authorized to be Issued Received Therefor
- --------------------------------------------------------------------------------
Common $npv 5,000,000 841,645 $5,554,332
- --------------------------------------------------------------------------------
Common $npv 500,000 366,301 $ -0-
- --------------------------------------------------------------------------------
Preferred $npv 2,000,000 0 $ -0-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL = $5,554,332
Paragraph 2: The preferences, qualifications, limitations, restrictions and
special or relative rights in respect of the shares of each class are:
(If not sufficient space to cover this point, add one or more sheets of this
size.)
Please See Attached
(over)
5. OPTIONAL: (a) Number of directors constituting the initial board of
directors of the corporation _________________:
(b) Names and addresses of the persons who are to serve as
directors until the first annual meeting of shareholders or
until their successors are elected and qualify:
Name Residential Address City, State, Zip
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
6. OPTIONAL: (a) It is estimated that the value of all property to be owned
by the corporation for the following year wherever located
will be:
$ _______________________
(b) It is estimated that the value of the property to be located
within the State of Illinois during the following year will
be:
$ _______________________
(c) It is estimated that the gross amount of business that will
be transacted by the corporation during the following year
will be:
$ _______________________
(d) It is estimated that the gross amount of business that will
be transacted from places of business in the State of
Illinois during the following year will be:
$ _______________________
7. OPTIONAL: OTHER PROVISIONS : Please See Attached
Attach a separate sheet of this size for any other provision to be included in
the Articles of Incorporation, e.g., authorizing preemptive rights, denying
cumulative voting, regulating internal affairs, voting majority requirements,
fixing a duration other than perpetual, etc.
8. NAME(S) & ADDRESS(ES) OF INCORPORATOR(S)
The undersigned incorporator(s) hereby declare(s), under penalties of
perjury, that the statements made in the foregoing Articles of Incorporation are
true.
Dated May , 2001
------------------------------- ------
(Month & Day) Year
Signature and Name Address
1. /s/ Scott P. Slykas 1. 401 South LaSalle Street #1302
-------------------------------- -----------------------------------
Signature Street
Scott P. Slykas, Esq. Chicago Illinois 60605
--------------------------------- -----------------------------------
(Type or Print Name) City/Town State ZIP Code
2. 2.
--------------------------------- -----------------------------------
Signature Street
--------------------------------- -----------------------------------
(Type or Print Name) City/Town State ZIP Code
3. 3.
--------------------------------- -----------------------------------
Signature Street
--------------------------------- -----------------------------------
(Type or Print Name) City/Town State ZIP Code
(Signatures must be in BLACK INK on original document. Carbon copy, photocopy or
rubber stamp signatures may only be used on conformed copies.)
NOTE: If a corporation acts as incorporator, the name of the corporation and the
state of incorporation shall be shown an the execution shall be by its president
or vice president and verified by him, and attested by its secretary or
assistant secretary.
- --------------------------------------------------------------------------------
FEE SCHEDULE
o The initial franchise tax is assessed at the rate of 15/100 of 1 percent
($1.50 per $1,000) on the paid-in capital represented in this state, with a
minimum of $25.
o The filing fee is $75.
o The minimum total due (franchise tax + filing fee) is $100. (Applies when
the Consideration to be Received as set forth in Item 4 does not exceed
$16,667)
o The Department of Business Services in Springfield will provide assistance
in calculating the total fees if necessary. Secretary of State Springfield,
IL 62756 Department of Business Services Telephone (217) 782-9522 or
782-9523
SUPPLEMENTAL PROVISIONS TO THE ARTICLES OF INCORPORATION OF
CTI MERGER CORPORATION
SECTION 4,
PARAGRAPH 2: (Preferences, Qualifications, Limitations, Restrictions and Special
or Relative Rights in Respect of the Shares of Each Class):
A. This Corporation is authorized to issue three classes of capital stock
to be designated respectively Common Stock ("Common Stock"), Class B Common
Stock ("Class B Common Stock") and Preferred Stock. The total number of shares
of capital stock that the Corporation is authorized to issue is Seven Million
Five Hundred Thousand (7,500,000). The total number of shares of Common Stock
this Corporation shall have authority to issue is Five Million (5,000,000). The
total number of shares of Class B Common Stock this Corporation shall have
authority to issue is Five Hundred Thousand (500,000). The total number of
shares of Preferred Stock this Corporation shall have the authority to issue is
Two Million (2,000,000). All shares of capital stock shall be of no par value.
Shares of Preferred Stock may be issued from time to time with such
designations, preferences, conversion rights, cumulative, relative,
participating, option or other rights, qualifications, limitations or
restrictions thereof as shall be stated and expressed in the resolution or
resolutions providing for the issuance of such Preferred Stock adopted by the
Board of Directors pursuant to the authority in this paragraph given.
B. The powers, preferences, rights, restrictions, and other matters
relating to the Common Stock and Class B Common Stock are as follows:
1. Dividends. The holders of the Common Stock and Class B Common Stock
shall participate equally and pro rata in dividends, if any, declared by
the Corporation on a per share basis.
2. Liquidation. In the event of any voluntary or involuntary
liquidation (whether complete or partial), dissolution or winding up of the
Corporation, the holders of Common Stock and Class B Common Stock shall
participate equally, on a per share basis, in the assets of the Corporation
available for distribution to its stockholders, whether from capital,
surplus or earnings.
3. Voting Rights.
3.01 General Voting Rights. Except in circumstances in which the
holders of Common Stock and Class B Common Stock, respectively, shall be
required to vote separately as a class, with respect to all matters upon
which the Corporation's stockholders shall vote or be entitled to vote, the
holders of all Common Stock and Class B Common Stock shall vote together as
a single class with each holder being entitled to one vote per share on all
such matters.
C-1
3.02 Election of Directors. For so long as there shall be issued and
outstanding more than 166,667 shares of Class B Common Stock.
(a) By-Laws; Number of Directors. Notwithstanding the provisions
of Section Seven of these Articles of Incorporation (which is also
attached hereto), the by-laws of the Corporation shall provide for the
election of up to seven directors and such provision may not be
amended, modified, altered or repealed except by the approval of the
holders of two-thirds of the outstanding shares of Class B Common
Stock voting separately as a class, provided, however, that the
maximum number of directors shall in no event be reduced below seven
without the additional approval of the holders of two-thirds of the
outstanding shares of Common Stock voting separately as a class.
(b) Election of Directors.
(i) Four of the seven directors of the Corporation shall be
elected by the holders of a majority of the outstanding
shares of Class B Common Stock voting separately as a
class;
(ii) The remaining three directors shall be elected by the
holders of a majority of the outstanding shares of
Common Stock and Class B Common Stock voting together
as a single class.
3.03 Amendments to Class B Common Stock. After the date of filing of
these Articles of Incorporation with the Illinois Secretary of State, the
Corporation shall not (i) issue additional shares of Class B Common Stock
(except for additional issuances upon stock dividends, stock splits, or
recapitalizations with respect to outstanding shares of Class B Common
Stock) or (ii) amend the terms of the Class B Common Stock in any manner
that would adversely affect the rights of the holders of Common Stock
except with the approval of the holders of two-thirds of the outstanding
shares of Common Stock.
3.04 Quorum. At any meeting of the stockholders of the Corporation,
the presence in person or by proxy of a majority in number of the issued
and outstanding shares of Common Stock and Class B Common Stock, as a
single class, shall be sufficient to constitute a quorum.
3.05 Action Without Meeting. Any action required or permitted to be
taken at any meeting of the stockholders of the Corporation, may be taken
without a meeting, if part of such action of written consent thereto is
signed by the holders of shares of Common Stock and/or Class B Common Stock
necessary to approve such action if such action was taken at a meeting of
stockholders.
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3.06 Cumulative Voting. Pursuant to Section 7.40 of the Illinois
Business Corporation Act of 1983, as amended, cumulative voting rights are
herewith eliminated with respect to all classes of the Corporation's
capital stock.
4. Transfer.
4.01 No person holding shares of Class B Common Stock of record
(hereinafter called "Class B Holder") may transfer, and the Corporation
shall not register the transfer of, such shares of Class B Common Stock,
whether by sale, assignment, gift, bequest, appointment, operation of law
or otherwise, except to a Permitted Transferee. A Permitted Transferee
shall mean:
(a) Stephen M. Merrick, John H. Schwan, Howard W. Schwan, Frances
Ann Rohlen, and Philip W. Colburn, their respective spouses, issue,
and the spouses of such issue (collectively referred to as "Family
Members");
(b) The trustee or trustees of a trust or trusts (including a
voting trust) for the primary benefit of any one or more Family
Members (collectively referred to as "Family Trusts");
(c) A corporation or partnership controlled (as defined below) by
one or more Family Members or Family Trusts (collectively referred to
as "Family Entities"); and
(d) The estate of such Class B Holder.
4.02 Notwithstanding anything to the contrary set forth herein, any
Class B Holder may pledge such Holder's shares of Class B Common Stock to a
pledgee pursuant to a bona fide pledge of such shares as collateral
security for indebtedness due to the pledgee, provided that such shares
shall not be transferred to or registered in the name of the pledgee and
shall remain subject to the provisions of this Section B(4). In the event
of foreclosure or other similar action by the pledgee, such pledged shares
of Class B Common Stock may only be transferred to a Permitted Transferee
of the pledgor or converted into shares of Common Stock as the pledgee may
elect.
4.03 The following events shall result in the conversion of the
applicable shares of Class B Common Stock into shares of Common Stock:
(a) a Class B Holder shall transfer or attempt to transfer Class
B Common Stock to a person or entity not a Permitted Transferee;
C-3
(b) a Class B Holder shall transfer or attempt to transfer to any
person or entity not a Permitted Transferee, including, without
limitation, a pledgee, the right to vote any Class B Common Stock,
whether by agreement, voting trust or otherwise;
(c) a Family Trust holding Class B Common Stock shall cease to be
a trust for the primary benefit of any one or more Family Members;
(d) a Family Entity holding Class B Common Stock shall cease to
be controlled by one or more Family Members or Family Trusts. For
purposes of this Section B(4), "controlled" means: (i) in the case of
a corporation, the ownership, beneficially and of record, of shares of
capital stock representing a majority of the equity ownership of, and
economic interest in, such corporation, as well as a majority of all
votes entitled to vote for the election of directors; and (ii) in the
case of a partnership, the ownership, beneficially and of record, of
partnership interests representing a majority of the equity as a
majority of the partnership interests entitled to participate in the
management of the partnership.
If any of the foregoing events shall occur, all shares of Class B
Common Stock subject to such transfer or attempted transfer or then held by
such Family Trust or Family Entity, whichever applicable, shall, without
further act on anyone's part, be converted into shares of Common Stock
effective upon the date of such event occurs, and stock certificates
formerly representing such shares of Class B Common Stock shall thereupon
and thereafter be deemed to represent the like number of shares of Common
Stock. The Corporation may, in connection with preparing a list of
shareholders entitled to vote at any meeting of shareholders, or as a
condition to the transfer or the resignation of shares of Class B Common
Stock on the Corporation's books, require the furnishing of such
affidavits, documents or other proof as it deems necessary to establish
that any person is a Permitted Transferee or to ascertain that none of the
events described in this subparagraph 4.03 occurred.
4.04 Shares of Class B Common Stock shall be registered in the names
of the beneficial owners thereof and not in "street" or "nominee" name. For
this purposes, a "beneficial owner" of any shares of Class B Common Stock
shall mean a person who, or any entity which, possesses the power, either
singly or jointly, to direct the voting or disposition of such shares. The
Corporation shall note on the certificates for shares of Class B Common
Stock the existence of the restrictions on transfer imposed by this Section
B(4).
5. Conversion.
5.01 Conversion Rights and Procedure.
(a) Right of Conversion. Each holder of shares of Class B Common
Stock shall be entitled to exercise all or a portion of the conversion
rights provided herein at any time or from time to time.
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(b) Rate of Conversion. Upon exercise of the right of conversion
hereunder with respect to shares of Class B Common Stock, the holder
thereof shall be entitled to receive that number of shares of Common
Stock ("Conversion Shares") equal to the number of shares of Class B
Common Stock tendered subject to adjustment as provided in Section
B(4.02).
(c) Method of Conversion. A holder of shares of Class B Common
Stock shall exercise such holder's conversion rights hereunder by (i)
delivering or mailing to the Corporation, by certified or registered
mail, return receipt requested, a written notice stating such holder's
intention to exercise such rights and specifying the number of shares
of Class B Common Stock as to which the conversion right is exercised
and (ii) accompanying such notice with a certificate or certificates
representing such shares duly endorsed in blank or accompanied with a
stock power duly endorsed in blank. The right of exercise shall be
deemed to have been exercised on the date that such notice shall be
delivered to the Corporation or mailed in accordance with this section
("Exercise Time"). Each share of Class B Common Stock shall be
canceled after it has been converted as provided herein.
(d) Delivery of Certificates. Certificates for Conversion Shares
shall be delivered to the holder named therein within 15 days after
the Exercise Time. Unless all of the Class B Common Stock evidenced by
the certificate delivered to the Corporation shall have been
converted, the Corporation shall within such 15 day period prepare a
new certificate, substantially identical to that surrendered,
representing the balance of the shares of Class B Common Stock
formerly represented by the certificate which shall not have been
converted and shall within the said 15 day period deliver such
certificate to the person designated as the holder thereof.
(e) The Corporation covenants and agrees that:
(i) At all times during which any shares of Class B Common
Stock are issued and outstanding, the Corporation shall
reserve and maintain a sufficient number of authorized
and unissued shares of Common Stock sufficient to issue
shares of Common Stock upon conversion of all of the
then issued and outstanding Class B Common Stock,
including additional shares which may become issuable
by reason of an adjustment pursuant to Section B(5.02)
hereof. The Corporation shall not issue any shares of
Common Stock if, after the issuance thereof, the number
of authorized and unissued shares of Common Stock would
then be insufficient to issue shares of Common Stock to
holders of the then issued and outstanding Class B
Common Stock if
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all of such holders were to exercise their rights of
conversion hereunder;
(ii) The Conversion Shares issuable upon any conversion of
any shares of Class B Common Stock shall be deemed to
have been issued to the person exercising such
conversion privilege at the Exercise Time, and the
person exercising such conversion privilege shall be
deemed for all purposes to have become the record
holder of such Common Stock shares at the Exercise
Time.
(iii) All Conversion Shares which may be issued upon any
conversion of any shares of Class B Common Stock will,
upon issuance, be fully paid and non-assessable and
free from all taxes, liens and charges with respect to
the issue thereof.
(f) Notwithstanding the above, the shares of Class B Common Stock
then outstanding shall be automatically converted into shares of
Common Stock upon the conversion terms then in effect on July 1, 2002.
5.02 Adjustment Provisions.
(a) Subdivision or Combination of Stock. In case at any time the
Corporation shall in any manner subdivide its outstanding shares of
Common Stock into a greater number of shares or combine such shares of
Common Stock into a smaller number of shares, then the number of
shares of Common Stock into which a share of Class B Common Stock may
be converted shall be adjusted to reflect such subdivision or
combination of shares of Common Stock.
(b) Reorganization, Reclassification, Consolidation, Merger or
Sale. If any reorganization or reclassification of the capital stock
of the Corporation, or any consolidation or merger of the Corporation
with another corporation, or the sale of all or substantially all of
the Corporation's assets to another corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive
stock, securities, or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be
made whereby the holders of Class B Common Stock shall thereafter have
the right to purchase and receive such shares of stock, securities, or
assets as may be issued or payable with respect to or exchange for a
number of outstanding shares of such Common Stock equal to the number
of shares of such stock immediately theretofore purchasable and
receivable upon the conversion of Class B Common Stock had such
reorganization, reclassification, consolidation, merger or sale not
taken place, and in any
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such case appropriate provision shall be made with respect to the
rights and interests of the holder of the Class B Common Stock to the
end that the provisions hereof shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or
assets thereafter deliverable upon the exercise of the rights
represented hereby.
In the event of a merger or consolidation of this Corporation with or
into another corporation as a result of which a number of shares of
common stock of the surviving corporation greater or lesser than the
number of shares of Common Stock of the Corporation outstanding
immediately prior to such merger or consolidation are issuable to
holders of Common Stock of the Corporation, then the number of shares
of Common Stock subject to issuance upon conversion of a share of
Class B Common Stock shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of
Common Stock of the Corporation. This Corporation shall not effect any
such consolidation, merger, or sale, unless prior to the consummation
thereof the successor corporation (if other than the Corporation)
resulting from such consolidation or merger of the corporation into or
for the securities of which the previously outstanding stock of the
Corporation shall be exchanged in connection with such consolidation
or merger, or the corporation purchasing such assets, as the case may
be, shall assume, by written instrument executed and mailed or
delivered to the holder hereof at the last address of such holder
appearing on the books of the company, the obligation to deliver to
such holder such shares of stock, securities, or assets as, in
accordance with the foregoing provisions, such holder may be entitled
to purchase. The provisions of this Section B (5.02(b)) governing the
substitution of another corporation for the Corporation shall
similarly apply to successive instances in which the corporation then
deemed to be the Corporation hereunder shall either sell all or
substantially all of its properties and assets to any other
corporation, shall consolidate with or merge into any other
corporation, or shall be the surviving corporation of the merger into
it of any other corporation as a result of which the holders of any of
its stock or other securities shall be deemed to have become the
holders of, or shall become entitled to, the stock or other securities
of any corporation other than the Corporation at the time deemed to be
the Corporation hereunder.
(c) Notice of Adjustment. The Corporation shall give to the
holder of the Class B Common Stock prompt written notice of every
adjustment of the Conversion terms by first class mail, postage
prepaid, addressed to the address of such holder as shown on the books
of the Corporation, which notice shall state the adjustment, and shall
set forth in reasonable detail the method of calculation and the facts
upon which such calculation was based.
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SECTION 7 (OTHER PROVISIONS):
A. Management of the Business and Conduct of the Affairs of the Corporation:
For the management of the business and for the conduct of the affairs of
the Corporation and in further definition, limitation and regulation of the
powers of the Corporation and of its directors and stockholders, it is further
provided:
(a) The number of directors of the Corporation shall be as specified
in the by-laws of the Corporation, but such number may from time to time be
increased or decreased in such manner as shall be provided in the by-laws
of the Corporation. The number of directors shall not be less than the
minimum prescribed by law. The election of directors need not be by ballot.
Directors need not be stockholders.
(b) In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the board of directors is expressly
authorized and empowered to make, alter, amend and repeal by-laws, subject
to the power of the stockholders to alter or repeal by-laws made by the
board of directors.
(c) Any director or any officers elected or appointed by the
stockholders or by the board of directors may be removed at any time in
such manner as shall be provided in the by-laws of the Corporation.
(d) In the absence of fraud, no contract or other transaction between
the Corporation and any other corporation and no act of the Corporation,
shall in any way be affected or invalidated by the fact that any of the
directors of the Corporation are peculiarly or otherwise interested in, or
are directors or officers of, such other corporation; and in the absence of
fraud, any director, individually, or any firm of which any director may be
a member, may be a party to, or may be peculiarly or otherwise interested
in, any contract or transaction of the Corporation, provided in any case,
that the fact that he or such firm is so interested shall be disclosed or
shall have been known to the Board of Directors or the majority thereof;
and any director of the Corporation, who is also a director or officer of
any such other corporation, or who is also interested may be counted in
determining the existence of quorum at any seating of the Board of
Directors of the Corporation which shall authorize any such contract, act
or transaction, may vote thereat to authorize any such contract, act or
transaction, with like force and effect as if he were not such director or
officer of such other corporation, or not so interested.
B. Personal Liability of Directors:
(a) The Corporation shall have power to indemnify any person who was
or is 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 the reason of the fact that he 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
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another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the Corporation and, with respect to any criminal action or proceedings,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he 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 reasonable cause to believe that
his conduct was unlawful.
(b) The Corporation shall have power to 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 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 said person acted in good faith and in a manner he
reasonably believes to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter he reasonably believes to be in or not opposed to
the best interest of the Corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence or misconduct
in the performance of this duty to the Corporation unless and only to the
extent that the court in which such action or suit was brought 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.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful, on the merits or otherwise, in the defense
of any action, suit or proceeding referred to in Section 7B(a) and 7B(b),
or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the board
of directors in the specific case upon receipt of an undertaking by or on
behalf of the director or officer, to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
Corporation as authorized in this Section 7B. Such expenses incurred by
other employees or agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
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(e) Any indemnification under paragraphs (a), (b) and (c) of this
Section 7B (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in such paragraphs (a), (b) and (c). Such determination shall be made
(1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2),
if such a quorum is not obtainable, or, even if obtainable and a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(f) The indemnification provided by this Section 7B shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any by-laws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office,
and shall 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 such a person.
(g) The Corporation shall have 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 status as such, whether or not the
Corporation would have the power to indemnify him against such liability
under the provisions of this Section 7B.
(h) For the purpose of this Section 7B, reference to "the Corporation"
shall include all constituent corporations absorbed in a consolidation or
merger as well as the resulting or surviving corporation so that any person
who is or was a director, officer, employee or agent of such a constituent
corporation or is or was serving at the request of such constituent
corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this section with
respect to the resulting or surviving corporation in the same capacity.
C. Vote Required for Extraordinary Events. With respect to the approval of
mergers, consolidations, mandatory share exchanges, sales of substantially all
assets and amendments to these Articles of Incorporation, a simple majority of
the outstanding shares entitled to vote shall be required, instead of any super
majority voting requirement as may be provided under the Illinois Business
Corporation Act of 1983, as amended. The Corporation further expressly elects
not to be governed by Section 11.75 of The Illinois Business Corporation Act of
1983, as amended.
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APPENDIX D
BY-LAWS
OF
CTI MERGER CORPORATION
a Corporation of the State of Illinois
ARTICLE I
OFFICES
SECTION 1.1 Illinois Registered Office. The corporation shall continuously
maintain in the State of Illinois a registered office and registered agent whose
office is identical with such registered office.
SECTION 1.2 Other Offices. The corporation may have other offices within
the state.
ARTICLE II
SHAREHOLDERS
SECTION 2.1 Annual Meeting. An annual meeting of the shareholders shall be
held each year for the purpose of electing directors and for the transaction of
such other business as may come 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.
SECTION 2.2 Special Meetings. Special meetings of the shareholders may be
called either by the president, the board of directors or by the holders of not
less than one-fifth of all outstanding shares of the corporation entitled to
vote on the matter for which the meeting is called for the purpose or purposes
stated in the call of the meeting.
SECTION 2.3 Place of Meeting. The board of directors may designate any
place the place of meeting for any annual meeting or for any special meeting
called by the board of directors. If no designation is made, or if a special
meeting be otherwise called, the place of meeting shall be at the main offices
of the corporation.
SECTION 2.4 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,
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may be taken without a meeting, if a consent in writing, setting forth the
action so taken, shall be signed as follows:
(a) By all the shareholders entitled to vote with respect to the
subject matter thereon; or
(b) By the holders of outstanding shares having not less than the
minimum 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. If such consent is signed by less than all 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 corporation 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 2.5 Notice of Meetings. Written notice stating the place, date 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 delivered not less than ten
nor more than sixty 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 nor more than sixty days before the meeting, either
personally or by mail, by or at the direction of the president, or the
secretary, or the officer or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited with the United States Postal Service, addressed
to the shareholder at his address as it appears on the records of the
corporation, with postage thereon prepaid. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken.
SECTION 2.6 Fixing of Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend, or any rights in
respect of any change, conversion or exchange of shares or for the purpose of
any other lawful action, the board of directors of the corporation may fix in
advance a record date which shall not be more than sixty days and, for a meeting
of shareholders, not less than ten days, or in the case of a merger,
consolidation, share exchange, dissolution or sale, lease or exchange of assets,
not less than twenty days, immediately preceding the date of such meeting. If no
record date is fixed, the record date for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders shall be the date
on which notice of the meeting is mailed, and the record date for the
determination of shareholders for any other purpose shall be the date on which
the board of directors adopts the resolution relating thereto. A determination
of shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting.
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SECTION 2.7 Voting Lists. The officer or agent having charge of the
transfer books for shares of the corporation shall make, within twenty days
after record date or ten days before each meeting of shareholders, whichever is
earlier, a complete list of the shareholders entitled to vote at such meeting,
arranged in alphabetical order, showing the address of and the number of shares
registered in the name of the shareholder, which list, for a period of ten days
prior to such meeting, shall be kept on file at the registered office of the
corporation and shall be open to inspection by any shareholder for any purpose
germane to the meeting, at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and may be
inspected by any shareholder during the whole time of the meeting. The original
share ledger or transfer book, or a duplicate thereof kept in this State, 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 2.8 Voting of Shares. Except as otherwise provided in the articles
of incorporation or these by-laws, each outstanding share, regardless of class,
shall be entitled to one vote upon each matter submitted to vote at a meeting of
shareholders.
SECTION 2.9 Voting of Shares by Certain Holders. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent, or proxy as its by-laws of such corporation may prescribe, or, in the
absence of such provision, as the board of directors of such corporation may
determine and under the law of incorporation of such corporation.
(a) Shares standing in the name of a deceased person, a minor ward or
an incompetent person, may be voted by his administrator, executor, court
appointed guardian, or conservator, either in person or by proxy without a
transfer of such shares in the name of such administrator, executor, court
appointed guardian, or conservator. Shares standing in the name of a
trustee may be voted by him, either in person or by proxy.
(b) Shares standing 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 be contained in an appropriate order of the court by
which such receiver was appointed.
(c) 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.
(d) Any number of shareholders may create a voting trust for the
purpose of conferring upon a trustee or trustees the right to vote or
otherwise represent their share, for a period not to exceed ten years, by
entering into a written voting trust agreement specifying the terms and
conditions of the voting trust, and by transferring their shares to such
trustee or trustees for the purpose of the agreement. Any such trust
agreement shall not become effective until a counterpart of the agreement
is deposited with the corporation at its
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registered office. The counterpart of the voting trust agreement so
deposited with the corporation shall be subject to the same right of
examination by a shareholder of the corporation, in person or by agent or
attorney, as are the books and records of the corporation, and shall be
subject to examination by any holder of a beneficial interest in the voting
trust, either in person or by agent or attorney, at any reasonable time for
any proper purpose.
(e) Shareholders may provide for the voting of their shares by signing
an agreement for that purpose. A voting agreement under this subsection is
not subject to the provisions of subsection (a) above.
(f) Shares of its own stock belonging to this corporation shall not be
voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares at any given time, but
shares of its own stock held by it in a fiduciary capacity may be voted and
shall be counted in determining the total number of outstanding shares at
any given time.
SECTION 2.10 Proxies. Each shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy by signing an appointment form and delivering it to the person so
appointed, but no such proxy shall be valid after eleven months from the date of
its execution, unless otherwise provided in the proxy.
SECTION 2.11 Cumulative Voting. The Corporation's articles of incorporation
shall eliminate all cumulative voting rights for all shareholders and for all
circumstances.
SECTION 2.12 Quorum. The holders of a majority of the outstanding shares of
the corporation entitled to vote, present in person or represented by proxy,
shall constitute a quorum at any meeting of shareholders; provided that if less
than a majority of the outstanding shares entitled to vote are represented at
said meeting, a majority of the shares so represented may adjourn the meeting at
any time without further notice. If a quorum is present, the affirmative vote of
the majority of the shares entitled to vote represented at the meeting and
entitled to vote on the matter shall be the act of the shareholders. At any
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the original meeting. Withdrawal
of shareholders from any meeting shall not cause failure of a duly constituted
quorum at that meeting.
SECTION 2.13 Inspectors. At any meeting of shareholders, the chairman of
the meeting may, or upon request of any shareholder shall, appoint one or more
persons as inspectors for such meeting.
(a) 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
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votes and report the results; and do such other acts as are proper to
conduct the election and voting with impartiality and fairness to all the
shareholders.
(b) Each report of an inspector shall be in writing and signed by him
or by a majority of them if there be 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 2.14 Voting By Ballot. Voting on any question or in any election
may be by voice unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
SECTION 3.1 General Powers. The business and affairs of the corporation
shall be managed by, or under the direction of, its board of directors.
SECTION 3.2 Number, Tenure and Qualifications. The number of directors of
the corporation shall be not less than one (1) and not more than seven (7). Each
director shall hold office until the next annual meeting of shareholders,
thereafter, until his successor shall have been elected. Directors need not be
residents of Illinois or shareholders of the corporation. The number of
directors may be increased or decreased from time to time by the amendment of
this section; but no decrease shall have the effect of shortening the term of
any incumbent director. A director may resign at any time by giving written
notice to the board of directors, its chairman, or to the president or secretary
of the corporation. A resignation is effective when the notice is given unless
the notice specifies a future date. The pending vacancy may be filled before the
effective date, but the successor shall not take office until the effective
date.
SECTION 3.3 Quorum. A majority of the number of directors fixed by these
by-laws shall constitute a quorum for 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 said meeting, a majority of the directors present may
adjourn the meeting at any time without further notice.
SECTION 3.4 Manner of Acting. The act 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 act of a greater number is required by statute, these
by-laws, or the articles of incorporation.
SECTION 3.5 Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this by-law, immediately after the
annual meeting of shareholders. The
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board of directors may provide, by resolution, the time and place for holding of
additional regular meetings without other notice than such resolution.
SECTION 3.6 Special Meetings. Special meetings of the board of directors
may be called by or at the request of the president or any one or more
directors. The person or persons authorized to call special meetings of the
board of directors may fix any place as the place for holding any special
meeting of the board of directors called by them.
SECTION 3.7 Notice. Notice of any special meeting shall be given at least
ten days previous thereto by written notice to each director at his business
address. If mailed, such notice shall be deemed to be delivered when deposited
with the United States Postal Service so addressed, with postage thereon
prepaid. If notice be given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to the telegram company. 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 3.8 Vacancies. Any vacancy occurring in the board of directors and
any directorship to be filled by reason of an increase in the number of
directors, may be filled by (1) election at an annual meeting or at a special
meeting of shareholders or (2) by the board of directors remaining. 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 appointed to fill a
vacancy shall serve until the next meeting of shareholders at which directors
are to be elected.
SECTION 3.9 Removal of Directors. One or more of the directors 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, except as follows:
(a) No director shall be removed at a meeting of shareholders unless
the notice of such meeting shall state that a purpose of the meeting is to
vote upon the removal of one or more directors named in the notice. Only
the named director or directors may be removed at such meeting.
(b) In the case of a corporation having cumulative voting, if less
than the entire board is to be removed, no director may be removed, with or
without cause, if the votes cast against his or her removal would be
sufficient to elect him or her if then cumulatively voted at an election of
the entire board of directors.
(c) If a director is elected by a class or series of shares, he or she
may be removed only by the shareholders of that class or series.
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SECTION 3.10 Executive Committees. The board of directors, by resolution
adopted by a majority of the number of directors fixed by the by-laws or
otherwise, may designate two or more directors to constitute an executive
committee, which committee, to the extent provided in such resolution, shall
have and exercise all of the authority of the board of directors in the
management of the corporation, except as otherwise required by law. Vacancies in
the membership of the committee shall be filled by the board of directors at a
regular or special meeting of the board of directors. The executive committee
shall keep regular minutes of its proceedings and report the same to the board
when required.
SECTION 3.11 Action Without a Meeting. Unless specifically prohibited by
the articles of incorporation or these by-laws, 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 of any 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 or all the members of the
committee shall have the same effect as a unanimous vote.
SECTION 3.12 Compensation. The board of directors, by the 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.
No such payment previously mentioned in this section shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
SECTION 3.13 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 mail to the secretary of the corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
ARTICLE IV
OFFICERS
SECTION 4.1 Number. The officers of the corporation shall be a chairman of
the board, a president, a secretary, a treasurer, if desired, any number of vice
presidents, treasurers, assistant treasurers, assistant secretaries or other
officers as may be elected by the board of directors. Any two or more offices
may be held by the same person.
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SECTION 4.2 Election and Term of Office. The officers of the corporation
shall be elected or appointed annually by the board of directors at the first
meeting of the board of directors held after each 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 conveniently may be. 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. Election
of an officer shall not of itself create contract rights.
SECTION 4.3 Removal. Any officer 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 4.4 President. The president shall be the principal executive
officer of the corporation. Subject to the direction and control of the board of
directors, he shall be in charge of the business of the corporation; he shall
see that the resolutions and directions of the board of directors are carried
into effect except in those instances in which that responsibility is
specifically assigned to some other person by the board of directors; and, in
general, he shall discharge all duties incident to the office of president and
such other duties as may be prescribed by the board of directors from time to
time. He shall preside at all meetings of the shareholders and of the board of
directors. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or a
different mode of execution is expressly prescribed by the board of directors or
these by-laws, he may execute for the corporation certificates for its shares,
and any contracts, deeds, mortgages, bonds, or other instruments which the board
of directors has authorized to be executed, and he may accomplish such execution
either under or without the seal of the corporation and either individually or
with the secretary, any assistant secretary, or any other officer thereunto
authorized by the board of directors, according to the requirements of the form
of the instrument. He may vote all securities which the corporation is entitled
to vote except as and to the extent such authority shall be vested in a
different officer or agent of the corporation by the board of directors.
SECTION 4.5 The Vice-President. The vice-president (or in the event there
be more than one vice-president, each of the vice-presidents) shall assist the
president in the discharge of his duties as the president may direct and shall
perform such other duties as from time to time may be assigned to him by the
president or by the board of directors. In the absence of the president or in
the event of his inability or refusal to act, the vice-president (or in the
event there be more than one vice-president, the vice-presidents in the order
designated by the board of directors, or by the president if the board of
directors has not made such a designation, or in the absence of any designation,
then in the order of seniority of tenure as vice-president) shall perform the
duties of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. Except in those instances in
which the authority to execute is expressly delegated to another officer or
agent of the corporation or a different mode of execution is expressly
prescribed by the board of
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directors or these by-laws, the vice-president (or each of them if thee are more
than one) may execute for the corporation certificates for its shares and any
contracts, deeds, mortgages, bonds or other instruments which the board of
directors has authorized to be executed, and he may accomplish such execution
either under or without the seal of the corporation and either individually or
with the secretary, any assistant secretary, or any other officer thereunto
authorized by the board of directors, according to the requirements of the form
of the instrument.
SECTION 4.6 The Treasurer. The treasurer shall be the principal accounting
and financial officer of the corporation. He shall:
(a) have charge of and be responsible for the maintenance of adequate
books of account for the corporation;
(b) have charge and custody of all funds and securities of the
corporation, and be responsible therefore and for the receipt and
disbursement thereof; and
(c) perform all the duties incident to the office of treasurer and
such other duties as from time to time may be assigned to him by the
president or by the board of directors.
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 may determine.
SECTION 4.7 The Secretary. The secretary shall:
(a) record the minutes of the shareholders' and of the board of
directors' meetings in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the
provisions of these by-laws or as required by law;
(c) be custodian of the corporate records and of the seal of the
corporation;
(d) keep a register of the post-office address of each shareholder
which shall be furnished to the secretary by such shareholder;
(e) sign with the president, or a vice-president, or any other officer
thereunto authorized by the board of directors, certificates for shares of
the corporation, the issue of which shall have been authorized by the board
of directors, and any contracts, deeds, mortgages, bonds, or other
instruments which the board of directors has authorized to be executed,
according to the requirements of the form of the instrument, except when a
different mode of execution is expressly prescribed by the board of
directors or these by-laws;
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(f) otherwise certify that by-laws, resolutions of the shareholders
and board of directors and committees thereof, and other documents of the
corporation as true and correct copies thereof;
(g) have general charge of the stock transfer books of the
corporation; and
(h) perform all duties incident to the office of secretary and such
other duties as from time to time may be assigned to him or her by the
president or by the board of directors.
SECTION 4.8 Assistant Treasurers and Assistant Secretaries. The assistant
treasurers and assistant secretaries shall perform such duties as shall be
assigned to them by the treasurer or the secretary, respectively, or by the
president or the board of directors. The assistant secretaries may sign with the
president, or a vice-president, or any other officer thereunto authorized by the
board of directors, certificates for shares of the corporation, the issue of
which shall have been authorized by the board of directors, and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed by
the board of directors or these by-laws. The assistant treasurers 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.
SECTION 4.9 Salaries. The salaries of the officers 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.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 5.1 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 5.2 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 5.3 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.
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SECTION 5.4 Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the board of directors may
select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 6.1 Certificates for Shares. Certificates representing shares of
the corporation shall be signed by the president or a vice-president or by such
officer as shall be designated by resolution of the board of directors and by
the secretary or an assistant secretary, and shall be sealed with the seal or a
facsimile of the seal of the corporation. If both of the signatures of the
officers be by facsimile, the certificate shall be manually signed by or on
behalf of a duly authorized transfer agent or clerk. Each certificate
representing shares shall be consecutively numbered or otherwise identified, and
shall also state the name of the person to whom issued, the number and class of
shares (with designation of series, if any), the date of issue, that the
corporation is organized under Illinois law, and the par value or a statement
that the shares are without par value. If the corporation is authorized and does
issue shares of more than one class or of series within a class, the certificate
shall also contain such information or statement as may be required by law. The
name and address of each shareholder, the number and class of shares held and
the date on which the certificates for the shares were issued shall be entered
on the books 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
regard the corporation.
SECTION 6.2 Lost Certificates. If a certificate representing shares has
allegedly been lost or destroyed the board of directors may in its discretion,
except as may be required by law, direct that a new certificate be issued upon
such indemnification and other reasonable requirements as it may impose.
SECTION 6.3 Transfers of Shares. Transfers of shares of the corporation
shall be recorded on the books of the corporation and, except in the case of a
lost or destroyed certificate, on surrender for cancellation of the certificate
for such shares. A certificate presented for transfer must be duly endorsed and
accompanied by proper guaranty of signature and other appropriate assurances
that the endorsement is effective.
ARTICLE VII
FISCAL YEAR
SECTION 7.1 Resolution of Directors. The fiscal year of the corporation
shall be fixed by resolution of the board of directors from time to time.
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ARTICLE VIII
DIVIDENDS
SECTION 8.1 Declared by Directors. The board of directors may from time to
time declare, and the corporation may pay, dividends on its outstanding shares
in the manner and upon the terms and conditions provided by law and its articles
of incorporation.
ARTICLE IX
SEAL
SECTION 9.1 Subscription. The corporate seal, if any, shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Illinois".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or in any manner reproduced.
ARTICLE X
WAIVER OF NOTICE
SECTION 10.1 Waiver in Lieu of Notice. Whenever any notice is required to
be given under the provisions of these by-laws or under the provisions of the
articles of incorporation or under the provisions of 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. Attendance at
any meeting shall constitute waiver of notice thereof unless the person at the
meeting objects to the holding of the meeting because notice was not given.
ARTICLE XI
AMENDMENTS
SECTION 11.1 Determined by Directors. Unless reserved to the shareholders
by the articles of incorporation, the by-laws of the corporation may be made,
altered, amended or repealed by the shareholders or the board of directors, but
no by-law adopted by the shareholders may be altered, amended or repealed by the
board of directors if the by-laws so provide. The by-laws may contain any
provisions for the regulation and management of the affairs of the corporation
not inconsistent with law or the articles of incorporation.
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ARTICLE XII
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
SECTION 12.1 Power to Hold Harmless. The corporation shall have the power
to 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 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 such person acted in good faith and in a
manner he 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 conduct was unlawful. The termination of any
action, suit or proceeding by judgment or settlement, conviction or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interest of the corporation, or
with respect to any criminal action or proceeding, that the person had
reasonable cause to believe that his conduct was unlawful.
SECTION 12.2 Power to Indemnify Litigant. The corporation shall have power
to indemnify any person who was or is a party 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 such
person is or was a director, officer, employee or agent of the corporation, of
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 such person in connection with the defense or settlement
of such action or suit if such person 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 persons shall have been adjudged to be
liable for negligence or misconduct in the performance of his or her duty to the
corporation, unless, and only to the extent that the court in which such action
or suit was brought 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 as the
court shall deem proper.
SECTION 12.3 Reimbursement Authorized. To the extent that a director,
officer, employee, or agent of a corporation has been successful, on the merits
or otherwise, in defense of any action, suit or proceeding referred to Sections
12.1 and 12.2 above, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection therewith.
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SECTION 12.4 Determination if Reimbursement is Proper. Any indemnification
under Sections 12.1 and 12.2 above (unless ordered by court) shall be made by
the corporation only as authorized in the specific case, upon a determination
that indemnification of a director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 12.1 or 12.2 above. Such determination shall be made:
(a) by the board of directors by a majority of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or
(b) if such a quorum is not obtainable, or, event if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel
in a written opinion, or
(c) by the shareholders.
SECTION 12.5 Advance of Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding, as authorized by the
board of directors in the specific case, 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 entitled to be indemnified
by the corporation as authorized in this Article.
SECTION 12.6 Non-Exclusivity. The indemnification provided by this article
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any contract, 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 office, and shall 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 such a
person.
SECTION 12.7 Right to Acquire Insurance. The corporation shall have 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 such person and incurred by such person
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him or her against such liability
under the provisions of this Article.
SECTION 12.8 Notice of 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 shareholders meeting.
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SECTION 12.9 "Corporation"; Definition. For purposes of this Article,
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 with respect to the surviving corporation as such person would have with
respect to such merging corporation if its separate existence had continued.
SECTION 12.10 Miscellaneous Definitions. For purposes of this Article,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the corporation" shall include any services as a 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.
ARTICLE XIII
REPAYMENT OF DISALLOWED DEDUCTION
SECTION 13.1 Full Reimbursement by Officers. Any payments made to an
officer of the corporation such as salary, commission, bonus, interest, rent,
medical reimbursement or entertainment expense incurred by him which, for
Federal income tax purposes, shall be disallowed in whole or in part as a
deductible expense by the Internal Revenue Service, shall be reimbursed by such
officer to the corporation to the full extent of such disallowance.
SECTION 13.2 Security for Repayment. It shall be the duty of the directors,
as a board, to enforce payment of such amount disallowed. In lieu of payment by
the officer, subject to the determination of the directors, proportionate
amounts may be withheld from his future compensation payments until the amount
owed to the corporation has been recovered.
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APPENDIX E
CTI INDUSTRIES CORPORATION
2001 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purposes of the CTI Industries Corporation 2001 Stock Option Plan (the
"Plan") are to enable the Company to attract and retain the services of officers
and other key employees, to retain able consultants and advisors and to motivate
such persons to use their best efforts on behalf of the Company.
2. GENERAL PROVISIONS
2.1 Definitions
As used in the Plan:
(a) "Board of Directors" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, including any and all
amendments thereto.
(c) "Committee" means the committee appointed by the Board of Directors
from time to time to administer the Plan pursuant to Section 2.2.
(d) "Common Stock" means the Company's Common Stock, $.195 par value.
(e) "Fair Market Value" means, with respect to a specific date, the value
of the Common Stock as determined in good faith by the Committee on
the basis of such quotations and other considerations as the Committee
deems appropriate.
(f) "Incentive Stock Option" means an option granted under the Plan which
is intended to qualify as an incentive stock option under Section 422
of the Code.
(g) "NASDAQ" means the NASDAQ SmallCap Market
(h) "Non-Qualified Stock Option" means an option granted under the Plan
which is not an Incentive Stock Option.
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(i) "Participant" means a person to whom a Stock Option has been granted
under the Plan.
(j) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended from time to time, or any successor
rule.
(k) "Stock Option" means an Incentive Stock Option or a Non-Qualified
Stock Option granted under the Plan.
(l) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the
time of the granting of the Stock Option, each of the corporations
other than the last corporation in the unbroken chain owns 50% or more
of the total voting power of all classes of stock in one of the other
corporations in such chain.
2.2 Administration of the Plan
(a) The Plan shall be administered by the Committee which shall at all
times consist of two (2) or more persons, each of whom shall be a
member of the Board of Directors. Each member of the Committee shall
be a non-employee (as such term is defined in Rule 16b-3). The Board
of Directors may from time to time remove members from, or add members
to, the Committee. Vacancies on the Committee, howsoever caused, shall
be filled by the Board of Directors. The Committee shall select one of
its members as Chairman, and shall hold meetings at such times and
places as it may determine.
(b) The Committee shall have the full power, subject to and within the
limits of the Plan, to: (i) interpret and administer the Plan and
Stock Options granted under it; (ii) make and interpret rules and
regulations for the administration of the Plan and to make changes in
and revoke such rules and regulations (and in the exercise of this
power, shall generally determine all questions of policy and
expediency that may arise and may correct any defect, omission, or
inconsistency in the Plan or any agreement evidencing the grant of any
Stock Option in a manner and to the extent it shall deem necessary to
make the Plan fully effective); (iii) determine those persons to whom
Stock Options shall be granted and the number of Stock Options to be
granted to any person; (iv) determine the terms of Stock Options
granted under the Plan, consistent with the provision of the Plan; and
(v) generally, exercise such powers and perform such acts in
connection with the Plan as are deemed necessary or expedient to
promote the best interests of the Company. The interpretation and
construction by the Committee of any provision of the Plan or of any
Stock Option shall be final, binding and conclusive.
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(c) The Committee may act only by a majority of its members then in
office; however, the Committee may authorize any one (1) or more of
its members or any officer of the Company to execute and deliver
documents on behalf of the Committee.
(d) No member of the Committee shall be liable for any action taken or
omitted to be taken or for any determination made by him or her in
good faith with respect to the Plan, and the Company shall indemnify
and hold harmless each member of the Committee against any cost or
expense (including counsel fees) or liability (including any sum paid
in settlement of a claim with the approval of the Committee) arising
out of any act or omission in connection with the administration or
interpretation of the Plan, unless arising out of such person's own
fraud or bad faith.
2.3 Effective Date
The Plan shall become effective on June 1, 2001, upon its adoption by the
Board of Directors, and Stock Options may be granted upon such adoption and from
time to time thereafter, subject, however, to approval of the Plan by
affirmative vote of the holders of a majority of the shares of the Common Stock,
within 12 months after the adoption of the Plan by the Board of Directors. If
the Plan is not approved at such annual or special meeting or at any
adjournments thereof, this Plan and all Stock Options previously granted
thereunder shall become null and void.
2.4 Duration
If approved by the shareholders of the Company, as provided in Section 2.3,
unless sooner terminated by the Board of Directors, the Plan shall remain in
effect for a period of ten (10) years following its adoption by the Board of
Directors.
2.5 Shares Subject to the Plan
The maximum number of shares of Common Stock which may be subject to Stock
Options granted under the Plan shall be 100,000. The Stock Options shall be
subject to adjustment in accordance with Section 4.1, as appropriate, and shares
to be issued upon exercise of Stock Options may be either authorized and
unissued shares of Common Stock or authorized and issued shares of Common Stock
purchased or acquired by the Company for any purpose. If a Stock Option or
portion thereof shall expire or is terminated, cancelled or surrendered for any
reason without being exercised in full, the unpurchased shares of Common Stock
which were subject to such Stock Option or portion thereof shall be available
for future grants of Stock Options under the Plan.
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2.6 Amendments
The Plan may be suspended, terminated or reinstated, in whole or in part,
at any time by the Board of Directors. The Board of Directors may from time to
time make such amendments to the Plan as it may deem advisable, including, with
respect to Incentive Stock Options, amendments deemed necessary or desirable to
comply with Section 422 of the Code and any regulations issued thereunder;
provided, however, that without the approval of the Company's shareholders no
amendment shall be made which:
(a) Increases the maximum number of shares of Common Stock which may be
subject to Stock Options granted under the Plan (other than as
provided in Section 4.1, as appropriate); or
(b) Extends the term of the Plan; or
(c) Increases the period during which a Stock Option may be exercised
beyond ten (10) years from the date of grant; or
(d) Otherwise materially increases the benefits accruing to Participants
under the Plan;
(e) Materially modifies the requirements as to eligibility for
participation in the Plan; or
(f) Will cause Stock options granted under the Plan to fail to meet the
requirements of Rule 16b-3.
Except as otherwise provided herein, termination or amendment of the Plan shall
not, without the consent of a Participant, affect such Participant's rights
under any Stock Options previously granted to such Participant.
2.7 Participants and Grants
Stock Options may be granted by the Committee to (i) officers and other
employees of the Company and its Subsidiaries and (ii) consultants and advisors
who render bona fide services to the Company and its Subsidiaries, in each case,
where the Committee determines that such officer, employee, consultant or
advisor has the capacity to make a substantial contribution to the success of
the Company. The Committee may grant Stock Options to purchase such number of
shares of Common Stock (subject to the limitations of Sections 2.5, 3.6 and 3.9)
as the Committee may, in its sole discretion, determine. In granting Stock
Options under the Plan, the Committee, on an individual basis, may vary the
number of Incentive Stock Options or Non-Qualified Stock Options as between
Participants and may grant Incentive Stock Options and/or
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Non-Qualified Stock Options to a Participant in such amounts as the Committee
may determine in its sole discretion.
3. STOCK OPTIONS
3.1 General
All Stock Options granted under the Plan shall be evidenced by written
agreements executed by the Company and the Participant to whom granted, which
agreement shall state the number of shares of Common Stock which may be
purchased upon the exercise thereof and shall contain such investment
representations and other terms and conditions as the Committee may from time to
time determine, or, in the case of Incentive Stock Options, as may be required
by Section 422 of the Code, or any other applicable law.
3.2 Price
Subject to the provisions of Section 3.6(d) and 4.1, the purchase price per
share of Common Stock subject to a Stock Option shall, in no case, be less than
one hundred percent (100%) of the Fair Market Value of a share of Common Stock
on the date the Stock Option is granted; provided, however, that the Board of
Directors may authorize the grant of a Non-Qualified Stock Option with a
purchase price per share less than the Fair Market Value if the amount of the
difference between the option purchase price and the Fair Market Value is
designated in the resolution authorizing the option.
3.3 Period
The duration or term of each Stock Option granted under the Plan shall be
for such period as the Committee shall determine but in no event more than ten
(10) years from the date of grant thereof.
3.4 Exercise
Subject to Section 4.4, Stock Options may be exercisable immediately upon
granting of the Stock Option or at such other time or times as the Committee
shall specify when granting the Stock Option. Once exercisable, a Stock Option
shall be exercisable, in whole or in part, by delivery of a written notice of
exercise to the Secretary of the Company at the principal office of the Company
specifying the number of shares of Common Stock as to which the Stock Option is
then being exercised together with payment of the full purchase price for the
shares being purchased upon such exercise. Until the shares of Common Stock as
to which a Stock Option is exercised are issued, the Participant shall have none
of the rights of a shareholder of the Company with respect to such shares.
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3.5 Payment
The purchase price for shares of Common Stock as to which a Stock Option
has been exercised and any amount required to be withheld, as contemplated by
Section 4.3, may be paid:
(a) In United States dollars in cash, or by check, bank draft or money
order payable in United States dollars to the order of the Company; or
(b) By the delivery by the Participant to the Company of whole shares of
Common Stock having an aggregate Fair Market Value on the date of
payment equal to the aggregate of the purchase price of Common Stock
as to which the Stock Option is then being exercised or by the
withholding of whole shares of Common Stock having such Fair Market
Value upon the exercise of such Stock Option; or
(c) By a combination of both (a) and (b) above.
The Committee may, in its discretion, impose limitations, conditions and
prohibitions on the use by a Participant of shares of Common Stock to pay the
purchase price payable by such Participant upon the exercise of a Stock Option.
3.6 Special Rules for Incentive Stock Options
Notwithstanding any other provision of the Plan, the following provisions
shall apply to Incentive Stock Options granted under the Plan:
(a) Incentive Stock Options shall only be granted to Participants who are
employees of the Company or its Subsidiaries.
(b) To the extent that the aggregate Fair Market Value of Common Stock,
with respect to which Incentive Stock Options are exercisable for the
first time by a Participant during any calendar year under this Plan
and any other Plan of the Company or a Subsidiary exceeds $100,000,
such Stock Options shall be treated as Non-Qualified Stock Options.
(c) Any Participant who disposes of shares of Common Stock acquired upon
the exercise of an Incentive Stock Option by sale or exchange either
within two (2) years after the date of the grant of the Incentive
Stock Option under which the shares were acquired or within one (1)
year of the acquisition of such shares, shall promptly notify the
Secretary of the Company at the principal office of the Company of
such disposition, the amount realized, the purchase price per share
paid upon the exercise and the date of disposition.
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(d) No Incentive Stock Option shall be granted to a Participant who, at
the time of the grant, owns stock representing more than ten percent
(10%) of the total combined voting power of all classes of stock
either of the Company or any parent or Subsidiary of the Company,
unless the purchase price of the shares of Common Stock purchasable
upon exercise of such Incentive Stock Option is at least one hundred
ten percent (110%) of the Fair Market Value (at the time the Incentive
Stock Option is granted) of the Common Stock and the Incentive Stock
Option is not exercisable more than five (5) years from the date it is
granted.
3.7 Termination of Employment
(a) In the event a Participant's employment by, or relationship with, the
Company shall terminate for any reason other than those reasons
specified in Sections 3.7(b), (c), (d) or (e) hereof while such
Participant holds Stock Options granted under the Plan, then all
rights of any kind under any outstanding Option held by such
Participant which shall not have previously lapsed or terminated shall
expire immediately.
(b) If a Participant's employment by, or relationship with, the Company or
its Subsidiaries shall terminate as a result of such Participant's
total disability, each Stock Option held by such Participant (which
has not previously lapsed or terminated) shall be exercisable by such
Participant for a period of six months after termination but only to
the extent the Option is otherwise exercisable during that period.
Notwithstanding the foregoing, the Committee may in the event of such
disability accelerate the date after which a Stock Option is
exercisable, in whole or in part, which change shall be in the
Committee's sole discretion and be final, binding and conclusive. For
purposes of this paragraph, "total disability" shall mean permanent
mental or physical disability as determined by the Committee.
(c) In the event of the death of a Participant, each Stock Option held by
such Participant (which has not previously lapsed or terminated) shall
be exercisable by the executor or administrator of the Participant's
estate or by the person or persons to whom the deceased Participant's
rights thereunder shall have passed by will or by the laws of descent
or distribution, for a period of six (6) months after such
Participant's death but only to the extent the Option is otherwise
exercisable during that period. Notwithstanding the foregoing, the
Committee may in the event of such death accelerate the date after
which a Stock Option is exercisable, in whole or in part, which change
shall be in the Committee's sole discretion and be final, binding and
conclusive.
(d) If a Participant's employment by the Company shall terminate by reason
of such Participant's retirement in accordance with Company policies,
each Stock Option
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held by such Participant at the date of termination (which has not
previously lapsed or terminated) shall be exercisable for a period of
three (3) months after termination, but only to the extent the Option
is otherwise exercisable during that period.
(e) In the event the Company terminates the employment of a Participant
who at the time of such termination was an officer of the Company and
had been continuously employed by the Company during the two (2) year
period immediately preceding such termination, for any reason except
"good cause" (hereafter defined) and except upon such Participant's
death, total disability or retirement in accordance with Company
policies, each Stock Option held by such Participant (which has not
previously lapsed or terminated and which has been held by such
Participant for more than six (6) months prior to such termination)
shall be exercisable for a period of three (3) months after such
termination, but only to the extent the Option is otherwise
exercisable during that period. A termination for "good cause" shall
be deemed to have occurred only if the Participant in question (i) is
terminated by written notice for dishonesty, because of his conviction
of a felony, or because of his violation of any material provision of
any employment or other agreement with the Company or any of its
Subsidiaries, or (ii) shall voluntarily resign or terminate his
employment with the Company or any of its Subsidiaries under or
followed by such circumstances as would constitute a breach of any
material provision of any employment or other agreement between him
and the Company or any of its Subsidiaries, or (iii) shall have
committed an act of dishonesty not discovered by the Company or any of
its Subsidiaries prior to the cessation of his employment with the
Company or any of its Subsidiaries, but which would have resulted in
his discharge if discovered prior to such date, or (iv) shall, either
before or after cessation of his employment with the Company or any of
its Subsidiaries, without the written consent of the company or any of
its Subsidiaries, use (except for the benefit of the Company or any of
its Subsidiaries) or disclose to any other person any confidential
information relating to the business or any trade secrets of the
Company or any of its Subsidiaries obtained as a result of or in
connection with such employment.
3.8 Effect of Leaves of Absence
It shall not be considered a termination of employment when a Participant
is on military or sick leave or such other type leave of absence which is
considered as continuing intact the employment relationship of the Participant
with the Company or any of its Subsidiaries. In case of such leave of absence,
the employment relationship shall be deemed to have continued until the later of
(i) the date when such leave shall have lasted ninety (90) days in duration, or
(ii) the date as of which the Participant's right to employment shall have no
longer been guaranteed either by statute or contract.
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3.9 Limitation on Number of Options Granted to Employees
The maximum number of shares for which options may be granted to an
employee of the Company during any calender year shall not exceed 100,000.
4. MISCELLANEOUS PROVISIONS
4.1 Adjustments Upon Changes in Capitalization
(a) In the event of changes to the outstanding shares of Common Stock of
the Company through reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend,
stock consolidation or otherwise, or in the event of a sale of all or
substantially all of the assets of the Company, an appropriate and
proportionate adjustment shall be made in the number and kind of
shares as to which Stock Options may be granted. A corresponding
adjustment changing the number or kind of shares and/or the purchase
price per share of unexercised Stock Options or portions thereof which
shall have been granted prior to any such change shall likewise be
made.
(b) Notwithstanding the foregoing, in the case of a reorganization, merger
or consolidation, or sale of all or substantially all of the assets of
the Company, in lieu of adjustments as aforesaid, the Committee may in
its discretion accelerate the date after which a Stock Option may or
may not be exercised or the stated expiration date thereof.
Adjustments or changes under this Section shall be made by the
Committee, whose determination as to what adjustments or changes shall
be made, and the extent thereof, shall be final, binding and
conclusive.
4.2 Non-Transferability
No Stock Option shall be transferable except by will or the laws of descent
and distribution, nor shall any Stock Option be exercisable during the
Participant's lifetime by any person other than the Participant or his guardian
or legal representative.
4.3 Withholding
The Company's obligations under this Plan shall be subject to applicable
federal, state and local tax withholding requirements. Federal, state and local
withholding tax due at the time of a grant or upon the exercise of any Stock
Option may, in the discretion of the Committee, be paid in shares of Common
Stock already owned by the Participant or through the withholding of shares
otherwise issuable to such Participant, upon such terms and conditions as the
Committee shall determine. If the Participant shall fail to pay, or make
arrangements satisfactory to the Committee for the payment, to the Company of
all such federal, state and local taxes required to be withheld by the Company,
then the Company shall, to the extent permitted by law, have the
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right to deduct from any payment of any kind otherwise due to such Participant
an amount equal to any federal, state or local taxes of any kind required to be
withheld by the Company.
4.4 Compliance with Law and Approval of Regulatory Bodies
No Stock Option shall be exercisable and no shares will be delivered under
the Plan except in compliance with all applicable federal and state laws and
regulations including, without limitation, compliance with all federal and state
securities laws and withholding tax requirements and with the rules of NASDAQ
and of all other domestic stock exchanges on which the Common Stock may be
listed. Any share certificate issued to evidence shares for which a Stock Option
is exercised may bear legends and statements the Committee shall deem advisable
to assure compliance with federal and state laws and regulations. No Stock
Option shall be exercisable and no shares will be delivered under the Plan,
until the Company has obtained consent or approval from regulatory bodies,
federal or state, having jurisdiction over such matters as the Committee may
deem advisable. In the case of the exercise of a Stock Option by a person or
estate acquiring the right to exercise the Stock Option as a result of the death
of the Participant, the Committee may require reasonable evidence as to the
ownership of the Stock Option and may require consents and releases of taxing
authorities that it may deem advisable.
4.5 No Right to Employment
Neither the adoption of the Plan nor its operation, nor any document
describing or referring to the Plan, or any part thereof, nor the granting of
any Stock Options hereunder, shall confer upon any Participant under the Plan
any right to continue in the employ of the Company or any Subsidiary, or shall
in any way affect the right and power of the Company or any Subsidiary to
terminate the employment of any Participant at any time with or without
assigning a reason therefore, to the same extent as might have been done if the
Plan had not been adopted.
4.6 Exclusion from Pension Computations
By acceptance of a grant of a Stock Option under the Plan, the recipient
shall be deemed to agree that any income realized upon the receipt or exercise
thereof or upon the disposition of the shares received upon exercise will not be
taken into account as "base remuneration", "wages", "salary" or "compensation"
in determining the amount of any contribution to or payment or any other benefit
under any pension, retirement, incentive, profit-sharing or deferred
compensation plan of the Company or any Subsidiary.
4.7 Abandonment of Options
A Participant may at any time abandon a Stock Option prior to its
expiration date. The abandonment shall be evidenced in writing, in such form as
the Committee may from time to time prescribe. A Participant shall have no
further rights with respect to any Stock Option so abandoned.
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4.8 Severability
If any of the terms or provisions of the Plan conflict with the
requirements of Rule 16b-3, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of Rule 16b-3.
4.9 Interpretation of the Plan
Headings are given to the Sections of the Plan solely as a convenience to
facilitate reference, such headings, numbering and paragraphing shall not in any
case be deemed in any way material or relevant to the construction of the Plan
or any provision hereof. The use of the masculine gender shall also include
within its meaning the feminine. The use of the singular shall also include
within its meaning the plural and vice versa.
4.10 Use of Proceeds
Funds received by the Company upon the exercise of Stock Options shall be
used for the general corporate purposes of the Company.
4.11 Construction of Plan
The place of administration of the Plan shall be in the State of Illinois,
and the validity, construction, interpretation, administration and effect of the
Plan and of its rules and regulations, and rights relating to the Plan, shall be
determined solely in accordance with the laws of the State of Illinois.
BOARD OF DIRECTORS APPROVAL April 12, 2001
SHAREHOLDER APPROVAL ______________________________
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REVOCABLE PROXY CTI INDUSTRIES CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON JUNE 29, 2001
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Howard W. Schwan, John H. Schwan, Stephen M.
Merrick or any of them, with full powers of substitution, as proxies of the
undersigned, with the authority to vote upon and act with respect to all shares
of common stock, par value $.195 of CTI Industries Corporation (the "Company"),
which the undersigned is entitled to vote, at the Annual Meeting of Stockholders
of the Company, to be held at Wyndham Garden Hotel - Schaumburg, 800 National
Parkway, Schaumburg, Illinois, 60173, commencing Friday, June 29, 2001, at 10:00
a.m., and at any and all adjournments thereof, with all the powers the
undersigned would possess if then and there personally present, and especially
(but without limiting the general authorization and power hereby given) with the
authority to vote on the following:
Item 1. Election of two directors:
[_] FOR ALL NOMINEES (except as [_] WITHHOLD AUTHORITY
marked to the contrary on to vote for all nominees
the line below) listed below
Nominees (term, if elected, expires 2002):
Stanley M. Brown Bret Tayne
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE OR NOMINEES, WRITE HIS
OR THEIR NAME OR NAMES IN THE SPACE BELOW:
- --------------------------------------------------------------------------------
Item 2. Proposal to approve a change in the Company's State of Incorporation
from Delaware to Illinois
[_] FOR [_] AGAINST [_] ABSTAIN
Item 3. Proposal to approve of a provision in the Company's Illinois Articles
of Incorporation (in the event of a merger pursuant to Item 2 above) not
to be governed by Section 11.75 of the Illinois Business Corporation Act
of 1983, as amended.
[_] FOR [_] AGAINST [_] ABSTAIN
Item 4. Proposal to approve the adoption of the Company's 2001 Stock Option
Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
Item 5. Proposal to ratify the appointment of Grant Thornton, L.L.P. as auditors
of Company for 2001.
[_] FOR [_] AGAINST [_] ABSTAIN
Item 6. In their discretion, on any and all other matters as may properly come
before the meeting.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to said stock and hereby ratifies and confirms all that
the proxies named herein and their substitutes, or any of them, may lawfully do
by virtue hereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED HEREIN. IF THIS
PROXY DOES NOT INDICATE A CONTRARY CHOICE, IT WILL BE VOTED FOR ITEMS 1 THROUGH
5 AND IN THE DISCRETION OF THE PERSONS NAMED AS PROXIES HEREIN WITH RESPECT TO
ANY AND ALL MATTERS REFERRED TO IN ITEM 6 ABOVE.
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Signature of Stockholder
Dated: __________________________, 2001
NOTE: Please date proxy and sign it exactly as name or names appear above. All
joint owners of shares should sign. State full title when signing as executor,
administrator, trustee, guardian, et cetera. Please return signed proxy in the
enclosed envelope.