SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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 240.14a-11(c) or 240.14a-12
HA-LO INDUSTRIES, INC.
- -----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- -----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
HA-LO INDUSTRIES, INC.
5980 WEST TOUHY AVENUE
NILES, ILLINOIS 60714
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AUGUST 31, 2000
------------------------
Notice is hereby given that the Annual Meeting of Shareholders of HA-LO
Industries, Inc., an Illinois corporation (the "Company"), will be held at 303
EAST WACKER DRIVE, SUITE 2300, CHICAGO, ILLINOIS on Thursday, August 31, 2000 at
10:00 a.m., local time, for the following purposes:
(1) To elect nine directors to serve until the next Annual Meeting of
Shareholders or until their successors are duly elected and qualified;
(2) To approve a proposal to change the state of incorporation of the
Company from Illinois to Delaware by the merger of the Company into a
wholly-owned subsidiary of the Company which is incorporated under the
laws of Delaware, which reincorporation will cause certain changes to the
Company's Articles of Incorporation and by-laws, all of which is more
fully described in the accompanying Proxy Statement;
(3) To approve the adoption of the HA-LO Industries, Inc. 2000 Stock Option
Plan;
(4) To ratify the reappointment of the firm of Arthur Andersen LLP as the
Company's independent auditors for 2000;
(5) To consider and vote upon a proposal to postpone or adjourn the meeting,
if proposed by your board of directors; and
(6) To transact such other business as may properly come before the meeting
or any postponement or adjournment thereof.
You are entitled to exercise dissenters' rights in connection with the
merger in accordance with the Illinois Business Corporation Act of 1983, as
amended (the "IBCA"). In order to exercise dissenters' rights, you must:
- deliver to the Company, before the vote is taken at the annual meeting, a
written demand for payment of your shares of the Company's common or
preferred stock if the merger is completed;
- NOT vote in favor of the proposal to change the state of incorporation of
the Company from Illinois to Delaware by the merger of the Company into a
wholly-owned subsidiary of the Company which is incorporated under the
laws of Delaware; and
- comply with the other requirements contained in Sections 11.65 and 11.70
of the IBCA.
For additional details regarding dissenters' rights, please read carefully
the section of the accompanying proxy statement captioned "Rights of Dissenting
Shareholders."
Shareholders of record at the close of business on July 21, 2000 are
entitled to notice of and to vote at the meeting and at any postponements or
adjournments thereof. A complete list of the shareholders entitled to vote at
the meeting will be subject to inspection by any shareholder at the Company's
principal executive office, 5980 West Touhy Avenue, Niles, Illinois 60714,
during usual business hours, for a period of ten days prior to the meeting.
By Order of the Board of Directors,
[SIG]
JOHN R. KELLEY, JR.
CHIEF EXECUTIVE OFFICER
Niles, Illinois
July 28, 2000
THE BOARD OF DIRECTORS EXTENDS A CORDIAL INVITATION TO ALL SHAREHOLDERS TO
ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN AS PROMPTLY AS POSSIBLE THE ENCLOSED PROXY IN
THE ACCOMPANYING REPLY ENVELOPE. SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE
THEIR PROXIES AND VOTE IN PERSON.
HA-LO INDUSTRIES, INC.
5980 WEST TOUHY AVENUE
NILES, ILLINOIS 60714
------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
AUGUST 31, 2000
------------------------
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors of HA-LO
Industries, Inc., an Illinois corporation ("HA-LO" or the "Company"), for use at
the Annual Meeting of Shareholders of the Company to be held on the date, at the
time and place and for the purposes set forth in the accompanying Notice of
Annual Meeting of Shareholders and at any postponements or adjournments thereof.
The Company's principal executive office is located at 5980 West Touhy Avenue,
Niles, Illinois 60714 and its telephone number is (847) 647-2300. Shareholders
of record at the close of business on July 21, 2000 are entitled to notice of
and to vote at the meeting. This Proxy Statement and the accompanying proxy are
first being mailed to shareholders on or about July 28, 2000.
THE MEETING
VOTING AT THE MEETING
On July 21, 2000, there were issued and outstanding 64,080,230 shares of
common stock, no par value (the "Common Stock"), and 4,888,904 shares of
Series A convertible participating preferred stock, no par value (the "Series A
Preferred Stock"). Each share of Common Stock and Series A Preferred Stock
issued and outstanding on the record date entitles the holder thereof to one
vote on all matters submitted to a vote of shareholders at the meeting.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock and Series A Preferred Stock will constitute
a quorum. The affirmative vote of the holders of a majority of the shares
represented at the meeting, whether present in person or represented by proxy,
will be necessary for the election of directors, the approval of the adoption of
the 2000 Stock Option Plan and for the ratification of the reappointment of the
firm of Arthur Andersen LLP as the Company's independent auditors for 2000. The
approval of the change in the Company's state of incorporation will require the
affirmative vote of the holders of a majority of the total issued and
outstanding shares of Common Stock and Series A Preferred Stock. Abstentions and
broker non-votes (shares held of record 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.
PROXIES AND PROXY SOLICITATION
All shares of Common Stock and Series A Preferred Stock represented by
properly executed proxies will be voted at the meeting in accordance with the
directions marked on the proxies, unless such proxies previously have been
revoked. If no directions are indicated on such proxies, they will be voted FOR
the election of each nominee named below under "Election of Directors" and FOR
proposals 2 through 5. If any other matters are properly presented at the
meeting for action, which is not presently anticipated, the named proxies will
vote in accordance with their best judgment. Each proxy executed and returned by
a shareholder may be revoked at any time before it is voted by timely submission
of written notice of revocation or by submission of a duly executed proxy
bearing a later date (in either case directed to the Secretary of the Company)
or, if a shareholder is present at the meeting, he or she may elect to revoke
his or her proxy and vote his or her shares in person.
In addition to solicitation by mail, certain directors, officers and other
employees of the Company, not specially employed for this purpose, may solicit
proxies, without additional remuneration therefor, by personal interview, mail,
telephone or telecopy. The Company will request brokers and other fiduciaries to
forward proxy soliciting material to the beneficial owners of shares of Common
Stock or Series A Preferred Stock that are held of record by such brokers and
fiduciaries and will reimburse such persons for their reasonable out-of-pocket
expenses.
2
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of May 31, 2000, certain information
concerning the beneficial ownership of Common Stock by (i) all directors and
nominees, (ii) each of the current or former executive officers named in the
Summary Compensation Table above and (iii) all directors and current executive
officers as a group. Unless otherwise indicated, each person has sole investment
and voting power (or shares such powers with his or her spouse) with respect to
the shares shown as beneficially owned by that person.
NUMBER OF SHARES
BENEFICIALLY OWNED APPROXIMATE
NAME AND ADDRESS(1) ON MAY 31, 2000 PERCENT OF CLASS
- ------------------- ------------------ ----------------
John R. Kelley, Jr.......................................... 831,659(2) 1.3%
Lou Weisbach................................................ 3,399,578(3) 5.3%
Linden D. Nelson............................................ 3,121,926(4) 4.9%
Bradley A. Keywell.......................................... 5,826,734(5) 9.1%
Eric P. Lefkofsky........................................... 5,776,734(6) 9.0%
Marshall J. Katz............................................ 509,772(7) *
Thomas Herskovits........................................... 128,846(8) *
Brian M. Hermelin........................................... 135,012(9) *
Seymour N. Okner............................................ 689,454(10) 1.1%
Richard A. Heise, Jr........................................ 94,387(11) *
Michael J. Linderman........................................ 69,405(12) *
Gregory J. Kilrea........................................... 138,251(13) *
Jon Sloan................................................... 20,130(14) *
Richard A. Magid............................................ 441,736(15) *
All Directors and Executive Officers, as a group
(12 persons).............................................. 20,693,108 30.9%
- ------------------------
* Less than one percent.
(1) The address of each executive officer and director of the Company is in
care of the Company, 5980 West Touhy Avenue, Niles, Illinois 60714.
(2) Includes 25,001 shares subject to options held by Mr. Kelley that are
exercisable on May 31, 2000 or within 60 days thereafter (the "Measurement
Period").
(3) Includes 806,251 shares subject to options held by Mr. Weisbach that are
exercisable during the Measurement Period, and 2,175,977 shares owned by
the Lou Weisbach Revocable Trust. Excludes 127,500 shares held in trust for
the benefit of Mr. Weisbach's wife and 76,780 shares held in trusts for the
benefit of Mr. Weisbach's children, over which Mr. Weisbach has no sole or
shared powers to vote or dispose.
(4) Includes 43,372 shares owned by Maple Lane Acquisition Limited Liability
Company ("Maple Lane"), of which Mr. Nelson is the managing member; 131,250
shares owned by Mr. Nelson's wife; 78,300 shares held by a charitable
foundation of which Mr. Nelson is President; and 485,739 shares subject to
options exercisable during the Measurement Period. Excludes 262,500 shares
held in trusts for the benefit of Mr. Nelson's children, over which
Mr. Nelson has no voting or dispositive powers.
3
(5) Consists of shares, including 553,216 shares of Common Stock issuable upon
the conversion of Series A Preferred Stock, owned by a family partnership
over which Mr. Keywell shares voting power.
(6) Consists of shares, including 553,216 shares of Common Stock issuable upon
the conversion of Series A Preferred Stock, owned by a family partnership
over which Mr. Lefkofsky shares voting power. Additionally, these shares
include (i) 150,672 shares of Common Stock and 15,806 shares of Series A
Preferred Stock held by his parents in a limited liability company and
(ii) 18,834 shares of Common Stock and 1,976 shares of Series A Preferred
Stock held by each of his brother and sister over which Mr. Lefkofsky has a
proxy to vote such shares.
(7) Includes 506,172 shares subject to options held by Mr. Katz that are
exercisable during the Measurement Period.
(8) Includes 32,718 shares held jointly with Mr. Herskovits' wife; 11,250
shares owned by Mr. Herskovits' minor son; and 76,253 shares subject to
options held by Mr. Herskovits that are exercisable during the Measurement
Period.
(9) Includes 115,000 shares held by David and Doreen Hermelin, over which Brian
Hermelin shares voting power; and 5,000 shares subject to options held by
Mr. Hermelin that are exercisable during the Measurement Period.
(10) Includes 50,000 shares subject to options held by Mr. Okner that are
exercisable during the Measurement Period, 529,241 shares owned by the
Seymour N. Okner Revocable Trust, 99,667 shares held by a charitable
foundation of which Mr. Okner is the President, and 46 shares held by
Mr. Okner's spouse. Excludes shares held in trusts for the benefit of two
of Mr. Okner's children, over which Mr. Okner has no sole or shared powers
to vote or dispose and in which Mr. Okner's spouse is a trustee.
Mr. Okner is presently a director of the Company but is not a nominee for
election to the Company's Board of Directors at the 2000 annual meeting.
(11) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 8,962 shares of Common Stock issuable upon the conversion of
Series A Preferred Stock.
(12) Includes 8,625 shares held by Mr. Linderman's wife, over which
Mr. Linderman shares voting power; 280 shares held jointly with his wife,
over which he shares voting power; and 60,500 shares subject to options
held by Mr. Linderman that are exercisable during the Measurement Period.
In May 2000, Mr. Linderman resigned from all positions held with the
Company.
(13) Consists of 138,251 shares subject to options held by Mr. Kilrea that are
exercisable during the Measurement Period.
(14) Includes 19,850 shares subject to options held by Mr. Sloan that are
exercisable during the Measurement Period.
(15) Includes 409,988 shares subject to options held by Mr. Magid that are
exercisable during the Measurement Period. In November 1999, Mr. Magid
resigned from his positions as a director and officer of the Company. In
May 2000, Mr. Magid resigned from his position as a consultant to the
Company.
4
PROPOSAL ONE--ELECTION OF DIRECTORS
Nine directors are to be elected to the Board of Directors. Each director
elected at the meeting will hold office until the next Annual Meeting of
Shareholders of the Company or until his respective successor is duly elected
and qualified.
The Board of Directors has nominated, and it is the intention of the persons
named as proxies to vote for the election of, the nominees named below, each of
whom has consented to serve as a director if elected. In the event that any of
the nominees should be unable to serve as a director, it is intended that the
proxies will be voted for the election of such substitute nominees, if any, as
shall be designated by the Board of Directors. Management has no reason to
believe that any nominee will be unable to serve.
There are no family relationships between any of the nominees and any of the
executive officers of the Company.
INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS(1)
The following table sets forth certain information as of May 31, 2000 with
respect to each nominee:
NAME AGE POSITION WITH THE COMPANY
- ---- -------- ----------------------------------------------------
Lou Weisbach.......... 51 Chairman of the Board of Directors
Linden D. Nelson...... 39 Vice Chairman of the Board of Directors
John R. Kelley, Jr.... 38 Director and Chief Executive Officer
Bradley A. Keywell.... 30 President and Director
Eric P. Lefkofsky..... 30 Chief Operating Officer, Vice President and Director
Thomas Herskovits..... 53 Director
Marshall J. Katz...... 51 Director
Brian M. Hermelin..... 35 Director
Richard A. Heise,
Jr.................. 36 Director
LOU WEISBACH has served as Chairman of the Board of the Company since its
incorporation in January 1988. He served as President and Chief Executive
Officer of the Company from January 1988 through November 1999. From 1972
through 1987, he operated the predecessor of the Company as a sole
proprietorship.
LINDEN D. NELSON has served as Vice Chairman of the Board of the Company
since the acquisition of Creative Concepts in Advertising, Inc. by the Company
in January 1997. Mr. Nelson was the chairman and chief executive officer of
Creative Concepts in Advertising, Inc.'s predecessor from its inception in
July 1979 through December 1996.
- ------------------------
(1) Only directorships of issuers with a class of securities registered pursuant
to Section 12 of the Exchange Act, or subject to the requirements of
Section 15(d) of the Exchange Act, and directorships of issuers registered
as investment companies under the Investment Company Act of 1940, as
amended, are required to be listed in the above table.
5
JOHN R. KELLEY, JR. was appointed Chief Executive Officer in November 1999
and a director of the Company in August 1999. He also served as President of the
Company from November 1999 to May 2000. He previously served as Chief Marketing
Officer of the Company and President of UPSHOT, which was acquired by the
Company in 1998. Mr. Kelley co-founded UPSHOT in 1994.
BRADLEY A. KEYWELL was appointed President and a director of the Company in
May 2000. He previously served as director and chief executive officer of
Starbelly.com, Inc., which was acquired by the Company in May 2000. Mr. Keywell
co-founded Starbelly.com in March 1999. From 1994 until May 2000, Mr. Keywell
served as director and president of Brandon Apparel Group, Inc., which is a
manufacturer and marketer of licensed apparel. During the three year term of
Mr. Keywell's employment agreement with the Company, he may designate an
individual, including himself, to be nominated by the Company's Board of
Directors for election by the shareholders to the Board. Pursuant to such
designation, Mr. Keywell was nominated for election to the Board at the 2000
annual meeting.
ERIC P. LEFKOFSKY was appointed Chief Operating Officer, Vice President and
a director of the Company in May 2000. He previously served as chairman of the
board, secretary and treasurer of Starbelly.com. Mr. Lefkofsky co-founded
Starbelly.com in March 1999. From 1994 until May 2000, Mr. Lefkofsky served as
director and chief executive officer of Brandon Apparel Group, Inc. During the
three year term of Mr. Lefkofsky's employment agreement with the Company, he may
designate two individuals, including himself, to be nominated by the Company's
Board of Directors for election by the shareholders to the Board. Pursuant to
such designations, Mr. Lefkofsky and Mr. Heise were nominated for election to
the Board at the 2000 annual meeting.
THOMAS HERSKOVITS has served as a director since 1992. Mr. Herskovits has
been the managing partner of Herskovits Enterprises, a venture capital company,
since 1996 and was the president and chief executive officer of Specialty Foods
Corp. from 1993 to 1996. From 1989 through 1993, he was president of the KGF
Frozen Products Group, an operating unit of Kraft General Foods. From 1984 to
1989, he was president of the Kraft Dairy Group of Kraft General Foods.
MARSHALL J. KATZ has been a director and an independent financial consultant
to the Company and other parties since 1992. From 1988 through 1991, Mr. Katz
was the owner and president of Northbrook Management Co., a money management
firm trading in futures and options.
BRIAN M. HERMELIN has served as a director since January 2000. Since 1995,
Mr. Hermelin has been a consultant to or officer of USA Jet Airlines, Inc. and
is currently its chief operating officer. Since 1997, Mr. Hermelin has served as
director of Bingham Financial Services, Inc., a regional financial services firm
providing commercial and residential mortgage products.
RICHARD A. HEISE, JR. has served as a director since June 2000. Since 1999,
he has been primarily occupied as a private investor. From 1997 through 1998,
Mr. Heise founded and served as chairman and chief executive officer of
Magnitude Network, LLC, an Internet solutions provider. From 1996 through 1998,
Mr. Heise founded and served as chief executive officer of Magnitude Holdings,
LLC, a private investment company. From 1991 through 1995, Mr. Heise served as
president of Financial Place Corporation, a real estate development management
business. Pursuant to a contractual right of Mr. Lefkofsky with the Company,
Mr. Heise was designated by Mr. Lefkofsky for nomination by the Company's Board
of Directors for election to the Board by the shareholders at the 2000 annual
meeting.
6
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has designated an Audit Committee and a Compensation
Committee. The Board of Directors has not designated a Nominating Committee;
rather, the Board of Directors as a whole performs the functions that would
otherwise be delegated to such committee.
Current members of the Audit Committee are Thomas Herskovits, Brian M.
Hermelin and Richard A. Heise, Jr. The functions of the Audit Committee include
assessing the scope of the Company's engagement of its independent public
accountants, reviewing their reports and recommending to the Board of Directors
the engagement and discharge of independent auditors. The Audit Committee also
meets with the financial staff of the Company to review accounting procedures
and internal audit controls.
Current members of the Compensation Committee are Thomas Herskovits,
Brian M. Hermelin and Richard A. Heise, Jr. The functions of the Compensation
Committee include setting executive officer salaries, determining annual bonuses
and administering the Company's incentive compensation plans, including the
HA-LO Industries, Inc. Stock Plan (the "Stock Plan"), the HA-LO
Industries, Inc. 1997 Stock Plan (Amended and Restated) (the "Restated Plan")
and the Executive Incentive Compensation Plan (the "Executive Incentive
Compensation Plan"). See "Report of the Compensation Committee on Executive
Compensation," below.
During 1999, the Board of Directors held five meetings and took action by
written consent five times, the Audit Committee held two meetings and the
Compensation Committee took action by meeting or written consent two times. Each
director attended at least 75% of the aggregate number of meetings held by the
Board of Directors and the committees, if any, on which he served during 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires each of the Company's executive officers and directors
and persons who beneficially own more than 10% of the Common Stock to file
initial reports of beneficial ownership and reports of changes in beneficial
ownership of the Company's equity securities. Based solely on a review of the
copies of such reports furnished to the Company, the Company believes that
during the fiscal year ended December 31, 1999, all of its officers, directors
and 10% beneficial owners timely filed all required reports, except for Lou
Weisbach and Jon Sloan, each of whom filed one late report required to be filed
on Form 4, Gregory J. Kilrea, who filed two late reports required to be filed on
Form 4, Marshall J. Katz, who filed three late reports required to be filed on
Form 4, and John R. Kelley, Jr., who filed one late report required to be filed
on Form 3.
7
CERTAIN TRANSACTIONS
On May 3, 2000, the Company completed its acquisition of
Starbelly.com, Inc. In connection with this acquisition, Mr. Keywell became
President and a director of the Company and Mr. Lefkofsky became Chief Operating
Officer, Vice President and a director of the Company. Additionally, Bloomfield
Partners Family Limited Partnership, L.P., a partnership over which Mr. Keywell
shares voting power, received 5,273,518 shares of Common Stock and 553,216
shares of Series A Preferred Stock in exchange for all of its shares of
Starbelly.com stock. Coventry Partners Family Limited Partnership, L.P., a
partnership over which Mr. Lefkosky shares voting power, received
5,085,178 shares of Common Stock and 553,216 shares of Series A Preferred Stock
in exchange for all of its shares of Starbelly.com stock. In connection with
such transaction, both Mr. Keywell and Mr. Lefkofsky entered into employment and
non-competition agreements, as well as stockholder, registration rights and
indemnity agreements, with the Company. Each of their employment agreements
includes a three year term with a base salary of $300,000. Mr. Heise, a director
of the Company, serves as general partner to Zebra Investments, L.P., a
Starbelly.com shareholder that received 854,250 shares of Common Stock and
89,615 shares of Series A Preferred Stock upon the closing of the Starbelly.com
transaction. As part of this partnership, Mr. Heise acquired an economic
interest in 85,425 shares of Common Stock and 8,962 shares of Series A Preferred
Stock.
During 1999, pursuant to two lease arrangements, Creative Concepts in
Advertising, Inc. and related entities ("CCA") leased office space near Detroit,
Michigan from 2100 E. Maple LLC ("E. Maple LLC"), a company controlled by
Mr. Nelson, Vice Chairman of the Company, and his spouse. Under these two leases
with E. Maple LLC, CCA paid approximately $601,389 for rent and related
expenses. The Company believes that the lease terms of the leases with
Mr. Nelson and his affiliates, including the rental payments, were no less
favorable to the Company than the terms the Company otherwise could obtain from
unaffiliated third parties.
During fiscal 1999, the Company paid approximately $1,306,388 to Motor City
Creative LLC ("Motor City") for embroidery and other services rendered to the
Company. Mr. Nelson indirectly owns a 49% interest in Motor City.
As part of the Company's acquisition of CCA, in January 1997, CCA,
Mr. Nelson and Maple Lane (an entity affiliated with Mr. Nelson) entered into
(i) a real estate purchase agreement whereby CCA purchased from Maple Lane a
parcel of undeveloped real property in Troy, Michigan (the "Troy Real Estate")
and (ii) a Real Property Put and Option Agreement whereby CCA would have the
right to require Maple Lane to (1) repurchase the Troy Real Estate and
(2) lease back the Troy Real Estate on agreed terms (the "Lease"). Mr. Nelson
guaranteed Maple Lane's obligation under these agreements. On January 5, 1999,
CCA delivered a put notice to Maple Lane, thereby requiring Maple Lane to
purchase the Troy Real Estate for an amount equal to approximately $9,600,000;
the closing of the transaction occurred on June 30, 1999. The terms of the Lease
provide for a triple net, five year term with two five year extensions at CCA's
option, with lease payments equal to approximately $1,033,331 per year.
Subsequent to the sale, the Company made lease payments of approximately
$520,000 for the use of this property in 1999.
Pursuant to a Consulting Agreement dated March 17, 1999, Marshall J. Katz, a
director of the Company, provides advisory and consulting services to the
Company, on a non-exclusive basis, with respect to acquisitions and business
combinations. Mr. Katz's compensation for such services is contingent upon the
successful completion of acquisitions for which he has rendered advice to the
8
Company. During 1999, Mr. Katz received approximately $910,000 and was granted
options to acquire 49,191 shares of Common Stock at the fair market value on
date of grant in consideration for consulting services he rendered.
During 1999, the Company billed Natural Golf and other entities associated
with Thomas Herskovits, a director of the Company, a total of approximately
$88,430 for promotional products sold. Mr. Herskovits serves as Chairman of the
Board of and owns a 26% equity interest in Natural Golf.
JR Katz Assoc., Inc., was retained by the Company as a broker representative
for group insurance and as an advisor for retirement plans. Jordon R. Katz, a
director of the Company until November 1999, serves as the President of JR Katz
Assoc., Inc. During fiscal 1999, JR Katz Assoc., Inc. earned insurance
commissions of $196,438 with respect to its work for the Company.
The Company has entered into employment agreements with some of its
executive officers. See "Executive Compensation--Employment and Change of
Control Agreements."
9
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain summary information with respect to
all compensation earned by or paid to each of (i) the Company's Chief Executive
Officer appointed in November 1999, (ii) its Chief Executive Officer from
January 1999 to November 1999, (iii) its four other most highly compensated
executive officers who were serving as executive officers on December 31, 1999,
and (iv) a former executive officer who would have qualified as one of the four
most highly compensated executive officers if he had served as an executive
officer on December 31, 1999, and whose total salary plus bonus for 1999
exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION SECURITIES
----------------------- OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($) OPTIONS(#)(2)
- --------------------------- -------- --------- ----------- --------------- -------------
John R. Kelley, Jr. .................. 1999 150,000 142,472 22,651 16,667
Director and Chief Executive Officer 1998(3) 75,000 -- 11,197 12,501
Lou Weisbach ......................... 1999 500,000 -- -- --
Chairman of the Board, Former 1998 500,000 -- -- --
Chief Executive Officer(4) 1997 500,000 -- -- 35,984
Linden D. Nelson ..................... 1999 500,000 -- -- --
Vice Chairman of the Board 1998 500,000 -- -- 102,000
1997 500,000 -- -- 429,734
Michael J. Linderman ................. 1999 235,000 -- 54,217 40,000
Former President--Promotional 1998(5) 63,269 -- -- 55,500
Products Group
Gregory J. Kilrea .................... 1999 220,192 -- -- 195,000
Chief Financial Officer 1998 174,231 -- -- 68,550
1997 137,692 29,063 -- 53,213
Jon Sloan ............................ 1999 75,000 135,390 -- 15,000
Vice President--National Accounts 1998 75,000 164,920 -- 11,100
1997 75,000 126,087 -- 12,450
Richard A. Magid ..................... 1999 300,000 -- -- --
Former Chief Operating Officer, 1998 290,577 -- -- 6,300
Treasurer and Assistant Secretary 1997 207,804 38,438 -- 105,563
- ------------------------
(1) Amounts shown for Mr. Kelley were earned under his employment agreement.
Amounts shown for Mr. Kilrea and Mr. Magid were earned under the Executive
Incentive Compensation Plan. Amounts shown for Mr. Sloan consist of
commissions earned for sales of Company products.
10
(2) Mr. Weisbach and Mr. Nelson each earned 35,984 options in 1997 under the
Executive Incentive Compensation Plan, which options were granted in 1998.
Mr. Kilrea and Mr. Magid each earned 14,063 options in 1997 under the
Executive Incentive Compensation Plan, which options were granted in 1998.
(3) Amounts earned by Mr. Kelley in 1998 reflect amounts paid by the Company
after Mr. Kelley became an employee in connection with an acquisition by the
Company on June 30, 1998.
(4) Mr. Weisbach resigned from his position as Chief Executive Officer in
November 1999.
(5) Mr. Linderman's employment with the Company commenced in September 1998. He
resigned from all positions with the Company in May 2000.
The following table sets forth information with respect to options to
purchase shares of the Company's Common Stock that were granted in 1999 to each
of the current and former executive officers named in the Summary Compensation
Table above. No stock appreciation rights ("SARs") were granted to any of the
persons listed on the table below during 1999.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#)(2) FISCAL YEAR(3) ($/SH) DATE 5%($) 10%($)
- ---- ------------- -------------- ----------- ---------- -------- --------
John R. Kelley, Jr............ 16,667 * 11.50 04/19/09 120,541 305,473
Lou Weisbach.................. 0 -- -- -- -- --
Linden D. Nelson.............. 0 -- -- -- -- --
Michael J. Linderman.......... 40,000 1.5% 5.94 08/23/09 149,425 378,673
Gregory J. Kilrea............. 7,500 * 14.42 02/01/09 50,667 144,740
35,000 1.3 12.13 05/26/09 266,997 676,623
2,500 * 12.06 05/28/09 18,961 48,051
50,000 1.9 4.75 11/08/09 149,362 378,514
100,000 3.8 7.00 11/08/09 73,725 532,028
Jon Sloan..................... 15,000 * 5.94 08/23/09 56,035 142,002
Richard A. Magid.............. 0 -- -- -- -- --
- ------------------------
* Less than 1%
(1) The amounts shown in these columns are the result of calculations at assumed
annual rates required by the SEC and are not intended to forecast possible
future appreciation, if any, of the price of the Company's Common Stock. The
Company did not use an alternative formula for a grant date valuation, as
the Company is not aware of any formula that will determine with reasonable
accuracy a present value based on future unknown or volatile factors.
(2) 100,000 options granted to Mr. Kilrea were granted at an exercise price
equal to $2.00 above the Fair Market Value of the Company's Common Stock on
the date of grant; all other options were granted at an exercise price equal
to the Fair Market Value of the Company's Common Stock on the date of grant.
All options vest over a three-year period in increments of one-third each on
the first, second and third anniversaries of the date of grant.
11
(3) Percentage calculations in this column include the number of options granted
to employees of the Company and non-employee independent sales
representatives for sales of Company products, which sales representatives
have subsequently become employees of the Company.
The following table sets forth information with respect to the options
exercised by and the unexercised options held by each of the current and former
executive officers named in the Summary Compensation Table above, as of
December 31, 1999.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FY-END(#) FY-END($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- ----------- ------------------------- -------------------------
John R. Kelley, Jr............ 0 0 4,167/25,001 0/0
Lou Weisbach.................. 0 0 794,256/23,990 145,214/0
Linden D. Nelson.............. 0 0 439,744/91,990 0/0
Michael J. Linderman.......... 0 0 20,500/75,000 0/62,400
Gregory J. Kilrea............. 0 0 105,562/258,076 0/187,500
Jon Sloan..................... 0 0 15,750/22,800 0/23,400
Richard A. Magid.............. 0 0 395,912/14,076 410,044/0
- ------------------------
(1) On December 31, 1999, the closing price per share of the Company's Common
Stock was $7.50.
COMPENSATION OF DIRECTORS
Pursuant to the Restated Plan, in 1999 each non-employee director of the
Company was entitled to receive compensation in the form of a non-qualified
stock option ("NSO") to purchase 15,000 shares of Common Stock at an exercise
price per share equal to the Fair Market Value (as defined in the Restated Plan)
of the Common Stock on the date of the first regularly scheduled Board of
Directors meeting during such calendar year. During fiscal 1999, each
non-employee director received under the Restated Plan an NSO to purchase 15,000
shares of Common Stock at an exercise price per share of $10.00.
On March 27, 2000, each non-employee director received under the Restated
Plan an NSO to purchase 15,000 shares of Common Stock at an exercise price of
$9.94.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
Mr. Kelley serves as the Chief Executive Officer of the Company pursuant to
a four and one-half year employment agreement which commenced on June 30, 1998.
Mr. Kelley's base salary is $200,000. He is eligible to receive bonus payments
and additional compensation based upon achievement of certain profit objectives.
Mr. Kelley is also eligible to receive additional compensation pursuant to the
Executive Incentive Compensation Plan. In the event of a "Change of Control,"
Mr. Kelley may terminate the employment agreement. A "Change of Control" is
defined as any transaction pursuant to which 50% or more of the outstanding
shares of the Company are acquired. The agreement prohibits Mr. Kelley from
disclosing confidential information regarding the Company, and during the period
of his employment with the Company and for three years thereafter,
(i) engaging, directly or indirectly, in any business in the United States or
where the Company conducts its business that directly competes with the business
of UPSHOT, the marketing services division of the Company; (ii) soliciting or
12
engaging in business conducted by the Company with a customer or prospective
customer; or (iii) soliciting any employee or independent contractor of the
Company that results in the termination of the employment or agency relationship
of such individual. Commencing on January 1, 2000, Mr. Kelley has voluntarily
foregone receipt of his base compensation.
Mr. Weisbach serves as the Chairman of the Board of the Company pursuant to
a five year employment agreement which commenced on January 1, 1997.
Mr. Weisbach's base salary is $500,000, which amount may be increased from time
to time by the Board of Directors; he is eligible to receive bonus payments and
additional compensation based upon achievement of profit objectives to be
established from time to time solely by the Board of Directors. Mr. Weisbach is
also eligible to receive additional compensation pursuant to the Executive
Incentive Compensation Plan. The employment agreement provides that on each
anniversary of its effective date, the term of Mr. Weisbach's employment
automatically shall be extended for an additional one year period, such that the
term of the agreement is restored to five years on December 31 of each year;
however, either party may elect not to so extend the agreement by giving notice
of such election at least 60 days prior to December 31 of each year. In the
event Mr. Weisbach's employment is terminated following a "Change of Control,"
he shall receive, for twenty-four (24) months, benefits no less favorable than
those he received under the employment agreement prior to such termination. A
"Change of Control" is defined as, among other things, (i) any consolidation or
merger wherein the Company is not the continuing or surviving company or which
contemplates that all or substantially all of the assets and/or business is
controlled by another, (ii) any sale, lease, exchange or transfer of all or
substantially all of the assets of the Company, (iii) approval by the
shareholders of liquidation or dissolution, (iv) any "person" becoming the
beneficial owner of more than 50% of the combined voting power of the Company,
(v) any sale, exchange or transfer of 50% of the securities of the Company
representing the total fair market value of the Company or the combined voting
power of the Company or (vi) if during a period of two consecutive years from
the effective date, individuals who at the beginning of such period constituted
the directors of the Company cease for any reason to constitute a majority
thereof.
Mr. Nelson serves as the Vice Chairman of the Board of the Company pursuant
to a five year employment agreement which commenced on January 3, 1997.
Mr. Nelson's base salary is $500,000, which amount may be increased from time to
time by the Board of Directors; he is eligible to receive bonus payments and
additional compensation based upon achievement of profit objectives to be
established from time to time solely by the Board of Directors. Mr. Nelson is
also eligible to receive additional compensation pursuant to the Executive
Incentive Compensation Plan. During the period of Mr. Nelson's employment with
the Company and for two years thereafter, the agreement prohibits Mr. Nelson
from (i) engaging, directly or indirectly, in any business in the United States
or Canada that competes with the business of the Company; (ii) soliciting or
engaging in business conducted by the Company with a customer or prospective
customer; or (iii) soliciting any employee or independent contractor of the
Company that results in the termination of the employment or agency relationship
of such individual.
Mr. Linderman served as the President of Promotional Products until May 5,
2000. Pursuant to a separation agreement and general release with the Company,
Mr. Linderman will continue to receive his $235,000 salary for a one year
period. In addition, the Company accelerated the vesting of 40,000 stock options
held by Mr. Linderman. As part of the agreement, the parties exchanged mutual
releases. Mr. Linderman also agreed not to disclose any confidential or
proprietary information of the Company or to, directly or indirectly, solicit or
hire employees of the Company through May 5, 2002.
13
Mr. Kilrea serves as the Chief Financial Officer of the Company pursuant to
an approximately thirty-eight month employment agreement which commenced on
November 9, 1999. Mr. Kilrea's base salary is $300,000, which amount may be
increased from time to time by the Board of Directors. He is entitled to receive
discretionary bonus payments of up to 25% of his base salary upon the attainment
of mutually established objectives. Mr. Kilrea is also eligible to receive
additional compensation pursuant to the Executive Incentive Compensation Plan.
In connection with his employment agreement, Mr. Kilrea received options to
purchase 150,000 shares of Company common stock, vesting over three years.
Mr. Kilrea may terminate the agreement within ninety days after Mr. Kelley
ceases to be Chief Executive Officer. If the Company elects not to renew the
term of the agreement for an additional year, Mr. Kilrea is entitled to receive
a severance payment equal to one year's base salary and bonus payment. The
agreement prohibits Mr. Kilrea from disclosing confidential information
regarding the Company, and during the period of his employment with the Company
and for one year thereafter, (i) engaging, directly or indirectly, in any
business in the United States that competes with the business of the Company; or
(ii) soliciting any employee or independent contractor of the Company that
results in the termination of the employment or agency relationship of such
individual.
Mr. Magid served as Chief Operating Officer, Vice President and Treasurer
until November 1999 pursuant to an employment agreement extending through
December 31, 2000. In November 1999, the Company and Mr. Magid amended his
employment agreement in connection with his resignation as an officer and
director of the Company. Pursuant to the amended agreement, his term of
employment was extended to November 2003 and Mr. Magid served as a consultant to
the Chief Executive Officer with a base salary of $300,000. Under such
agreement, he received a one time bonus of $100,000 on May 8, 2000. The amended
agreement also provided that all stock options previously granted to Mr. Magid
became fully vested and exercisable until the expiration of their respective
terms. As part of the amended agreement, the parties exchanged mutual releases.
Effective May 19, 2000, the Company and Mr. Magid agreed to terminate the term
of his employment. Pursuant to this agreement, Mr. Magid will receive $750,000,
payable in six installments through November 15, 2001. The agreement continues
to prohibit Mr. Magid from directly or indirectly disclosing any confidential or
proprietary information of the Company. The agreement also provides that
Mr. Magid shall not, directly or indirectly, compete with the Company through
November 15, 2002.
The Company has executed materially similar agreements with Linden D.
Nelson, Gregory J. Kilrea and Jon Sloan (each, an "Executive") to ensure the
continued dedication of such Executives notwithstanding the possibility, threat
or occurrence of a "Change of Control." The agreements become effective upon a
Change of Control.
"Change of Control" is defined in these agreements, generally, as (1) the
acquisition by an individual, group or entity (each, a "Person") of 30% of the
outstanding stock of the Company or the combined voting power of the then
outstanding voting power of the Company (but expressly excluding
(i) acquisitions directly from the Company by a Person whose holdings do not
exceed 40% of the outstanding stock or voting securities prior to or after such
acquisition, (ii) any acquisition by the Company, (iii) any acquisition by an
Employee Benefit Plan maintained and controlled by the Company, or (iv) certain
acquisitions by a corporation pursuant to a merger, consolidation or
reorganization); (2) members of the current Board of Directors cease to
constitute a majority of the Board of Directors unless such new Directors were
approved by a vote of at least a majority of the current Board of Directors; and
(3) certain reorganizations, mergers and consolidations of the Company or sales
of the assets of the Company unless, generally, 60% of the outstanding shares of
the
14
surviving entity are held by Persons who were holders of the Company prior to
such transaction, or at least a majority of the members of the Board of
Directors of such surviving company were members of the Company's Board of
Directors prior to such transaction.
Each agreement provides that, in the event an Executive's employment is
terminated following a Change of Control, as a result of the death or disability
of the Executive, by the Company other than for cause (as defined in the
agreement), or by the Executive for good reason (as defined in the agreement),
the Company will be obligated to pay the Executive a lump sum payment equal to
the Executive's accrued but unpaid base and bonus compensation.
In addition, if an Executive is terminated by the Company without cause
after a Change of Control, the Company will pay such Executive an amount equal
to the product of a multiple, specified in the agreement, times the sum of the
Executive's base salary plus a formula based upon the bonus or commission paid
to the Executive during the previous three years. The specified multiples, which
range from 2.0 to 2.99, differ for each Executive. In addition, the Company is
obligated to continue to provide to the Executive and/or the Executive's family,
for 90 days following termination, benefits that are comparable to the benefits
received by the Executive immediately prior to termination. In the event of the
Executive's employment is terminated due to death, disability or for cause, the
agreement shall terminate without further obligation to the Executive and all
accrued obligations shall be paid to the Executive within 30 days of
termination. The agreements prohibit the Executive from disclosing confidential
information regarding the Company, and during the period of Executive's
employment with the Company and for one year thereafter, (i) engaging, directly
or indirectly, in any business in the United States or Canada that directly
competes with the business of the Company; (ii) soliciting or engaging in
business conducted by the Company with a customer or prospective customer; or
(iii) soliciting any employee or independent contractor of the Company that
results in the termination of the employment or agency relationship of such
individual.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Thomas Herskovits,
Brian M. Hermelin and Richard A. Heise, Jr. None of the members of the
Compensation Committee is either a current or former officer or employee of the
Company.
15
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE EXCHANGE
ACT, THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN
WHOLE OR IN PART, THE REPORT PRESENTED BELOW AND THE PERFORMANCE GRAPH FOLLOWING
SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
REPORT OF THE COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee is currently comprised of Thomas Herskovits,
Brian M. Hermelin and Richard A. Heise, Jr., none of whom currently is or has
been in the past an officer or employee of the Company. The Compensation
Committee is responsible for setting executive officer salaries, determining
annual bonuses and administering the Company's incentive compensation plans,
including the Stock Plan, the Restated Plan and the Executive Incentive
Compensation Plan.
POLICY AND OBJECTIVES
The Compensation Committee believes that executive compensation should
attract, retain and motivate the highly qualified individuals required for the
success of the Company and should also be commensurate with performance. The
Compensation Committee also strives to ensure that the compensation of each
executive officer of the Company is fair in relation to his or her experience
and overall responsibility at the Company. In general, the Compensation
Committee considers both corporate and individual performance in determining
executive compensation. Corporate performance is evaluated by reviewing the
extent to which strategic and business plan goals are met. Individual
performance is evaluated by reviewing organization and management development
against set objectives. In making these evaluations, the Compensation Committee
relies upon input from the Chief Executive Officer regarding the financial
performance of the Company and the performance of specific employees.
Compensation for executive officers of the Company is divided into cash and
stock-based components as follows:
CASH-BASED COMPENSATION
The Company's cash-based compensation consists of salary, bonus and payments
pursuant to a non-qualified benefit plan maintained by the Company (the
"Non-Qualified Plan"). Annual base salary for each of the Company's executive
officers is paid either pursuant to an employment agreement between the officer
and the Company (see "Executive Compensation--Employment Agreements", above), or
upon the approval of the Compensation Committee, which annually reviews the base
salary payable to each executive officer. The Compensation Committee's
determination of annual salary is based upon its review of the officer's past
performance, the responsibilities associated with the officer's position and any
changes with respect thereto, and the recommendation of the Chief Executive
Officer. While the Compensation Committee acknowledges the subjective nature of
these determinations, it believes that the base salary paid to each of the
Company's executive officers fairly reflects that officer's prior performance,
position and overall contribution to the Company's success.
Under the Non-Qualified Plan, which was established by the Company in 1990,
eligible employees may elect to defer a certain amount of compensation for
payment at a later date. Currently, the Non-
16
Qualified Plan allows a participating employee to defer up to 25% of his or her
annual compensation (but not less than $1,350) for a minimum of at least five
years. Compensation that is deferred under the Non-Qualified Plan is eligible
for an "Employer Match" equal to 50% of the deferred amount (up to a maximum of
$2,000 per year), which vests on an installment basis according to a formula set
forth in the Non-Qualified Plan. The Non-Qualified Plan provides for the payment
of the deferred benefit, which includes the deferred compensation, the matched
amounts and interest, to the employee on an installment basis after the employee
attains at least 60 years of age. Under certain circumstances, including the
death, disability or financial hardship of the participating employee, the
Non-Qualified Plan provides for the payment of deferred benefits prior to the
employee attaining 60 years of age.
In addition to an annual base salary, certain executive officers, including
the Executive Officers named in the Summary Compensation Table, are eligible to
receive bonuses payable in cash, options to purchase Common Stock, or both,
pursuant to the Executive Incentive Compensation Plan. The Executive Incentive
Compensation Plan became effective commencing with fiscal year 1997. Under the
Executive Incentive Compensation Plan, each Executive is eligible to receive a
cash bonus, expressed as a percent of his/her base salary, and options to
purchase Common Stock. The awards are granted based upon the Company's
achievement of certain earnings per share ("EPS") targets set by the
Compensation Committee and approved by the Board of Directors of the Company,
which targets may be adjusted for capital changes (E.G., stock splits, stock
dividends, etc.) or due to circumstances materially affecting the EPS (E.G.,
acquisitions). Awards of cash and options are made based upon the Company's
actual EPS as a percentage of the target EPS, which percentage will determine
the percent of the Executive's base salary that will be awarded as a cash award
and the number of options that will be awarded; provided, however, that (i) no
awards will be made unless actual EPS is greater than at least 90% of the target
EPS, and (ii) no additional awards will be granted for the amount by which
actual EPS exceeds 115% of the target EPS.
STOCK-BASED COMPENSATION
The Compensation Committee is also responsible for administering the Stock
Plan and the Restated Plan. Option grants pursuant to such plans are intended to
encourage performance that will result in appreciation of the market value of
the Company's Common Stock. Stock options are generally awarded from time to
time by the Compensation Committee based upon recommendations from the Chief
Executive Officer. In making its determinations of option awards, the
Compensation Committee considers the performance of the proposed optionee, the
Company's financial performance during the relevant period and the number of
options previously granted to the optionee.
Throughout 1999, the Compensation Committee also awarded stock options under
the Stock Plan to qualifying employees and independent sales representatives of
the Company based on commissions earned on sales of the Company products during
1999. In doing so, the Compensation Committee rewarded these individuals for
their efforts on behalf of the Company and offered them the opportunity to
acquire an initial, or augment their existing, proprietary interest in the
Company.
COMPENSATION OF THE COMPANY'S CHIEF EXECUTIVE OFFICER
Since November 1999, John R. Kelley, Jr. has served as the Chief Executive
Officer of the Company pursuant to an employment agreement with the Company. See
"Executive Compensation--Employment Agreements," above. During fiscal 1999,
Mr. Kelley's total annual compensation was
17
$150,000. The compensation paid to Mr. Kelley during 1999 was not based upon,
and had no specific relation to, the performance of the Company's Common Stock
during 1999. Until November 1999, Lou Weisbach served as the Chief Executive
Officer of the Company pursuant to an employment agreement with the Company. See
"Executive Compensation--Employment Agreements," above. During fiscal 1999,
Mr. Weisbach's total annual compensation was $500,000. The compensation paid to
Mr. Weisbach during 1999 was not based upon, and had no specific relation to,
the performance of the Company's Common Stock during 1999.
THE COMPENSATION COMMITTEE
Thomas Herskovits
Brian M. Hermelin
Richard A. Heise, Jr.
18
PERFORMANCE GRAPH
NOTE: THE STOCK PRICE PERFORMANCE SHOWN ON THE GRAPH BELOW IS NOT NECESSARILY
INDICATIVE OF FUTURE PRICE PERFORMANCE.
COMPARISON OF $100 INVESTED IN THE COMPANY'S COMMON STOCK, NYSE
COMPOSITE INDEX AND THE COMPANY'S PUBLISHED LINE OF BUSINESS GROUP(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NYSE STOCK MARKET NYSE STOCKS--MISCELLANEOUS
HA-LO INDUSTRIES, INC. (US COMPANIES) NONDURABLE GOODS
12/30/94 100.0 100.0 100.0
12/29/95 473.1 135.6 108.6
12/31/96 793.3 164.4 127.4
12/31/97 750.0 218.4 184.0
12/31/98 1,085.3 262.0 155.4
12/31/99 324.5 287.2 138.8
- ------------------------
(1) The above graph compares the performance of the Company's Common Stock with
that of a broad equity market index, the New York Stock Exchange (NYSE)
Market Index, and a published line-of-business index, NYSE stocks with SIC
code 519 (miscellaneous nondurable goods). The Company's line of business is
within this SIC code.
19
PROPOSAL TWO--REINCORPORATION OF THE COMPANY
IN THE STATE OF DELAWARE.
The Company's Board of Directors has unanimously approved the
reincorporation of the Company in the State of Delaware. Through the
reincorporation, the state of incorporation of HA-LO Industries, Inc. would be
changed from Illinois to Delaware.
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 A to this Proxy Statement, providing for the merger of the
Company into a wholly-owned subsidiary of the Company that has recently been
formed pursuant to the Delaware General Corporation Law (the "DGCL") for this
purpose. The name of the Company after the merger will not be changed. For the
sake of clarity in the discussion of the Reincorporation Proposal, the Company
before the merger is sometimes referred to as "HA-LO Illinois" and the Company
after the merger is sometimes referred to as "HA-LO Delaware."
If the Reincorporation Proposal is approved by the shareholders, when the
merger is completed the Company will have a new Certificate of Incorporation and
by-laws and will be governed by Delaware law. The foregoing will, in general,
result in certain changes in the rights of shareholders of the Company.
The same individuals who the shareholders elect as directors of HA-LO
Illinois at the annual meeting will be elected as directors of the Delaware
subsidiary immediately prior to the reincorporation, and, therefore, 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 HA-LO
Industries, Inc. is listed on The New York Stock Exchange, and application will
be made to list the HA-LO Delaware Common Stock on The New York Stock Exchange.
Following the merger, each share of Common Stock, no par value, of HA-LO
Illinois will automatically be converted into one share of HA-LO Delaware Common
Stock, par value $.001 per share, and each share of Series A convertible
participating preferred stock, no par value, of HA-LO Illinois will
automatically be converted into one share of HA-LO Delaware Series A convertible
participating preferred stock, par value $.001 per share. The preferences,
rights and restrictions of the HA-LO Delaware Series A Preferred Stock shall be
equivalent to the HA-LO Illinois Series A Preferred Stock. HA-LO Illinois Common
Stock certificates will be deemed automatically to represent an equal number of
shares of HA-LO Delaware Common Stock and HA-LO Illinois Series A Preferred
Stock certificates will be deemed automatically to represent an equal number of
shares of HA-LO Delaware Series A Preferred Stock. Following the
reincorporation, previously outstanding HA-LO Illinois stock certificates may be
delivered in effecting sales through a broker, or otherwise, of shares of HA-LO
Delaware stock. IT WILL NOT BE NECESSARY FOR SHAREHOLDERS OF THE COMPANY TO
EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR STOCK CERTIFICATES OF HA-LO
DELAWARE.
If approved by the Company's shareholders, it is anticipated that the merger
will be completed as soon as practicable after such approval. However, the
merger may be abandoned, and the Merger Agreement may be amended, either before
or after shareholder approval if circumstances arise which, in the opinion of
the Board of Directors, make such action advisable, although subsequent to
20
shareholder approval 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.
REASONS FOR THE REINCORPORATION PROPOSAL.
For many years Delaware 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. Delaware courts have developed considerable
expertise in dealing with corporate issues, and a substantial body of case law
has developed construing Delaware law and establishing public policies with
respect to Delaware corporations. The Board of Directors believes that this
environment provides greater predictability with respect to corporate legal
affairs and allows a corporation to be managed more efficiently.
CERTAIN CHANGES IN THE COMPANY'S CHARTER AND BY-LAWS TO BE MADE BY THE
REINCORPORATION.
The following discussion summarizes the material differences between the
Certificate of Incorporation and by-laws of HA-LO Delaware and the Articles of
Incorporation and by-laws of HA-LO Illinois. Copies of the Certificate of
Incorporation (including the Certificate of Designations for the Series A
convertible participating preferred stock) to be filed by the Delaware
subsidiary and the current by-laws of HA-LO Delaware are attached as Appendix B
and Appendix C, 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 Certificate of Incorporation and by-laws of HA-LO Delaware.
TAKEOVER PROVISIONS. Delaware and Illinois each have a law that is
substantially 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 it acquired such stock. 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 unless a majority of the
shareholders entitled to vote thereon approve an amendment to the articles of
incorporation or by-laws to opt out of this provision and 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 with a
registered national securities association.
VOTE REQUIRED FOR ROUTINE SHAREHOLDER ACTION. The By-Laws of HA-LO Delaware
provide that, unless a different number of votes is required by statute or the
Certificate of Incorporation (such as for the approval of a merger, sale of all
or substantially all of the Company's assets or similar extraordinary
transactions or an amendment to the Certificate of Incorporation), acts of
shareholders may be taken
21
by a majority of the shares represented in person or by proxy where a quorum (a
majority of the outstanding shares) is present. Similarly, the Illinois Business
Corporation Act ("IBCA") and HA-LO Illinois's by-laws provide that, unless a
greater vote is required by the IBCA or HA-LO Illinois' Articles of
Incorporation or by-laws, such acts may be taken by a majority of the shares
represented in person or by proxy at any meeting of shareholders at which a
quorum (a majority of the outstanding shares) is present. As a result, such acts
will be subject to the same vote requirement after the Reincorporation.
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. HA-LO Delaware will
have adopted a provision in its Certificate of Incorporation similar to a
provision in HA-LO Illinois' Articles of Incorporation, whereby 20,000,000
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 purposes,
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 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 20,000,000 shares of Preferred Stock of HA-LO Delaware 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 Certificate of
Incorporation. Pursuant to such provision allowing for the issuance of Preferred
Stock, each of HA-LO Illinois and HA-LO Delaware will have designated 5,100,000
shares of Series A convertible participating Preferred Stock with identical
preferences, rights and restrictions.
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 charter. Neither the charter of HA-LO Illinois nor the charter
of HA-LO Delaware grants pre-emptive rights to shareholders.
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
22
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 person is not entitled to be
indemnified by the corporation pursuant to the statute. The By-Laws of HA-LO
Illinois and the charter of HA-LO Illinois provide for 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. The Company currently has
such a provision in effect and, if the reincorporation is accomplished, HA-LO
Delaware will have such a provision in its new Certificate of Incorporation. The
Company believes that such a provision will permit directors to make corporate
decisions on the merits free from any desire to avoid the risk of personal
liability. This provision has 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 HA-LO Illinois and the By-Laws of HA-LO 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. The Company currently does not
have, nor will HA-LO Delaware have, cumulative voting in the 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.
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 charter amendments, unless the
charter supersedes 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. HA-LO Illinois' Articles of Incorporation specifies a majority
vote requirement for approval of such acts, and HA-LO Delaware's Certificate of
Incorporation will not
23
specify a larger than majority vote. As a result, such acts will be subject to
the same vote requirement after the reincorporation.
CALL OF SPECIAL MEETINGS BY SHAREHOLDERS. The IBCA and the by-laws of HA-LO
Illinois 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. The 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 HA-LO Delaware will contain a provision
permitting the shareholders to call a special meeting, if the Reincorporation
Proposal is consummated, the shareholders of the Company will no longer have the
authority to call a special meeting of shareholders.
SHAREHOLDERS DISSENTER'S RIGHTS. The IBCA 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. To obtain such rights, the
dissenter is required to follow certain procedural steps (set forth below) and
the Company is required to provide certain financial information plus either a
commitment to pay the estimated fair value of the dissenting shares or a
direction to the dissenting shareholder to sell his or her shares into the
public market, if such market is available. The Company's shareholders are
entitled to exercise certain dissenter's rights in the event the Reincorporation
Proposal is approved by the shareholders. These rights are summarized below
under "Rights of Dissenting Shareholders."
Under the DGCL, shareholders will not be entitled to dissenter's rights, but
instead are entitled to appraisal rights for the fair value of shares that are
subject to a merger or consolidation involving the Company, except that the DGCL
does not provide for such 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) 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. Notably, the DGCL does not provide appraisal rights, the
counterpart of dissenter's rights, under the IBCA, if the Company
(i) consummates 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 (ii) amends its articles of incorporation that materially and adversely
affects a shareholder's rights because it alters or abolishes preferential or
redemption rights. Since appraisal rights under the DGCL are only available in
circumstances involving a merger or consolidation and only so long as such
shares are not held by at least 2000 persons or listed on a national exchange,
such rights are substantially more limited than the dissenter's rights provided
under the IBCA. Furthermore, since the Company expects to continue to list its
shares of Common Stock on the New York Stock
24
Exchange after the Reincorporation Proposal is consummated, dissenter's rights
will be virtually eliminated.
RIGHTS OF DISSENTING SHAREHOLDERS.
Shareholders of the Company who do not approve the Reincorporation Proposal
and who follow certain other procedures summarized below shall have the right to
dissent from, and obtain payment for, their shares in the event of the
consummation of the Reincorporation Proposal. The following is a summary of the
provisions of the IBCA which specify the procedures which must be followed by
any shareholder who wishes to dissent and demand payment for his or her shares
in the event of consummation of the Reincorporation Proposal. Such provisions of
the IBCA are set forth in their entirety in Appendix D attached to this Proxy
Statement, and this summary is qualified by reference to the exact provisions
thereof.
Because the Company has furnished to shareholders in this Proxy Statement
such material information with respect to the Reincorporation Proposal as will
objectively enable a shareholder to evaluate the Reincorporation Proposal and to
determine whether or not to exercise dissenter's rights, a shareholder may
assert these rights only if (i) the shareholder delivers to the Company within
30 days from the mailing of this Proxy Statement a written demand for payment
for his or her shares in the event the Reincorporation Proposal is consummated,
and (ii) the shareholder does not consent to the Reincorporation Proposal. If a
shareholder consents to the Reincorporation Proposal, the shareholder will not
be entitled to dissent and demand payment for his or her shares, and a
dissenting vote on the Reincorporation Proposal will not satisfy the above
requirement that a written demand for payment be delivered to the Company.
Within the later of (i) ten days after the merger under the Merger Agreement
effecting the reincorporation is accomplished or (ii) thirty days after the
shareholder delivers to the Company his or her written demand for payment, the
Company will send to each shareholder delivering such a written demand (a
"dissenting shareholder") a statement setting forth the Company's opinion as to
the estimated value of such shareholder's shares ("statement of value"), the
Company's balance sheet as of the end of its fiscal year ended December 31,
1999, its income statement for its fiscal year ended December 31, 1999, and its
latest interim financial statements, together with either a commitment to pay
for the shares of the dissenting shareholder at the estimated value thereof upon
transmittal to the Company of the certificate or certificates, or other evidence
of ownership with respect to such shares, or an instruction to the dissenting
shareholder to sell his or her shares within ten days after delivery of the
Company's statement to the shareholder. The Company may instruct the shareholder
to sell only if there is a public market for the shares at which the shares may
be readily sold. Since the shares of HA-LO Illinois Common Stock are traded on
the NYSE, the Company anticipates that there will be such a public market for
the shares of HA-LO Delaware Common Stock. If the dissenting shareholder does
not sell his shares within such ten day period after being so instructed by the
Company, he shall be deemed to have sold these shares at the average closing
price of such shares on the NYSE during such ten day period.
If the dissenting shareholder does not agree with the Company's opinion
regarding the estimated value of the shares and wishes to preserve appraisal
rights, the dissenting shareholder shall, within thirty days from the Company's
delivery to the dissenting shareholder of the statement of value, notify the
Company of the dissenting shareholder's estimate of value and demand payment for
the difference between the dissenting shareholder's estimate of value and the
amount of the payment by the Company
25
or the proceeds of sale by the dissenting shareholder, whichever is applicable
because of the procedure for which the Company opted.
If the Company and the dissenting shareholder are unable to agree on the
value of the shares within sixty days from delivery to the dissenting
shareholder of the Company's statement of value, the Company shall either pay
the difference in value demanded by the dissenting shareholder or file a
petition in the Circuit Court of Cook County, State of Illinois, requesting the
court to determine the fair value of the shares. The Company shall make all
dissenters, whether or not residents of Illinois, whose demands remain
unsettled, parties to the proceeding as an action against their shares, and
shall serve all parties with a copy of the petition. Nonresidents may be served
by registered or certified mail or by publication as required by law.
The jurisdiction of the court in which the proceeding is commenced under the
foregoing paragraph by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision of the question of fair value. The appraisers have the power described
in the order appointing them, or in any amendment to it.
Each dissenting shareholder made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court determines that the fair
value of his or her shares exceeds the amount offered to be paid by the Company
or the proceeds of sale by the shareholder, whichever amount is applicable. The
judgment shall include an allowance for interest at such rate as the court may
find to be fair and equitable in all the circumstances, from the date on which
the Reincorporation Proposal is approved to the date of payment.
The court, in such an appraisal proceeding, shall determine all costs of the
proceeding, including the reasonable compensation and expenses of the
appraisers, if any, and experts employed by any party, but shall exclude the
fees and expenses of counsel for any party. If the fair value of the shares as
determined by the court materially exceeds the amount which the Company offered
to pay for those shares, or if no offer was made, then all or any part of such
expenses may be assessed against the Company.
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 reincorporation 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 or
Series A Preferred Stock as a result of the merger. Each shareholder of HA-LO
Delaware will have the same tax basis in his HA-LO Delaware stock as the
shareholder had in HA-LO Illinois stock held by the shareholder immediately
prior to the effective time of the merger under the Merger Agreement, and the
holding period of the HA-LO Delaware stock will include the period during which
the shareholder held HA-LO Illinois stock, provided that such HA-LO Illinois
stock was held by the shareholder as a capital asset at the effective time of
the merger.
If a shareholder exercises dissenter's rights, the receipt of cash for
shares of stock pursuant to the exercise of dissenter's rights will be a taxable
transaction for Federal income tax purposes to the shareholders receiving such
cash and may be a taxable transaction for state or local tax purposes as well.
26
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 reincorporation 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 reincorporation merger under
the Merger Agreement, and that HA-LO Delaware generally will succeed, without
adjustment, to the tax attributes of HA-LO Illinois 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. If
the Reincorporation Proposal is approved and the merger is accomplished under
the Merger Agreement, the Company will be subject to an annual franchise tax in
both Illinois and Delaware.
VOTE REQUIRED.
Adoption of the Reincorporation Proposal requires the approval of a majority
of the total number of outstanding voting shares. Approval of the
Reincorporation Proposal by the shareholders will constitute approval of the
Merger Agreement by the shareholders as well as the Certificate of Incorporation
of HA-LO Delaware.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THE ADOPTION OF
THE REINCORPORATION PROPOSAL.
27
PROPOSAL THREE--APPROVAL OF THE 2000 STOCK OPTION PLAN
GENERAL.
In the opinion of the Board of Directors, the Company and its stockholders
will benefit substantially from having certain officers, directors and employees
acquire shares of the Company's Common Stock pursuant to options granted under
the Company's 2000 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, directors and 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, directors and other 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 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, including incentive stock
options (defined below), to its officers, directors and other employees and
permit the Company to offer options pursuant to the 2000 Stock Option Plan to
certain consultants and advisors.
THE PLAN AND PARTICIPANTS.
On June 7, 2000, the Board of Directors approved for adoption the HA-LO
Industries, Inc. 2000 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
10,000,000 shares of the Company's Common Stock, to officers, directors and
other employees of the Company and its subsidiaries and to consultants and
advisors to the Company and its subsidiaries. As used herein with respect to the
Plan, references to the Company include subsidiaries of the Company. In
addition, the Board of Directors of the Company's Delaware subsidiary has
approved the Plan for adoption, and if the Company's shareholders approve the
Reincorporation Proposal, the Plan will be adopted by HA-LO Delaware. Therefore,
references to the Company in this section shall also mean HA-LO Delaware to the
extent that the shareholders approve the Reincorporation Proposal. If, however,
the shareholders do not approve the Reincorporation Proposal, the shareholders'
approval for adoption of the Plan shall be effective for HA-LO Illinois.
The purposes of the Plan are to enable the Company to attract and retain
persons of ability as officers, directors and other employees, 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 (which
terms assume approval of the Reincorporation Proposal), and the following
description is qualified in its entirety by reference to Appendix E.
The Plan will be administered by the Company's Board of Directors or its
Compensation 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 director within the meaning of Rule 16b-3
under the Securities Exchange 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, the persons to whom options are granted, the number of
options granted to each optionee and the terms
28
and conditions of each option, including its duration. The Compensation
Committee may delegate its authority under the Plan (solely with respect to
certain non-officer and non-director employees) to the Chief Executive Officer
or another executive officer of the Company.
The Plan can be amended, suspended, reinstated or terminated by the Board of
Directors; provided, however, that, to the extent required by applicable law,
approval of the Company's shareholders would be required. Unless previously
terminated by the Board of Directors, the Plan will terminate ten years from the
date of its inception, and no additional options may be granted under the Plan
after that date.
OPTION 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. There is no maximum number of shares for which
options may be issued to any one employee, director, officer, advisor or
consultant of the Company 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, canceled 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 may, in
the Plan administrator's discretion, be paid in cash, by check or promissory
note, 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, through a cashless exercise program adopted by
the Company, by surrender of the option shares representing the Company's
retention of the shares with a fair market value equal to the aggregate exercise
price, or a combination thereof.
As of the date hereof, no options have been granted pursuant to the Plan.
Options granted pursuant to the Plan will not be assignable or transferable
except by will or the laws of descent and distribution; provided, that
non-qualified stock options may be transferred under a domestic relations order
in settlement of marital property rights or by gift to family members or certain
family-controlled trusts, foundations or entities. Subject to the terms of each
option agreement, 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 one year after termination of employment due
to a permanent disability, within ninety days after termination of employment
not for "cause" or within fourteen days after termination for "cause." Subject
to the terms of each option
29
agreement, 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 one year after the decedent's death. 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 "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.
30
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 shares of
stock 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.
31
PROPOSAL FOUR--SELECTION OF AUDITORS
It is proposed that the shareholders approve the reappointment of the firm
of Arthur Andersen LLP as the Company's independent auditors for 2000. The
decision to retain Arthur Andersen LLP as the Company's independent auditors for
2000 was approved by the Audit Committee of the Board of Directors and the Board
of Directors of the Company. A representative of Arthur Andersen LLP is expected
to attend the meeting where he or she will have the opportunity to make a
statement if he or she so desires and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
REAPPOINTMENT OF SUCH FIRM.
2001 ANNUAL MEETING OF SHAREHOLDERS
The 2001 Annual Meeting of Shareholders is presently scheduled to be held on
Tuesday, May 8, 2001. Any proposals of shareholders intended to be personally
presented at such meeting must be received by the Secretary of the Company for
inclusion in the Company's Proxy Statement and form of proxy no later than
December 31, 2000. In addition, any proposals of shareholders intended to be
personally presented at such meeting (but not to be included in the Company's
Proxy Statement or form of proxy) must be received by the Secretary of the
Company no later than February 12, 2001.
PROPOSED POSTPONEMENT OR ADJOURNMENT OF THE MEETING
The board of directors of the Company may determine that it will recommend
that the annual meeting scheduled for August 31, 2000 be postponed or adjourned.
One reason for this action would be to allow additional time for management to
solicit proxies in support of the proposals at the meeting. Approval of this
action by our shareholders would require the affirmative vote of a majority of
the shares represented at the meeting in person or by proxy. An abstention or
failure to vote on this proposal will NOT count as votes against this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE PROPOSAL TO
POSTPONE OR ADJOURN THE ANNUAL MEETING IF REQUESTED BY THE BOARD OF DIRECTORS.
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.
32
APPENDIX A
CERTIFICATE OF OWNERSHIP AND MERGER OF HA-LO INDUSTRIES, INC. (AN ILLINOIS
CORPORATION) INTO HA-LO MERGER CORPORATION (A DELAWARE CORPORATION)
It is hereby certified that:
1. HA-LO Industries, Inc. (an Illinois corporation) (hereinafter called the
"corporation") is a corporation of the State of Illinois, 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 HA-LO Merger Corporation, hereby merges itself into HA-LO Merger
Corporation, a corporation of the State of Delaware.
3. The following is a copy of the resolutions adopted on the 7th day of
June, 2000, by the Board or Directors of the corporation to merge the
corporation into HA-LO Merger Corporation:
RESOLVED, that this corporation be reincorporated in the State of Delaware
by merging itself into HA-LO 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 HA-LO Merger Corporation
will become a single corporation, which shall continue to exist under, and be
governed by, the laws of the State of Delaware.
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 HA-LO Merger Corporation as fully and
entirely and without change or diminution as the same were before held and
enjoyed by this corporation, and HA-LO Merger Corporation shall assume all
of the obligations of this corporation.
(b) No pro rata issuance of the shares of stock of HA-LO 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, no 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, $.001 par value, of HA-LO 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 HA-LO Merger Corporation upon the basis above
specified, whether or not certificates representing said shares are then
issued and delivered. Each share of Series A convertible participating
preferred stock, no 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 Series A convertible
participating preferred stock, $.001 par value, of HA-LO 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 HA-LO Merger Corporation upon the basis
above
A-1
specified, whether or not certificates representing said shares are then
issued and delivered. Each warrant, option or other derivative security to
purchase common stock or preferred 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 or preferred stock, as applicable, of HA-LO 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 share of common stock shall be entitled
to one vote. On each matter on which Series A convertible participating
preferred stock shall vote, each share of Series A convertible participating
preferred stock shall be entitled to one vote per share of common stock into
which such share of preferred stock is then convertible.
(d) After the effective time of the merger, each holder of record of any
outstanding certificate or certificates theretofore representing common
stock or preferred stock of this corporation may surrender the same to
Computershare Limited, HA-LO Merger Corporation's transfer agent, at its
office in Chicago, Illinois, 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 or preferred stock of
HA-LO 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 or preferred stock of this corporation shall be
deemed for all corporate purposes to evidence ownership of shares of common
stock or preferred stock, as applicable, of HA-LO Merger Corporation.
(e) From and after the effective time of the merger, the Certificate of
Incorporation and the By-Laws of HA-LO Merger Corporation shall be the
Certificate of Incorporation and the By-Laws of HA-LO Merger Corporation as
in effect immediately prior to such effective time and the name of HA-LO
Merger Corporation shall be changed to HA-LO Industries, Inc.
(f) The members of the Board of Directors and officers of HA-LO Merger
Corporation shall be the members of the Board of Directors and the
corresponding officers of HA-LO Merger Corporation immediately before the
effective time of the merger.
(g) From and after the effective time of the merger, the assets and
liabilities of this corporation and of HA-LO Merger Corporation shall be
entered on the books of HA-LO Merger Corporation at the amounts at which
they shall be carried at such time on the respective books of this
corporation and of HA-LO 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 HA-LO Merger Corporation, in accordance with generally accepted
accounting principles, the capital and surplus of HA-LO Merger Corporation
shall be equal to the capital and surplus of this corporation and of HA-LO
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 HA-LO
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.
A-2
4. The proposed merger herein certified has been adopted, approved,
certified, executed, and acknowledged by HA-LO Industries, Inc. in accordance
with the laws under which it is organized.
Signed and attested to on , 2000.
---------------------------------------------
John R. Kelley, Jr.,
CHIEF EXECUTIVE OFFICER OF HA-LO
INDUSTRIES, INC.
Attest:
--------------------------------------
Barry J. Shkolnik,
ASSISTANT SECRETARY OF HA-LO
INDUSTRIES, INC.
A-3
APPENDIX B
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HA-LO MERGER CORPORATION
HA-LO Merger Corporation, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is "HA-LO Merger Corporation"
2. The Certificate of Incorporation of the corporation originally was filed
with the Secretary of State of the State of Delaware on May 18, 2000.
3. This Amended and Restated Certificate of Incorporation amends and
restates the provisions of the Certificate of Incorporation of the corporation
and has been duly adopted by the Board of Directors and the stockholders of the
Corporation and has been duly executed and acknowledged by the officers of the
corporation in accordance with the provisions of Sections 103, 228, 242 and 245
of the Delaware General Corporation Law.
4. The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
ARTICLE ONE
NAME OF CORPORATION
The name of the corporation is HA-LO Merger Corporation (the "Corporation").
ARTICLE TWO
ADDRESS OF REGISTERED AGENT
The Registered Office of the Corporation is located at 1209 Orange Street,
Wilmington, New Castle County, Delaware, 19801. The name of its Registered Agent
at that address is Corporation Trust Company.
ARTICLE THREE
PURPOSE
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware, as
amended. The Corporation shall have perpetual existence.
ARTICLE FOUR
CAPITAL STOCK
4.1 AUTHORIZED STOCK. The Corporation is authorized to issue two classes
of capital stock, which shall be designated Common Stock and Preferred Stock.
The Corporation is authorized to issue a total of 250,000,000 shares of Common
Stock, which shall have a par value of $.001 per share, and a total of
20,000,000 shares of Preferred Stock, which shall have a par value of $.001 per
share. The Preferred Stock initially shall be undesignated as to series.
B-1
4.2 RIGHT TO DESIGNATE PREFERRED STOCK. The board of directors of the
Corporation is authorized, subject to limitations prescribed by law, to provide
by resolution for the issuance of the shares of Preferred Stock as a class or in
series and, by filing a certificate of designations, pursuant to the General
Corporation Law of the State of Delaware, as amended, to establish from time to
time the number of shares to be included in each such series, and to fix the
designation, powers, preferences, and rights of the shares of the class or of
each such series and the qualifications, limitations, and restrictions thereof.
The authority of the board of directors with respect to the class or each series
shall include, but not be limited to, determination of the following:
(a) the number of shares constituting any series and the distinctive
designation of that series;
(b) the dividend rate on the shares of the class or of any series,
whether dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on
shares of the class or of that series;
(c) whether the class or any series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) whether the class or any series shall have conversion privileges
and, if so, the terms and conditions of conversion, including provision for
adjustment of the conversion rate in such events as the board of directors
shall determine;
(e) whether or not the shares of the class or of any series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or date upon or after which they shall be redeemable and
the amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(f) whether the class or any series shall have a sinking fund for the
redemption or purchase of shares of the class or of that series, and, if so,
the terms and amount of such sinking fund;
(g) the rights of the shares of the class or of any series in the event
of voluntary or involuntary dissolution or winding up of the Corporation,
and the relative rights of priority, if any, of payment of shares of the
class or of that series; and
(h) any other powers, preferences, rights, qualifications, limitations,
and restrictions of the class or of any series.
ARTICLE FIVE
BY-LAWS
In furtherance and not in limitation of the powers conferred by statute, the
board of directors shall have the power, both before and after receipt of any
payment for any of the Corporation's capital stock, to adopt, amend, repeal or
otherwise alter the By-laws of the Corporation without any action on the part of
the stockholders; provided, however, that the grant of such power to the board
of directors shall not divest the stockholders of or otherwise limit the power
of the stockholders to adopt, amend, repeal or otherwise alter the By-laws.
ARTICLE SIX
STOCKHOLDER PROPOSALS
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
By-laws of the Corporation.
B-2
ARTICLE SEVEN
NO WRITTEN CONSENT
7.1 Stockholders of the Corporation may not take action by written consent
in lieu of a meeting but must take any actions at a duly called annual or
special meeting.
7.2 Unless otherwise required by law, special meetings of the stockholders
of the Corporation, for any purpose or purposes, may be called only by (i) the
Board of Directors of the Corporation, (ii) the Chairman of the Board of
Directors of the Corporation, if there be one, (iii) the Chief Executive Officer
of the Corporation, or (iv) the President of the Corporation.
ARTICLE EIGHT
ELECTION OF DIRECTORS
Elections of directors need not be by written ballot except and to the
extent provided in the By-laws of the Corporation. The number of directors which
constitute the whole board of directors shall be fixed exclusively in the manner
designated in the By-laws of the Corporation.
ARTICLE NINE
LIABILITY OF DIRECTORS
To the fullest extent permitted by the General Corporation Law of the State
of Delaware, as amended from time to time, no director of the Corporation shall
be liable to the Corporation or to any stockholder of the Corporation for
monetary damages for breach of fiduciary duty as a director. No amendment to or
repeal of this Article Nine shall apply to or have any effect on the liability
or alleged liability of any director of the Corporation for or with respect to
any act or omission of such director occurring prior to such amendment.
ARTICLE TEN
INDEMNIFICATION
The Corporation shall indemnify all directors and officers of the
Corporation, and shall advance expenses reasonably incurred by such directors
and officers, in defending any civil, criminal, administrative or investigative
action, suit or proceeding, in accordance with and to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time. Any repeal or modification of the
provisions of this Article Ten shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
ARTICLE ELEVEN
DELAWARE SECTION 203
The Corporation hereby elects to be governed by Section 203 of the General
Corporation Law of the State of Delaware, as amended from time to time.
Signed on , 2000.
By: -----------------------------------------
Barry J. Shkolnik,
ASSISTANT SECRETARY
B-3
CERTIFICATE OF DESIGNATIONS ESTABLISHING
SERIES A CONVERTIBLE PARTICIPATING PREFERRED STOCK OF
HA-LO MERGER CORPORATION
HA-LO Merger Corporation, a Delaware corporation (the "CORPORATION"), acting
pursuant to Section 151 of the Delaware General Corporation Law, does hereby
submit this Certificate of Designations Establishing Series A Convertible
Participating Preferred Stock.
WHEREAS, Article Four of the Amended and Restated Certificate of
Incorporation of the Corporation authorizes Preferred Stock consisting of
20,000,000 shares, $.001 par value per share, issuable from time to time in one
or more series;
WHEREAS, the Board of Directors of the Corporation is authorized, subject to
limitations prescribed by law and by the provisions of Article Four of the
Corporation's Amended and Restated Certificate of Incorporation, as amended, to
establish and fix the number of shares to be included in any series of Preferred
Stock and the designations, rights, preferences, privileges, powers,
restrictions, limitations and qualifications of the shares of such series; and
WHEREAS, it is the desire of the Board of Directors to establish and fix the
number of shares to be included in a new series of Preferred Stock entitled
"Series A Convertible Participating Preferred Stock," and with the designations,
rights, preferences, privileges, powers, restrictions, limitations and
qualifications as set forth herein.
NOW, THEREFORE, BE IT RESOLVED, that pursuant to Article Four of the
Corporation's Amended and Restated Certificate of Incorporation, there is hereby
established Series A Convertible Participating Preferred Stock, of which the
Corporation is authorized to issue 5,100,000 shares (the "SERIES A PREFERRED"),
which shares shall have the designations, rights, preferences, privileges,
powers, restrictions, limitations and qualifications set forth in a supplement
to Article Four of the Amended and Restated Certificate of Incorporation of the
Corporation as follows:
Section 1. DIVIDENDS.
1A. GENERAL OBLIGATION. Except as otherwise provided herein, no
preferential dividends shall accrue on any share of the Series A Preferred (a
"SHARE").
1B. PARTICIPATING DIVIDENDS. If the Corporation declares or pays any
dividends upon the Common Stock (whether payable in cash, securities or other
property), other than dividends payable solely in shares of Common Stock, the
Corporation shall also declare and pay to the holders of the Series A Preferred
at the same time that it declares and pays such dividends to the holders of the
Common Stock, the dividends which would have been declared and paid with respect
to the Common Stock issuable upon conversion of the Series A Preferred had all
of the outstanding Series A Preferred been converted immediately prior to the
record date for such dividend, or if no record date is fixed, the date as of
which the record holders of Common Stock entitled to such dividends are to be
determined. Dividends payable to the holders of the Shares pursuant to this
Section 1B are referred to as "PARTICIPATING DIVIDENDS."
Section 2. LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or
winding up of the Corporation (whether voluntary or involuntary), each holder of
Series A Preferred shall be entitled to be paid (i) before any distribution or
payment is made upon any Junior Securities, an amount in cash equal to the
aggregate Liquidation Value of all Shares held by such holder (plus all accrued
but unpaid Participating Dividends), and (ii) in addition to the payment under
foregoing clause (i), an amount equal to such
B-4
holder's pro rata portion (based upon the aggregate number of Shares then
outstanding) of the Participating Liquidation Amount (such amounts, collectively
the "SERIES A PREFERENCE AMOUNT"). If, upon any such liquidation, dissolution or
winding up of the Corporation, the Corporation's assets to be distributed among
the holders of the Series A Preferred hereunder are insufficient to permit
payment to such holders of the aggregate Liquidation Value to which they are
entitled, then the entire assets available to be distributed to the
Corporation's stockholders shall be distributed pro rata among the holders of
Series A Preferred. Not less than 30 days prior to any payments under this
Section 2A, the Corporation shall mail written notice of the liquidation,
dissolution or winding up to each record holder of Series A Preferred, setting
forth in reasonable detail the amount of proceeds to be paid with respect to
each Share and each share of Common Stock in connection with such liquidation,
dissolution or winding up.
Section 3. REDEMPTIONS.
3A. REDEMPTIONS UPON REQUEST.
(i) Each holder of Shares may require the Corporation to redeem all or
any part of such holder's Shares of Series A Preferred by delivering a
written request for redemption, together with a certificate or certificates
representing the Series A Preferred to be redeemed (collectively, a
"REDEMPTION NOTICE"), to the principal office of the Corporation at any time
during the 30-day period commencing on the one year anniversary of the Date
of Issuance (such 30-day period, the "REDEMPTION PERIOD"); the redemption
right provided by this Section 3A shall terminate and cease to be
exercisable with respect to any Shares for which the Corporation has not
received a Redemption Notice within the Redemption Period. The Corporation
shall redeem all Shares of Series A Preferred properly surrendered for
redemption at a price per Share equal to the Liquidation Value plus all
accrued and unpaid Participating Dividends, if any. As soon as practicable
following the Corporation's receipt of a Redemption Notice timely delivered
in accordance with this Section 3A, but in any event within 60 days
thereafter, the Corporation shall deliver to the holder of the Shares
surrendered for redemption cash in an amount equal to the product of the
Liquidation Value multiplied by the number of Shares being redeemed, plus
all accrued but unpaid Participating Dividends (the "REDEMPTION PAYMENT
AMOUNT"). If the funds of the Corporation legally available for redemption
of Shares are insufficient to pay the Redemption Payment Amount in full,
then those funds that are legally available will be used to redeem the
maximum possible number of such Shares ratably among the holders of Shares
required to be redeemed.
(ii) Upon the occurrence of an Event of Noncompliance, any Shares
properly tendered for redemption for which the Redemption Payment Amount has
not been paid ("DEFAULT SHARES") shall remain outstanding and entitled to
all the rights and preferences of Series A Preferred provided herein. If and
for so long as an Event of Noncompliance continues, the Default Shares shall
accrue dividends, at a rate of 8% per annum on the Issuance Price (the
"INTEREST RATE"), for the period commencing on the date such Event of
Noncompliance first occurs with respect to such Default Shares until the
date the Corporation pays in full the Redemption Payment Amount plus
interest payable pursuant to this Section 3A for such Default Shares. If an
Event of Noncompliance continues for six months or longer, the Interest Rate
with respect to the Default Shares that are the subject of such Event of
Noncompliance shall increase by 4% per annum on each six month anniversary
of the date the Event of Noncompliance first occurred.
(iii) At any time prior to a redemption pursuant to this Section 3A, the
holder of such Shares shall be entitled instead to convert all or any
portion of the Shares pursuant to Section 5 hereof.
B-5
3B. REDEMPTION UPON SIGNIFICANT SALE. If the Corporation sells all of the
capital stock, or all or substantially all of the assets, of any Subsidiary or
significant business division of the Corporation for consideration consisting,
in whole or in part, of cash (each such sale, a "SIGNIFICANT SALE") while any
Shares of Series A Preferred remain outstanding, then the Corporation shall use
all of the cash proceeds of such Significant Sale to fund the working capital
and general corporate needs of the Corporation (including repayment of
outstanding indebtedness under the Corporation's line of credit or other
commercial bank loan) and/or to redeem the maximum possible number of Shares of
Series A Preferred that can be redeemed with such cash proceeds. The Corporation
shall deliver written notice of each Significant Sale to each holder of
Series A Preferred no later than 15 days after the Significant Sale has been
consummated. To the extent that the Corporation does not use all of the cash
proceeds of any Significant Sale for working capital and general corporate
purposes within 90 days of such Significant Sale, the Corporation, within
15 days after the expiration of such 90-day period, shall deliver a written
purchase offer to all holders of Series A Preferred then outstanding and
promptly shall purchase Shares of Series A Preferred from the holders who accept
such offer, pro rata among all such accepting holders based on the number of
Shares then held by each. The purchase price per Share shall equal the
Liquidation Value plus all accrued and unpaid Participating Dividends, if any.
3C. DIVIDENDS AFTER REDEMPTION DATE. No Share shall be entitled to any
dividends accruing after the date on which the Redemption Payment Amount (plus
accrued interest pursuant to Section 3A) in respect of all Shares tendered for
redemption pursuant hereto has been paid to the holder of such Share in full in
cash. On such date, all rights of the holder of such Shares shall cease, and
such Shares shall no longer be deemed to be issued and outstanding.
3D. REDEEMED OR OTHERWISE ACQUIRED SHARES. Any Shares which are redeemed
or otherwise acquired by the Corporation shall, at the Corporation's election,
be held in treasury, canceled and retired to authorized but unissued shares and
shall not be reissued, sold or transferred.
3E. OTHER REDEMPTIONS OR ACQUISITIONS. The Corporation shall not be
entitled to redeem or otherwise acquire any Shares of Series A Preferred, except
as expressly authorized herein or pursuant to a purchase offer made pro rata to
all holders of Series A Preferred on the basis of the number of Shares owned by
each such holder and, in such event, such offer shall be subject to the
acceptance of the applicable holder (in each case in such holder's sole
discretion).
3F. PROHIBITIONS ON REDEMPTIONS. In the event of any prohibition on the
redemption (whether pursuant to this Section 3 or otherwise) of the Shares
pursuant to any agreement, instrument or other arrangement to which the
Corporation is a party or its assets are bound, the Corporation will use best
efforts to obtain waivers or other appropriate relief from such restrictions in
order to permit any redemptions required pursuant to these Articles of
Incorporation and use commercially reasonable efforts to obtain replacement
financing for the Shares in order to permit any such required redemption. This
Section 3F shall not be interpreted as authorizing or otherwise empowering the
Corporation to enter into any such agreement, instrument or other arrangement.
3G. OPTIONAL REDEMPTION UPON A CHANGE OF CONTROL. Upon the consummation of
a Change of Control, each holder of Series A Preferred shall be entitled, at
such holder's option and in such holder's sole discretion, to require the
Corporation to redeem all but not less than all Shares of Series A Preferred
owned by such holder for a redemption price equal to the greater of (i) the
aggregate Liquidation Value of such Shares (plus all accrued but unpaid
Participating Dividends), or (ii) the amount of consideration that would be
payable to such holder if such holder had converted all Shares owned by such
holder into
B-6
Common Stock immediately prior to the effective time of the Change of Control.
Each holder of Series A Preferred shall have the right to elect the benefits of
either this Section 3G, Section 5A or Section 5G hereof in connection with any
such transaction.
Section 4. VOTING RIGHTS. The holders of the Series A Preferred shall be
entitled to notice of all stockholder meetings in accordance with the
Corporation's bylaws, and shall be entitled to vote on all matters submitted to
the stockholders for a vote together with the holders of the Common Stock and
any other classes of capital stock voting with the Common Stock all voting
together as a single class. Each Share of Series A Preferred (including any
Default Shares not yet redeemed pursuant to Section 3) shall be entitled to one
vote for each share of Common Stock issuable upon conversion of such Share of
Series A Preferred as of the record date for such vote or, if no record date is
specified, as of the date of such vote.
Section 5. CONVERSION.
5A. OPTIONAL CONVERSIONS. At any time and from time to time, any holder of
Series A Preferred may convert all or any portion of the Series A Preferred held
by such holder into a number of shares of Conversion Stock computed by
multiplying the number of Shares to be converted by a fraction ("CONVERSION
RATIO"), the numerator of which is the Issuance Price and the denominator of
which is the Conversion Price then in effect.
5B. AUTOMATIC CONVERSIONS. Each Share of Series A Preferred automatically,
without action on the part of the Corporation or the holder thereof, shall be
converted into shares of Common Stock, at the then effective Conversion Ratio,
in the event that the average of the closing prices of the Common Stock on the
New York Stock Exchange (or, if the Common Stock at any time is not listed on
the New York Stock Exchange, on the primary securities exchange on which the
Common Stock may at the time be listed) equals or exceeds $24.00 per share for
any 10 consecutive trading days that occur on or after the Date of Issuance. Any
such automatic conversion shall be deemed to have occurred as of the close of
trading on the 10th such consecutive trading day.
5C. CONVERSION PROCEDURE.
(ii) Except as otherwise provided herein, each conversion of Series A
Preferred shall be deemed to have been effected as of the close of business on
the date on which the certificate or certificates representing the Series A
Preferred to be converted have been surrendered for conversion at the principal
office of the Corporation. In the event of an automatic conversion pursuant to
Section 5B, all Shares of Series A Preferred then outstanding shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; PROVIDED, HOWEVER, that the Corporation shall
not be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such automatic conversion unless the certificates evidencing such
Shares of Series A Preferred are delivered to the Corporation or its transfer
agent as provided above. On the date any such conversion has been effected, the
rights of the holder of the Shares converted, as a holder of Series A Preferred,
shall cease and the Person or Persons in whose name or names any certificate or
certificates for shares of Conversion Stock are to be issued upon such
conversion shall be deemed to have become the holder or holders of record of the
shares of Conversion Stock represented thereby.
(iii) The conversion rights with respect to any Share surrendered to the
Corporation for redemption shall terminate on the date such Share has been
redeemed, unless the Corporation has failed to pay to the holder thereof the
full Redemption Payment Amount payable with respect to such Share.
B-7
(iv) Notwithstanding any other provision hereof, if a conversion of
Series A Preferred is to be made in connection with a Change of Control or other
transaction affecting the Corporation, the conversion of any Shares may, at the
election of the holder thereof, be conditioned upon the consummation of such
transaction, in which case such conversion shall not be deemed to be effective
until such transaction has been consummated.
(v) As soon as possible after a conversion has been effected (but in any
event within three business days), the Corporation shall deliver to the
converting holder:
(a) a certificate or certificates representing the number of shares of
Conversion Stock issuable by reason of such conversion in such name or names
and such denomination or denominations as the converting holder has
specified;
(b) the amount of all Participating Dividends declared and remaining
unpaid with respect to the Shares converted, plus the amount payable under
subsection (viii) below with respect to such conversion; and
(c) a certificate representing any Shares which were represented by the
certificate or certificates delivered to the Corporation in connection with
such conversion but which were not converted.
(vi) The Corporation shall not close its books against the transfer of
Series A Preferred or of Conversion Stock issued or issuable upon conversion of
Series A Preferred in any manner which significantly interferes with the timely
conversion of Series A Preferred. The Corporation shall assist and cooperate
with any holder of Shares required to make any governmental filings or obtain
any governmental approval prior to or in connection with any conversion of
Shares hereunder (including, without limitation, making any filings required to
be made by the Corporation).
(vii) The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Conversion Stock, solely for the purpose
of issuance upon the conversion of the Series A Preferred, such number of shares
of Conversion Stock issuable upon the conversion of all outstanding Series A
Preferred. All shares of Conversion Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. The Corporation shall take all such actions as may
be necessary to assure that all such shares of Conversion Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of the New York Stock Exchange and/or any other domestic securities
exchange upon which shares of Conversion Stock may be listed (except for
official notice of issuances which shall be immediately delivered by the
Corporation upon each such issuance). The Corporation shall not take any action
which would cause the number of authorized but unissued shares of Conversion
Stock to be less than the number of such shares required to be reserved
hereunder for issuance upon conversion of the Series A Preferred.
(viii) In lieu of any fractional shares to which the holder of Series A
Preferred Stock otherwise would be entitled, the Corporation shall pay to such
holder cash equal to such fraction multiplied by the closing price of the Common
Stock on the New York Stock Exchange, or any other domestic securities exchange
on which the Common Stock is listed or admitted to unlisted trading privileges,
on the trading date immediately prior to the conversion date.
5D. CONVERSION PRICE.
(i) In order to prevent dilution of the conversion rights granted under this
Section 5, the Conversion Price shall be subject to adjustment from time to time
pursuant to this Section 5D.
B-8
(ii) If and whenever the Corporation issues or sells or, in accordance with
paragraph 5E is deemed to have issued or sold, any shares of its Common Stock
for a consideration per share less than the Conversion Price in effect
immediately prior to the time of such issuance or sale, then immediately upon
such issue or sale (or deemed issue or sale) the Conversion Price shall, except
with respect to the Shares then held by any holder of Shares who actually
purchases any such securities from the Corporation in such issuance or sale (or
deemed issuance or sale), be reduced to the Conversion Price determined by
dividing (a) the sum of (x) the product derived by multiplying the Conversion
Price in effect immediately prior to such issue or sale (or deemed issue or
sale) by the number of shares of Common Stock Deemed Outstanding immediately
prior to such issue or sale, plus (y) the consideration, if any, received by the
Corporation upon such issue or sale, by (b) the number of shares of Common Stock
Deemed Outstanding immediately after such issue or sale.
(iii) Notwithstanding the foregoing, there shall be no adjustment in the
Conversion Price as a result of any issue or sale (or deemed issue or sale) of
shares of Common Stock (a) issued to, or issued upon exercise of options granted
to, employees, directors or consultants of the Corporation and its Subsidiaries
pursuant to stock option plans and stock ownership plans approved by the
Corporation's Board of Directors, (b) issuable upon the conversion of the
Series A Preferred, or (c) issued by the Corporation in connection with
acquisitions, bank financing, the formation of strategic partnership and similar
transactions approved by the Corporation's Board of Directors.
5E. EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Conversion Price under paragraph 5D, the following
shall be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in any manner
grants or sells any Options and the price per share for which Common Stock
is issuable upon the exercise of such Options, or upon conversion or
exchange of any Convertible Securities issuable upon exercise of such
Options, is less than the Conversion Price in effect immediately prior to
the time of the granting or sale of such Options, then the total maximum
number of shares of Common Stock issuable upon the exercise of such Options
or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to be outstanding and to have been issued and sold by the Corporation
at the time of the granting or sale of such Options for such price per
share. For purposes of this paragraph, the "price per share for which Common
Stock is issuable" shall be determined by dividing (a) the total amount, if
any, received or receivable by the Corporation as consideration for the
granting or sale of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon exercise of all
such Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (b) the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No further adjustment
of the Conversion Price shall be made when Convertible Securities are
actually issued upon the exercise of such Options or when Common Stock is
actually issued upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation in any
manner issues or sells any Convertible Securities and the price per share
for which Common Stock is issuable upon conversion or exchange thereof is
less than the Conversion Price in effect immediately prior to the time of
such issue or sale, then the maximum number of shares of Common Stock
issuable upon conversion or
B-9
exchange of such Convertible Securities shall be deemed to be outstanding
and to have been issued and sold by the Corporation at the time of the
issuance or sale of such Convertible Securities for such price per share.
For the purposes of this paragraph, the "price per share for which Common
Stock is issuable" shall be determined by dividing (a) the total amount
received or receivable by the Corporation as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (b) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment of the Conversion Price shall
be made when Common Stock is actually issued upon the conversion or exchange
of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustments of the Conversion Price had been or are to be made pursuant to
other provisions of this Section 5, no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the purchase price
provided for in any Options, the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities or the rate at
which any Convertible Securities are convertible into or exchangeable for
Common Stock changes at any time, the Conversion Price in effect at the time
of such change shall be immediately adjusted to the Conversion Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 5E, if the
terms of any Option or Convertible Security which was outstanding as of the
date of the initial issuance of the Series A Preferred are changed in the
manner described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change; provided that no such change shall at any time cause
the Conversion Price hereunder to be increased.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. Upon the expiration of any Option or the termination of any
right to convert or exchange any Convertible Security without the exercise
of any such Option or right, the Conversion Price then in effect hereunder
shall be adjusted immediately to the Conversion Price which would have been
in effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued. For purposes of paragraph 5E,
the expiration or termination of any Option or Convertible Security which
was outstanding as of the date of the initial issuance of the Series A
Preferred shall not cause the Conversion Price hereunder to be adjusted
unless, and only to the extent that, a change in the terms of such Option or
Convertible Security caused it to be deemed to have been issued after the
date of issuance of the Series A Preferred.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock, Option
or Convertible Security is issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor (net of non-customary discounts,
commissions and related expenses). If any Common Stock, Option or
Convertible Security is issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Corporation
shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the
B-10
Corporation shall be the Market Price thereof as of the date of receipt. If
any Common Stock, Option or Convertible Security is issued to the owners of
the non-surviving entity in connection with any merger in which the
Corporation or any Subsidiary of the Corporation is the surviving
corporation, the amount of consideration therefor shall be deemed to be the
fair value of such portion of the assets and business of the non-surviving
entity as is attributable to such Common Stock, Option or Convertible
Security, as the case may be. The fair value of any consideration other than
cash and securities shall be determined by the Board of Directors of the
Corporation, in good faith, and reported to the holders of Series A
Preferred in writing. If any holders of Shares object to such determination
of fair value within 20 days after receipt of such written notice, the Board
of Directors and such holder shall negotiate in good faith to reach
agreement regarding such fair market value; provided that, if such parties
are unable to reach agreement within a reasonable period of time, the fair
value of such consideration shall be determined by an independent appraiser
experienced in valuing such type of consideration selected by the
Corporation and approved by the holders of at least a majority of the then
outstanding Shares (such approval not to be unreasonably withheld). The
determination of such appraiser shall be final and binding upon the parties,
and the fees and expenses of such appraiser shall be borne by the
Corporation.
(vi) INTEGRATED TRANSACTIONS. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for the Market Price of the shares of
Common Stock issuable thereunder (taking into account the securities issued
in such integrated transaction).
(vii) TREASURY SHARES. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the
account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common
Stock.
(viii) RECORD DATE. If the Corporation takes a record of the holders of
Common Stock for the purpose of entitling them (a) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible
Securities, or (b) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or upon the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ix) MINIMAL ADJUSTMENTS. All calculations under this Section 5 shall
be made to the nearest cent or to the nearest one hundredth (1/100) of a
share, as the case may be. No adjustment in the Conversion Price shall be
made if such adjustment would result in a change in the Conversion Price of
less than $0.01; however, any adjustment of less than $0.01 that is not made
shall be carried forward and shall be made at the time of and together with
any subsequent adjustment which, on a cumulative basis, amounts to an
adjustment of $0.01 or more in the Conversion Price.
5F. SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Corporation at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Corporation at any
time combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller
B-11
number of shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
5G. CONVERSION UPON A RECAPITALIZATION. Prior to the consummation of any
recapitalization, reorganization, reclassification, consolidation or merger
involving the Corporation which is effected in such a manner that the holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities, cash or assets with respect to or in exchange
for Common Stock (any such event, a "RECAPITALIZATION"), the Corporation shall
make appropriate provisions (in form and substance satisfactory to the holders
of a majority of the then outstanding Shares of Series A Preferred Stock) to
insure that each of the holders of Series A Preferred shall thereafter have the
right to acquire and receive, in lieu of or in addition to (as the case may be)
the shares of Conversion Stock immediately theretofore acquirable and receivable
upon the conversion of such holder's Series A Preferred, such shares of stock,
securities, cash or assets as such holder would have received in connection with
such Recapitalization if such holder had converted its Series A Preferred
immediately prior to such Recapitalization. In each such case, the Corporation
also shall make appropriate provisions (in form and substance satisfactory to
the holders of a majority of the then outstanding Shares of Series A Preferred
Stock) to insure that the provisions of this Section 5 thereafter shall be
applicable to the Series A Preferred (including, in the case of any such
consolidation, merger or sale in which the successor entity or purchasing entity
is not the Corporation, an immediate adjustment of the Conversion Price to the
value for the Common Stock reflected by the terms of such Recapitalization, and
a corresponding immediate adjustment in the number of shares of Conversion Stock
acquirable and receivable upon conversion of Series A Preferred, if the value so
reflected is less than the Conversion Price in effect immediately prior to such
Recapitalization).
5H. CERTAIN EVENTS. If any event occurs of the type contemplated by the
provisions of this Section 5 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of Series A
Preferred; provided that no such adjustment shall increase the Conversion Price
as otherwise determined pursuant to this Section 5 or decrease the number of
shares of Conversion Stock issuable upon conversion of each Share of Series A
Preferred.
5I. NOTICES.
(i) Promptly upon any adjustment of the Conversion Price, the Corporation
shall give written notice thereof to all holders of Series A Preferred, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders of Series A
Preferred at least 20 days prior to the date on which the Corporation closes its
books or takes a record (a) with respect to any dividend or distribution upon
Common Stock, (b) with respect to any pro rata subscription offers to holders of
Common Stock or (c) for determining rights to vote with respect to any Change of
Control, dissolution or liquidation.
(iii) The Corporation shall also give written notice to all holders of
Series A Preferred at least 20 days prior to the date on which any
Recapitalization shall take place.
Section 6. PROTECTIVE PROVISIONS. In addition to any other class vote that
may be required by law or as provided herein, so long as any Shares of Series A
Preferred are outstanding, the Corporation shall not,
B-12
without first obtaining the affirmative vote of the holders of at least a
majority of the Shares of Series A Preferred then outstanding, voting as a
class:
(i) increase the number of authorized Series A Preferred or issue any
additional shares of Series A Preferred, except as contemplated by the terms
of the Series A Preferred;
(ii) amend or modify the powers, preferences or rights of the Series A
Preferred or amend, alter or repeal any of the provisions of the
Corporation's Articles of Incorporation or By-laws (including by merger or
similar transaction or otherwise) so as to eliminate the Series A Preferred
or otherwise affect adversely the powers, preferences or rights of the
holders of Series A Preferred; or
(iii) other than the Series A Preferred, create, authorize, issue or
permit to exist any class of capital stock or series of preferred shares
that ranks senior to the Series A Preferred with respect to dividend rights
or rights on liquidation, winding up or dissolution, or reclassify any class
or series of any junior stock into, or authorize any securities exchangeable
for, convertible into or evidencing the right to purchase, any such class or
series.
Section 7. TRANSFERS; REGISTRATION OF TRANSFER. The Shares of Series A
Preferred shall be freely transferable, subject to compliance with applicable
securities laws. The Corporation shall keep at its principal office a register
for the registration of Series A Preferred. Upon the surrender of any
certificate representing Series A Preferred at such place, the Corporation
shall, at the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange therefor representing in the aggregate the number of Shares represented
by the surrendered certificate. Each such new certificate shall be registered in
such name and shall represent such number of Shares as is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate, and dividends shall accrue on the Series A
Preferred represented by such new certificate from the date to which dividends
have been fully paid on such Series A Preferred represented by the surrendered
certificate.
Section 8. REPLACEMENT OF CERTIFICATES. Upon receipt of evidence
reasonably satisfactory to the Corporation (an affidavit of the registered
holder shall be satisfactory) of the ownership and the loss, theft, destruction
or mutilation of any certificate evidencing Shares of Series A Preferred, and in
the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is a
financial institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
Shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Series A Preferred represented by
such new certificate from the date to which dividends have been fully paid on
such lost, stolen, destroyed or mutilated certificate.
Section 9. DEFINITIONS.
"CHANGE OF CONTROL" means any (i) reorganization or merger of the
Corporation with or into any other corporation or entity (other than a
consolidation or merger in which the Corporation is the continuing entity and
which does not result in any adverse change in the rights, preferences or
privileges of the Common Stock), (ii) a sale, lease, exchange or transfer of all
or substantially all of the assets of the Corporation in one transaction or
series of related transactions, (iii) a change in the majority of the Board of
Directors, occurring during any 13-month period commencing on January 17, 2000
that was not
B-13
approved by a majority of the directors serving on January 17, 2000 or by a
majority of those subsequently elected directors whose election or nomination
for election was approved by a majority of the directors then serving on the
Board of Directors, (iv) merger, consolidation, reorganization or similar
transaction involving the Corporation, or the issuance, sale or transfer of
voting capital stock of the Corporation, by the Corporation or otherwise, in one
transaction or series of related transactions, such that, after the consummation
of any such transaction(s), the stockholders of the Corporation prior to the
transaction(s) own less than 50% of the voting securities of the surviving
corporation or entity or the Corporation, as the case may be, or (v) the
acquisition by any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")), or two
or more persons acting in concert, of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 51% or more of the
outstanding shares of voting stock of the Corporation; PROVIDED, HOWEVER, that
the foregoing shall exclude any such acquisition (A) made by the Corporation or
any Subsidiary, or (B) made by an employee benefit plan (or related trust)
sponsored or maintained by the Corporation.
"COMMON STOCK" means, collectively, the Corporation's common stock, $.001
par value per share, and any capital stock of any class of the Corporation
hereafter authorized that is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.
"COMMON STOCK DEEMED OUTSTANDING" means, at any given time, without
duplication, the number of shares of Common Stock actually outstanding at such
time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to subparagraphs 5D(i) and 5D(ii) hereof whether or not the Options or
Convertible Securities are actually exercisable at such time, plus the number of
shares of Common Stock issuable upon conversion of the outstanding Series A
Preferred, plus the number of shares of Common Stock issuable upon exercise of
outstanding options and warrants to purchase Common Stock as such number of
shares is proportionately adjusted for stock splits, stock dividends, stock
combinations and other recapitalizations.
"CONVERSION PRICE" initially shall be equal to $10.00, but is subject to
adjustment in accordance with Section 5.
"CONVERSION STOCK" means shares of the Corporation's Common Stock; provided
that if there is a change such that the securities issuable upon conversion of
the Series A Preferred are issued by an entity other than the Corporation or
there is a change in the type or class of securities so issuable, then the term
"Conversion Stock" shall mean the security issuable upon conversion of each
share of the Series A Preferred if such security is issuable in shares, or shall
mean the smallest unit in which such security is issuable if such security is
not issuable in shares.
"CONVERTIBLE SECURITIES" means any stock or securities directly or
indirectly convertible into or exchangeable for Common Stock.
"DATE OF ISSUANCE" means the date on which the Corporation initially issues
any Shares, regardless of the number of times transfer of such Share is made on
the stock records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such Share.
"EVENT OF NONCOMPLIANCE" means, with respect to any Shares for which a
redemption notice and the certificates representing such Shares have been timely
received by the Corporation, the failure by the
B-14
Corporation to have paid, within the 60-day period described in Section 3A, the
Redemption Payment Amount (including any accrued and unpaid Participating
Dividends).
"ISSUANCE PRICE" shall be equal to $10.00 (as proportionately adjusted for
stock splits, stock dividends, stock combinations and other recapitalizations).
"JUNIOR SECURITIES" means the Common Stock and any capital stock or other
equity securities of the Corporation with rights and preferences (including with
respect to liquidation) subordinate to the Series A Preferred.
"LIQUIDATION VALUE" of any Share as of any particular date shall be equal to
$10.00 (as proportionately adjusted for stock splits, stock dividends, stock
combinations and other recapitalizations).
"MARKET PRICE" of any security means the average of the closing prices of
such security's sales on the primary securities exchange on which such security
may at the time be listed, or, if there has been no sales on such exchange on
any day, the average of the highest bid and lowest asked prices on such exchange
at the end of such day, or, if on any day such security is not so listed, the
average of the representative bid and asked prices quoted in the Nasdaq System
as of 4:00 P.M., New York time, or, if on any day such security is not quoted in
the Nasdaq System, the average of the highest bid and lowest asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case averaged over a period of 21 trading days consisting of the days as of
which "Market Price" is being determined and the 20 consecutive business days
prior to such day. If at any time such security is not listed on any securities
exchange or quoted in the Nasdaq System or the over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the
Corporation and the designee of holders of at least a majority of the then
outstanding Shares. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an independent
appraiser experienced in valuing securities selected by the Corporation and
approved by the designee of holders of at least a majority of the then
outstanding Shares (such approval not to be unreasonably withheld). The
determination of such appraiser shall be final and binding upon the parties, and
the Corporation shall pay the fees and expenses of such appraiser.
"OPTIONS" means any rights, warrants or options to subscribe for or purchase
Common Stock or Convertible Securities.
"PARTICIPATING LIQUIDATION AMOUNT" means that portion of all remaining
assets and funds of the Corporation available for distribution to the
stockholders of the Corporation after payment in full of the aggregate
Liquidation Value with respect to the Shares of Series A Preferred then
outstanding, expressed as a fraction the numerator of which is the number of
shares of Common Stock issuable upon the conversion under Section 6 of all
Series A Preferred outstanding immediately prior to such event and the
denominator of which is the sum of the number of shares of Common Stock
outstanding immediately prior to such event plus the number of all shares of
Common Stock issuable upon conversion under Section 6 of all Series A Preferred
outstanding immediately prior to such event.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"SUBSIDIARY" means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of
B-15
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the partnership
or other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of that person
or a combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in a limited liability company,
partnership, association or other business entity if such Person or Persons
shall be allocated a majority of limited liability company, partnership,
association or other business entity gains or losses or shall be or control the
managing general partner of such limited liability company, partnership,
association or other business entity.
Section 10. AMENDMENTS AND WAIVERS. No amendment, modification or waiver
shall be binding or effective with respect to any provision of this Statement of
Resolution without the prior written consent of the holders of at least 60% of
the then outstanding Shares; provided that no change in the terms hereof may be
accomplished by merger or consolidation of the Corporation with another
corporation or entity unless the Corporation has obtained the prior written
consent of the holders of the applicable percentage of the Series A Preferred
then outstanding.
Section 11. NOTICES. Except as otherwise expressly provided hereunder, all
notices referred to herein shall be in writing and shall be delivered by
reputable overnight courier service, charges prepaid, and shall be deemed to
have been given when so sent (i) to the Corporation, at its principal executive
offices and (ii) to any stockholder, at such holder's address as it appears in
the stock records of the Corporation (unless otherwise indicated by any such
holder).
B-16
APPENDIX C
BY-LAWS OF
HA-LO MERGER CORPORATION
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The Corporation shall have and maintain a
registered office and a registered agent in the State of Delaware.
Section 2. OTHER OFFICES. The Corporation may also have such other office
or offices in Delaware or elsewhere as the Board of Directors may determine or
as the business of the Corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of stockholders shall be
held on a date and at a time designated by the Board of Directors. In the
absence of such designation, the annual meeting shall be held on the second
Tuesday in May at 10:00 a.m. local time. Such meeting may be held within or
without the State of Delaware. At such meeting the stockholders shall elect by a
plurality vote a Board of Directors, and transact such other business as may
properly be brought before the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the stockholders may be
called for any purpose or purposes as shall be stated in a written notice of
meeting. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice (or any supplement thereto). Unless
otherwise prescribed by statute or by the Certificate of Incorporation, special
meetings of the stockholders may be called only by (a) the Board of Directors of
the Corporation, (b) the Chairman of the Board of Directors of the Corporation,
if there is one, or (c) the Chief Executive Officer or the President of the
Corporation.
Section 3. NOTICE. Written notice of the annual or special meeting shall
be given to each stockholder entitled to vote thereat, in person or by mailing
to him at his or her last known address, not less than 10 nor more than 60 days
before the date of meeting. In the case of a special meeting, the purpose or
purposes for which the meeting is called must be stated in the notice. In the
case of an annual meeting, the matters which the Board of Directors, at the time
the notice is given, intends to present shall be stated in the notice (but any
other matter properly presented may be determined at the meeting).
Section 4. STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least 10 days before every
meeting of the stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list also shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present for any purpose germane to the meeting.
C-1
Section 5. QUORUM. Unless otherwise provided by the Certificate of
Incorporation, holders of a majority of the shares issued and outstanding and
entitled to vote at a meeting thereof, present in person or represented by
proxy, shall constitute a quorum at all meetings of stockholders. In the event a
quorum is not present or represented by proxy at any meeting of stockholders, a
majority of the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice of the time and place of the adjourned meeting other than
announcement at the meeting at which adjournment is taken. At the adjourned
meeting, the Corporation may transact any business which may have been
transacted at the original meeting. If the meeting is adjourned for more than
30 days or if, after the adjournment, a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 6. VOTE REQUIRED. If a quorum is present, the affirmative vote of
the holders of a majority of the shares represented at such meeting and entitled
to vote thereat, whether present in person or by proxy, shall be the act of the
stockholders, unless the matter to be voted upon is one upon which, by express
provision of the Delaware General Corporation Law or of the Certificate of
Incorporation, a different vote is required, in which case such express
provision shall determine the vote required to effect such action.
Section 7. VOTING. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote in person or by
proxy for each share of the capital stock having voting power held by such
stockholder. No proxy shall be voted after three years from its date, unless the
proxy provides for a longer period. No stockholder shall be entitled to cumulate
votes.
Section 8. WRITTEN CONSENT. Any action required to be taken at a meeting
of the stockholders, or any other action which may be taken at a meeting of the
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation. If such consent is signed by less
than all of the stockholders entitled to vote, then such consent shall become
effective only if, after the effective date of the consent, prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be delivered in writing to those stockholders who have not
consented in writing.
Section 9. BUSINESS BROUGHT BEFORE AN ANNUAL MEETING.
(a) TIMELY NOTICE BY STOCKHOLDER. At any annual meeting of stockholders of
the Corporation, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
(ii) brought before the meeting by or at the direction of the Board of
Directors, or (iii) otherwise properly brought before the meeting by a
stockholder who was a stockholder of record both at the time of giving notice
provided for in these By-laws and also on the record date for the determination
of stockholders entitled to vote at the annual meeting. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have delivered timely written notice thereof to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Corporation not
less than 45 days prior to the first anniversary of the date on which the
Corporation first mailed its proxy materials for the prior year's annual
meeting; provided, however, that in the event that the date of
C-2
the annual meeting is changed by more than 30 days from the first anniversary of
the prior year's annual meeting, to be timely a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Corporation not later than the close of business on the 10th day following the
date on which the notice of the date of the annual meeting was first mailed or
the date public announcement of such meeting date was made. A stockholder's
notice to the Corporation shall set forth, as to each matter the stockholder
proposes to bring before the annual meeting, (A) a brief description of the
business desired to be brought before the annual meeting, (B) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (C) the class and number of shares of the Corporation which are
beneficially owned by the stockholder on the relevant date(s), and (D) any
material interest of the stockholder in such business. Such notice also shall
comply with any other applicable requirements promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). For purposes of this
section, "public announcement" shall mean disclosure in a press release reported
by Dow Jones News Services, Associated Press or a comparable national news
service. Nothing in this section shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
(b) Notwithstanding anything in these By-laws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 9. The presiding officer of an annual meeting shall,
if the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section, and any such business not properly brought before the meeting shall not
be transacted.
ARTICLE III
DIRECTORS
Section 1. NUMBER. The number of directors which shall constitute the
whole Board of Directors of the Corporation shall be not less than two (2) nor
more than eleven (11) and shall be fixed from time to time by resolution adopted
by a majority of the Board of Directors. Each director shall serve for a term
ending on the date of the first annual meeting following the annual meeting at
which such director was elected or until his successor is elected and qualified
or until his earlier resignation or removal. Directors need not be stockholders.
Section 2. VACANCIES. Vacancies and newly-created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director, and the director(s) so chosen shall hold office until
their successor(s) are elected and qualified or until their earlier resignation
or removal.
Section 3. DUTIES OF DIRECTORS. The business of the Corporation shall be
managed by or under the direction of its Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-laws
directed or required to be exercised or done by the stockholders.
Section 4. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. ANNUAL MEETINGS. An annual meeting of the Board of Directors
shall be held immediately following the annual meeting of the stockholders. In
the event such meeting is not held immediately following the annual meeting of
the stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors.
C-3
Section 6. REGULAR MEETINGS. Other regular meetings of the Board of
Directors may be held without notice if the times and places for such meetings
are fixed by the Board of Directors.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the Chief Executive Officer or the
President and shall be called by the Chief Executive Officer, President or
Secretary on the written request of any two directors. Notice of a special
meeting shall be given to each director, in person or by mail, courier, telegram
or facsimile (if receipt is confirmed by telephone), at his or her last known
address not less than 48 hours prior to the date designated therein for such
meeting. Said notice shall be written, specifying the time and place of such
meeting.
Section 8. QUORUM. At all meetings of the board, a majority of the
directors shall constitute a quorum for the transaction of business. The act of
a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, the Certificate of Incorporation or these
By-laws. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. NOMINATIONS FOR DIRECTORS.
(a) PERSONS ELIGIBLE. Only persons who are nominated in accordance with
the procedures set forth in these By-laws shall be eligible to serve as
directors of the Corporation. Nominations of persons for election to the Board
of Directors of the Corporation may be made at a meeting of stockholders (i) by
or at the direction of the Board of Directors, or (ii) by any stockholder of the
Corporation who was a stockholder of record both at the time of giving notice
provided for in these By-laws and also on the record date for the determination
of stockholders entitled to vote at the meeting, and who shall have complied
with the notice procedures set forth in Section 9(b).
(b) TIMELY NOTICE. In order for a stockholder to nominate a person for
election to the Board of Directors of the Corporation at a meeting of
stockholders, such stockholder shall have delivered timely written notice to the
Corporation of such stockholder's intent to make such nomination. To be timely,
a stockholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the Corporation (i) in the case of an annual
meeting, not less than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is changed by more than 30 days from such anniversary date, to be
timely a stockholder's notice must be delivered to, or mailed and received at,
the principal executive offices of the Corporation not later than the close of
business on the 10th day following the date on which the notice of the date of
the annual meeting was first mailed or the date public announcement of such
meeting date was made, and (ii) in the case of a special meeting at which
directors are to be elected, not later than the close of business on the 10th
day following the earlier of the day on which notice of the meeting was mailed
or the date public announcement of such meeting was made. Such stockholder's
notice shall be set forth (A) as to each person whom the stockholder proposes to
nominate for election as a director at such meeting, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including such person's written consent
to being named in the proxy statement as a nominee and to serve as a director if
elected; (B) as to the stockholder giving the notice (1) the name and address,
as they appear on the Corporation's books, of such stockholder, and (2) the
class and number of shares of the Corporation which are beneficially owned by
such stockholder and also which are owned of record by such stockholder on the
C-4
relevant date(s); and (C) as to the beneficial owner, if any, on whose behalf
the nomination is made, (x) the name and address of such person and (y) the
class and number of shares of the Corporation which are beneficially owned by
such person. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the secretary
of the Corporation that information required to be set forth on a stockholder's
notice of nomination which pertains to a nominee.
(c) DEFECTIVE NOMINATIONS. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this Section 9 and, if he shall so
determine, the defective nomination shall be disregarded. A stockholder seeking
to nominate a person to serve as a director also must comply with all applicable
requirements of the Exchange Act, and the rules and regulations thereunder.
Section 10. VOTING. At all meetings of the Board of Directors, each
director shall have one vote.
Section 11. UNANIMOUS CONSENT. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors, or any committee thereof,
may be taken without a meeting if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of the proceedings of the board or committee.
Section 12. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. To the extent provided in the resolution and not otherwise
restricted by statute, any such committee shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, including the power and authority to declare
dividends, and may authorize the seal of the Corporation, if any, to be affixed
to all papers which may require it. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors, as requested by the
board.
Section 13. COMPENSATION OF DIRECTORS. Unless otherwise restricted by
statute or the Certificate of Incorporation, the Board of Directors
(irrespective of any personal interest) shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated fee as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 14. INTERESTED DIRECTORS.
(a) No contract or transaction between the Corporation and one or more of
its directors or officers, or between the Corporation and any other Corporation,
partnership, association, or other organization in which one or more of the
Corporation's directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely because of the existence
thereof, or solely because a director or officer is present at or participates
in the meeting of the Board or a committee thereof which authorizes such a
contract or transaction, or solely because his or their votes are counted for
such purpose, if:
(i) the material facts as to such relationship or interest and as to the
contract or transaction(s) are disclosed or are known to the Board of
Directors or a committee thereof, as the case may
C-5
be, and the Board or committee, as appropriate, in good faith authorizes the
contract or transaction(s) by affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less
than a quorum; or
(ii) the material facts as to the relationship or interest and as to the
contract or transaction(s) are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction(s) is specifically
approved in good faith by vote of the stockholders; or
(iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof or the stockholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
thereof which authorizes a contract or transaction described in this
Section 14.
Section 15. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the Secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered or certified mail to the Secretary of the Corporation
within three (3) business days after the adjournment of the meeting. Such right
to dissent shall not apply to a director who voted in favor of such action.
Section 16. REMOVAL OF DIRECTORS. One or more of the directors of the
Corporation may be removed, with or without cause, at a meeting of shareholders
by the affirmative vote of the holders of a majority of the outstanding shares
then entitled to vote at an election of directors as provided by law.
ARTICLE IV
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be elected by the
Board of Directors and shall include a Chief Executive Officer, a President, a
Secretary and a Treasurer. The Board of Directors also may elect one or more
Vice Presidents, one or more Assistant Secretaries and Assistant Treasurers, and
such other officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the board. Any number of offices may be
held by the same person.
Section 2. ELECTION. The Board of Directors shall elect officers annually
at its first meeting after each annual meeting of stockholders. New offices may
be created and filled and any vacancy occurring in any office may be filled at
any meeting of the Board of Directors.
Section 3. COMPENSATION. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 4. TERM. The officers of the Corporation shall hold office until
their successors are elected and qualify. Any officer elected by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors, with or without cause. Any officer may resign at any
time by giving notice to the Board of Directors or to the Chief Executive
Officer, President or Secretary. A resignation of an officer need not be
accepted in order to be effective.
C-6
Section 5. DUTIES OF OFFICERS. The duties and powers of the officers shall
be as follows:
(a) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer will be the
principal executive officer of the Corporation and subject to the control of
the Board of Directors, shall in general be responsible for the
administration and operations of the business and affairs of the
Corporation. He shall preside at all meetings of the Shareholders and the
Board of Directors. He may sign with the Secretary, or any other proper
officer of the Corporation thereunto authorized by the Board of Directors,
certificates for shares of the Corporation and any deeds, mortgages, bonds,
contracts or other instruments which the Board of Directors has authorized
to be executed or the execution of which is in the ordinary course of the
Corporation's business, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors of the these
Bylaws of some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed and in general shall
perform all duties commensurate to the office of Chief Executive Officer,
and such other duties as may prescribed by the Board of Directors from
time-to-time.
(b) PRESIDENT. The President shall in the absence, disability or
refusal to act of the Chief Executive Officer, perform the duties of the
Chief Executive Officer, and once so acting shall have all the powers and be
subject to all of the restrictions upon the Chief Executive Officer. He may
sign with the Secretary or any other proper officer of the Corporation
thereunto authorized by the Board of Directors, certificates for shares of
the Corporation, and any deeds, mortgages, bonds, contracts or other
instruments which the Board of Directors has authorized the execution of
which is in the ordinary course of the Corporation's business, except in
cases where the signing and execution thereof shall be expressly delegated
by the Board of Directors or by these Bylaws to some other officer or agent
of the Corporation, or shall be required by law to be otherwise signed or
executed and shall perform such other duties as may be prescribed by the
Board of Directors from time-to-time. The President shall report to the
Chief Executive Officer.
(c) VICE-PRESIDENT. The Vice-President, or if there shall be more than
one (1), the Vice-President in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election), shall in the absence, disability or refusal to act of the
President and the Chief Executive Officer, perform the duties of the
President or Chief Executive Officer, and once so acting shall have all
power of and be subject to all of restrictions upon the President and Chief
Executive Officer. He may sign with the Secretary or any other proper
officer of the Corporation thereunto authorized by the Board of Directors,
certificates for shares of the Corporation, and any deeds, mortgages, bonds,
contracts or other instruments which the Board of Directors has authorized
to be executed or the execution of which is in the ordinary course of the
Corporation's business, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed and shall perform such
other duties as may be prescribed by the Board of Directors from
time-to-time.
(d) SECRETARY. The Secretary shall: (a) keep the minutes of the
meetings of the shareholders, the Board of Directors and committees of
directors in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these by-laws or
as required by law; (c) be custodian of the corporate records and of the
seal of the Corporation and see that the seal of the Corporation is affixed
to all certificates for shares prior to the issue thereof and to all
documents the execution of which on behalf of the Corporation under its seal
is duly authorized in accordance with the provisions of these bylaws;
(d) keep or cause to be kept a register of the name
C-7
and post-office address of each shareholder, which shall be furnished to the
Corporation by such shareholder, and the number and class of shares held by
each shareholder; (e) sign with the President, or a Vice-President,
certificates for shares of the Corporation, the issue of which shall have
been authorized by resolution of the Board of Directors; (f) have general
charge of the stock transfer books of the Corporation; and (g) in general
perform all duties incident to the office of Secretary and such other duties
as from time to time may be assigned by the President or by the Board of
Directors.
(e) TREASURER. If required by the Board of Directors, the Treasurer
shall give a bond for the faithful discharge of his duties in such sum and
with such surety or sureties as the Board of Directors shall determine. The
Treasurer shall be the principal financial and accounting officer of the
Corporation, and shall: (a) have charge and custody of, and be responsible
for, all funds and securities of the Corporation; (b) keep or cause to be
kept complete books and records of account including a record of all
receipts and disbursements; (c) receive and give receipts for moneys due and
payable to the Corporation from any source whatsoever, and deposit all such
moneys not otherwise employed in the name of the Corporation in such bank,
savings and loan association, trust company or other depositories as shall
be selected in accordance with the provisions of Article V of these by-laws;
(d) from time to time prepare or cause to be prepared and render financial
statements of the Corporation at the request of the President or the Board
of Directors; and (e) in general perform all the duties incident to the
office of Treasurer and such other duties as from time to time may be
assigned by the President or the Board of Directors.
(f) ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Treasurers, if any, shall respectively, if required by the Board of
Directors, give bonds for the faithful discharge of their duties in such
sums and with such sureties as the Board of Directors shall determine. In
the absence of the Treasurer or Secretary or in the event of the inability
or refusal of the Treasurer or Secretary to act, the Assistant Treasurer and
the Assistant Secretary (or in the event there is more than one of either,
in the order designated by the Board of Directors or in the absence of such
designation, in the order of election) shall perform the duties of the
Treasurer and Secretary, respectively, and when so acting, shall have all
the authority of and be subject to all the restrictions upon such office.
The Assistant Treasurers and Assistant Secretaries shall also perform such
duties as shall be assigned to them from time to time by the Treasurer or
the Secretary, respectively, or by the President or the Board of Directors.
Section 6. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities of any corporation or other entity that are owned by the
Corporation may be executed in the name of and on behalf of the Corporation by
the President, Chief Executive Officer, the Chief Financial Officer or any Vice
President and any such officer may, in the name and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation or
other entity in which the Corporation may own securities and at any such meeting
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities and which, as the owner thereof, the Corporation
might have exercised and possessed if present. The Board of Directors may, by
resolution, from time to time confer like powers upon any other person or
persons.
C-8
ARTICLE V
STOCK CERTIFICATES
Section 1. DESCRIPTION. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Corporation by,
the President or a Vice President, and countersigned by the Treasurer or
Assistant Treasurer, Secretary or Assistant Secretary of the Corporation,
certifying the number of shares owned by him in the Corporation, and sealed with
the seal of the Corporation, if any. If the Corporation shall be authorized to
issue more than one class of stock, or more than one series of any class, the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class of stock; provided, however,
that except as otherwise provided in Section 202 of the General Corporation Law
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation will
furnish without charge to each stockholder who so requests, the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. FACSIMILE OF SIGNATURE. The signature of any officer on a stock
certificate may be by facsimile. In case any officer or officers who have
signed, or whose facsimile signature or signatures have been used on any such
certificate or certificates, shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates are issued, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the Corporation.
Section 3. TRANSFER OF STOCK. The stock of the Corporation, irrespective
of class, shall be assignable and transferable on the books of the Corporation
only by the person in whose name it appears on said books, or his or her legal
representatives. In case of transfer by attorney, the power of attorney, duly
executed and acknowledged, shall be deposited with the Secretary. In all cases
of transfer, the former certificate must be surrendered up and cancelled before
a new certificate is issued; however, in the event of loss, mutilation or
destruction of a certificate, a duplicate certificate may be issued upon such
terms as the Chief Executive Officer, President or Chief Financial Officer shall
prescribe. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books,
subject, however, to any restrictions or limitations on the transfer thereof
which may be set forth in the Certificate of Incorporation or referred to on the
certificate so surrendered or which may be imposed by law or by any agreement to
which the holder of such shares is subject.
Section 4. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote or take other action as such owner,
and to hold liable for calls and assessments a person registered on its books as
the owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such
C-9
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VI
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the Corporation,
subject to the restrictions, if any, contained in the Certificate of
Incorporation may be declared by the Board of Directors at any regular or
special meeting, pursuant to applicable law. Dividends may be paid in cash, in
property, or in shares of capital stock of the Corporation, subject to the
provisions of the Certificate of Incorporation. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum as the directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the directors shall think conducive to
the interests of the Corporation, and the directors may modify or abolish any
such reserve in the manner in which it was created.
Section 2. CHECKS AND NOTES. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other
persons as the Board of Directors may from time to time designate.
Section 3. FISCAL YEAR. The fiscal year of the Corporation shall end on
December 31 of each year, unless otherwise determined by the Board of Directors.
Section 4. AMENDMENTS. These By-laws may be altered, amended or repealed,
or new By-laws may be adopted, at any regular meeting of stockholders or of the
Board of Directors, or at any special meeting of stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal, or adoption of new
By-laws is contained in the notice of such special meeting.
Section 5. NOTICES.
(a) MANNER OF NOTICES. Whenever, under the provisions of the statutes or
of the Certificate of Incorporation or these By-laws, notice is required to be
given to any director or stockholder, it shall not be construed to require
personal notice, but such notice may also be given in writing, by first class
United States mail, postage prepaid, or by prepaid telegram and mail, addressed
to such director or stockholder at his or her address as it appears on the
records of the Corporation, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail or, in the case
of telegrams, when transmitted.
(b) WAIVER OF NOTICE. Whenever any notice is required to be given under
the provisions of the statutes or of the Certificate of Incorporation or these
By-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
C-10
APPENDIX D
Section 11.65. RIGHT TO DISSENT.
(a) A shareholder of a corporation is entitled to dissent from, and obtain
payment for his or her shares in the event of any of the following corporate
actions:
(1) consummation of a plan of merger or consolidation or a plan of share
exchange to which the corporation is a party if
(i) shareholder authorization is required for the merger or
consolidation or the share exchange by Section 11.20 or the articles of
incorporation or
(ii) the corporation is a subsidiary that is merged with its parent
or another subsidiary under Section 11.30;
(2) consummation of a sale, lease or exchange of all, or substantially
all, of the property and assets of the corporation other than in the usual
and regular course of business;
(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption, including
a provision respecting a sinking fund for the redemption or repurchase,
of such shares;
(iii) in the case of a corporation incorporated prior to January 1,
1982, limits or eliminates cumulative voting rights with respect to such
shares; or
(4) any other corporate action taken pursuant to a shareholder vote if
the articles of incorporation, by-laws, or a resolution of the board of
directors provide that shareholders are entitled to dissent and obtain
payment for their shares in accordance with the procedures set forth in
Section 11.70 or as may be otherwise provided in the articles, by-laws or
resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his or
her entitlement unless the action is fraudulent with respect to the shareholder
or the corporation or constitutes a breach of a fiduciary duty owed to the
shareholder.
(c) A record owner of shares may assert dissenters' rights as to fewer than
all the shares recorded in such person's name only if such person dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the record owner asserts dissenters' rights. The rights of a partial dissenter
are determined as if the shares as to which dissent is made and the other shares
were recorded in the names of different shareholders. A beneficial owner of
shares who is not the record owner may assert dissenters' rights as to shares
held on such person's behalf only if the beneficial owner submits to the
corporation the record owner's written consent to the dissent before or at the
same time the beneficial owner asserts dissenters' rights.
D-1
Section 11.70. PROCEDURE TO DISSENT.
(a) If the corporate action giving rise to the right to dissent is to be
approved at a meeting of shareholders, the notice of meeting shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to the meeting, the corporation furnishes to shareholders material information
with respect to the transaction that will objectively enable a shareholder to
vote on the transaction and to determine whether or not to exercise dissenters'
rights, a shareholder may assert dissenters' rights only if the shareholder
delivers to the corporation before the vote is taken a written demand for
payment for his or her shares if the proposed action is consummated, and the
shareholder does not vote in favor of the proposed action.
(b) If the corporation action giving rise to the right to dissent is not to
be approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter's rights only if he or
she delivers to the corporation within 30 days from the date of mailing the
notice a written demand for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as of
the end of a fiscal year ending not earlier than 16 months before the delivery
of the statement, together with the statement of income for that year and the
latest available interim financial statements, and either a commitment to pay
for the shares of the dissenting shareholder at the estimated fair value thereof
upon transmittal to the corporation of the certificate or certificates, or other
evidence of ownership, with respect to the shares, or instructions to the
dissenting shareholder to sell his or her shares within 10 days after delivery
of the corporation's statement to the shareholder. The corporation may instruct
the shareholder to sell only if there is a public market for the shares at which
the shares may be readily sold. If the shareholder does not sell within that
10 day period after being so instructed by the corporation, for purposes of this
Section the shareholder shall be deemed to have sold his or her shares at the
average closing price of the shares, if listed on a national exchange, or the
average of the bid and asked price with respect to the shares quoted by a
principal market maker, if not listed on a national exchange, during that
10 day period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are cancelled or
modified by the consummation of the proposed corporate action. Upon consummation
of that action, the corporation shall pay to each dissenter who transmits to the
corporation the certificate or other evidence of ownership of the shares the
amount the corporation estimates to be the fair value of the shares, plus
accrued interest, accompanied by a written explanation of how the interest was
calculated.
(e) If the shareholder does not agree with the opinion of the corporation as
to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement of
value, shall notify the corporation in writing of the shareholder's estimated
fair value and amount of interest due and demand payment for the difference
between the shareholder's estimate of fair value and amount of interest due and
demand payment for the difference between the
D-2
shareholder's estimate of fair value and interest due and the amount of the
payment by the corporation or the proceeds of sale by the shareholder, whichever
is applicable because of the procedure for which the corporation opted pursuant
to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay the
difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as an action against
their shares and all parties shall be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law. Failure of the corporation to commence an action pursuant to
this Section shall not limit or affect the right of the dissenting shareholders
to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced under
subsection (f) by a corporation is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the power described in the order
appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of the appraisers, if any, appointed by the court under
subsection (g), but shall exclude the fees and expenses of counsel and experts
for the respective parties. If the fair value of the shares as determined by the
court materially exceeds the amount which the corporation estimated to be the
fair value of the shares or if no estimate was made in accordance with
subsection (c), then all or any part of the costs may be assessed against the
corporation. If the amount which any dissenter estimated to be the fair value of
the shares materially exceeds the fair value of the shares as determined by the
court, then all or any part of the costs may be assessed against that dissenter.
The court may also assess the fees and expenses of counsel and experts for the
respective parties, in amounts the court finds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d) or (f).
(2) Against either the corporation or a dissenter and in favor of any
other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the corporation, the court may
award to that counsel reasonable fees to be paid out of he amounts awarded to
the dissenters who are benefited. Except as otherwise provided in this Section,
the practice, procedure, judgment and costs shall be governed by the Code of
Civil Procedure.
D-3
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the consummation of the corporate action to
which the dissenter objects excluding any appreciation or depreciation in
anticipation of the corporate action, unless exclusion would be inequitable.
(2) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all circumstances.
D-4
APPENDIX E
HA-LO INDUSTRIES, INC.
2000 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel and to provide additional
incentive to Employees, Directors and Consultants to promote the success of the
Company's business. Options granted under the Plan may be Incentive Stock
Options or Nonstatutory Stock Options, as determined by the Administrator at the
time of grant.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board, the Committee and/or certain
officers of the Company appointed by the Board, as shall be administering
the Plan in accordance with Section 4 hereof.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under United States state corporate
laws, United States federal and state securities laws, the Code, any stock
exchange or quotation system on which the Common Stock is listed or quoted
and the applicable laws of any other country or jurisdiction where Options
are granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended or
replaced from time to time.
(e) "COMMITTEE" means the Compensation Committee of the Board. Each
member of the Committee shall (a) be a "Non-Employee Director" as determined
under Rule 16b-3(b)(3)(i) of the Exchange Act and (b) be an "Outside
Director" as determined under Treasury Regulation 26 CFR Section
1.162-27(e)(3) or any successor regulation thereto. Once appointed, the
members of the Committee shall continue to serve until otherwise directed by
the Board.
(f) "COMMON STOCK" means the common stock, $.001 par value per share, of
the Company.
(g) "COMPANY" means HA-LO, Industries, Inc., a Delaware corporation.
(h) "CONSULTANT" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services to such
entity.
(i) "DIRECTOR" means a member of the Board of Directors of the Company.
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee (i) during any leave of
absence approved by the Company; provided that, for purposes of Incentive
Stock Options, no such leave may exceed ninety days, unless reemployment
upon expiration of such leave is guaranteed by statute or contract; or
(ii) as a result of transfers between locations of the Company or between
the Company, its Parent, any Subsidiary, or any successor. If reemployment
upon expiration of a leave of absence approved by the Company is not
guaranteed by statute or contract, on the 181st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory
E-1
Stock Option. Neither service as a Director nor payment of a director's fee
by the Company, without more, shall constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) if the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the time of
determination, as reported in THE WALL STREET JOURNAL or such other
source as the Administrator deems reliable;
(ii) if the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of
determination; or
(iii) in the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" or "ISO" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of
the Code.
(o) "NONSTATUTORY STOCK OPTION" or "NSO" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "OPTION" means an option to purchase Common Stock that is granted
pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option
grant, which terms must include the number of shares subject to the Option
and the exercise price therefor. Each Option Agreement is subject to the
terms and conditions of the Plan.
(s) "OPTIONED STOCK" means the shares of Common Stock subject to an
outstanding Option.
(t) "OPTIONEE" means the holder of an outstanding Option granted under
the Plan.
(u) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(v) "PLAN" means this 2000 Stock Option Plan of HA-LO Industries, Inc.
(w) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(x) "SHARE" means one share of Common Stock.
(y) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
E-2
3. STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 of the Plan, the maximum
aggregate number of Shares which may be issued as Optioned Stock under the Plan
is 10,000,000 Shares. The Shares may be authorized but unissued Common Stock or
treasury stock. There is no specific limitation on grants of Options to any one
Service Provider.
(b) If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Optioned Stock which was subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); however, Shares that have actually been issued under the Plan,
upon exercise of an Option, shall not be returned to the Plan and shall not
become available for future distribution under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) ADMINISTRATOR. The Plan shall be administered by the Board or the
Committee. The Committee may delegate some or all of its power to the Chief
Executive Officer or other executive officer of the Company as the Committee
deems appropriate; provided, that (i) the Committee may not delegate its power
with regard to the grant of an award of an Option to any person who is a
"covered employee" within the meaning of Section 162(m) of the Code or who, in
the Committee's judgment, is likely to be a covered employee at any time during
the period such an award to such employee would be outstanding and (ii) the
Committee may not delegate its power with regard to the selection for
participation in the Plan of an officer or other person subject to Section 16 of
the Exchange Act or decisions concerning the timing, pricing or amount of an
award of an Option to such an officer or other person.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan
and, in the case of the Administrator, the specific duties delegated by the
Board or the Committee, as applicable, and subject to the approval of any
relevant authorities, the Administrator shall have the authority in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options from time to time
may be granted hereunder;
(iii) to determine the number of Shares to be covered by each such award
granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions of any Option granted
hereunder, which terms and conditions shall include, but are not limited to,
the exercise price, the time or times when Options may be exercised (which
may be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any
Option or the Common Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an Option may be
settled in cash under subsection 9(e) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then current Fair
Market Value if the Fair Market Value of the Common Stock covered by such
Option has declined since the date the Option was granted;
E-3
(viii) to prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans established
for the purpose of qualifying for preferred tax treatment under foreign tax
laws;
(ix) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon
exercise of an Option that number of Shares having a Fair Market Value equal
to the amount required to be withheld. The Fair Market Value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All elections by Optionees to have Shares
withheld for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable; and
(x) to construe and interpret the terms of the Plan and awards granted
pursuant to the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and
interpretations of the Administrator shall be final and binding on all
Optionees.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Service Providers.
Incentive Stock Options may be granted only to Employees.
(b) Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option (and, if such designation
is not made, shall be deemed a Nonstatutory Stock Option); provided, however,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted (i.e., first granted, first considered exercisable).
The Fair Market Value of the Shares shall be determined as of the time the
Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option shall confer upon any Optionee any right
with respect to continuing the Optionee's relationship as a Service Provider
with the Company, and they shall not interfere in any way with the Optionee's
right or the Company's right to terminate such relationship at any time, with or
without cause.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by the
Board and the stockholders of the Corporation. It shall continue in effect for a
term of ten (10) years unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION. Unless otherwise stated in the Option Agreement, the
term of each Option shall be ten (10) years from the date of grant thereof. In
the case of an Incentive Stock Option granted to an Optionee who, at the time
the Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
E-4
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued upon exercise
of an Option shall be such price as is determined by the Administrator, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of grant of such Option,
owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted to a Service Provider who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant; or
(B) granted to any other Service Provider, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the
date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a per
Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The form of consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than 180 days on the date of surrender, and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) surrender of the Option to the Company in exchange for such
number of Shares equal to the Optioned Stock subject to such Option less such
number of Shares that have a Fair Market Value equal to the aggregate exercise
price, or (7) any combination of the foregoing methods of payment. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted
hereunder shall be exercisable according to the terms hereof at such times and
under such conditions as determined by the Administrator and set forth in the
Option Agreement. Except as set forth in an Option Agreement or as otherwise set
forth herein, Options shall become exercisable at a rate of no less than 20% per
year over five (5) years from the date the Options are granted. Unless the
Administrator provides otherwise, vesting of Options granted hereunder to
Officers and Directors shall be tolled during any unpaid leave of absence. An
Option may not be exercised for a fraction of a Share.
E-5
An Option shall be deemed exercised when the Company receives: (i) written
notice of exercise (in accordance with the Option Agreement) from the person
entitled to exercise the Option, and (ii) full payment for the Shares with
respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Subject to Section 10 hereof,
shares issued upon exercise of an Option shall be issued in the name of the
Optionee or, if requested by the Optionee, jointly in the name of the Optionee
and his or her spouse. Until the Shares are issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), no right to vote or receive dividends or any other rights
as a stockholder of the Company shall exist with respect to the Shares,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such Shares promptly after the Option is exercised. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Shares are issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) VOLUNTARY TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider other than due to such Optionee's
termination for Cause (as defined below), death or Disability, such Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement (which shall be at least thirty (30) days) to the extent that
the Option is vested on the date of termination (but in no event later than the
expiration of the term of the Option as set forth in the Option Agreement);
provided that, in the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for ninety (90) days following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan and the Option shall be deemed forfeited with
respect to such Shares. If, after termination, the Optionee does not exercise
his or her Option within the time specified in the Option Agreement or the Plan,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(c) INVOLUNTARY TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider for Cause (as defined below), such
Optionee may exercise his or her Option for up to fourteen (14) days after such
Optionee's termination, to the extent that the Option is vested on the date of
termination; on the 15th day after such Optionee's termination, all Options that
have not been exercised shall be immediately cancelled and forfeited. "CAUSE"
means (i) the willful and continued failure by Optionee to substantially perform
his or her duties under Optionee's agreement with the Company for 20 days after
written demand for substantial performance is delivered by the Company, which
specifically identifies the manner in which the Company believes Optionee has
not substantially performed his or her duties; provided, however, that in the
event such breach is curable but that Optionee is unable to cure such breach
within such 20-day period, then any such breach shall not be deemed to
constitute "Cause" hereunder so long as Optionee is diligently and in good faith
pursuing a cure and such breach is cured no later than 45 days following receipt
of the foregoing written demand from the Company, (ii) the commission by
Optionee of theft, embezzlement, fraud or misappropriation of funds against the
Company or the willful engaging by Optionee in other misconduct which is
materially injurious to the Company, or (iii) the conviction of Optionee of a
felony.
(d) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service Provider
as a result of the Optionee's Disability, the Optionee may exercise his or her
Option within such period of time as is
E-6
specified in the Option Agreement (which shall be at least 180 days) to the
extent the Option is vested on the date of termination (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for one (1) year following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider, the
Option may be exercised within such period of time as is specified in the Option
Agreement (which shall be at least 180 days) to the extent that the Option is
vested on the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement) by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance. In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for one (1) year following the Optionee's death.
If, at the time of death, the Optionee is not vested as to the entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan and the Option shall be deemed forfeited with respect to such
Shares. If the Option is not so exercised within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out
any previously granted Option for a payment in cash or Shares, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. LIMITED TRANSFERABILITY OF OPTIONS. The Options awarded under the Plan
are not transferable, voluntarily or involuntarily, other than by will or by the
laws of descent and distribution; PROVIDED, HOWEVER, that NSO's may be
transferred in whole or in part during the Service Provider's lifetime by gift
to one or more members of the Service Provider's family, to a trust in which the
Service Provider's family members have more than fifty percent of the beneficial
interest, to a foundation in which the Service Provider or his or her family
members control the management of assets, or to any other entity in which the
Service Provider or his or her family members own more than fifty percent of the
voting interests. Notwithstanding the foregoing, NSO's may not be transferred
for value; PROVIDED, HOWEVER, that the following transactions are not prohibited
transfers for value:
(a) a transfer under a domestic relations order in settlement of marital
property rights; and
(b) a transfer to an entity in which more than fifty percent of the
voting interests are owned by the Service Provider or his or her family
members in exchange for an interest in that entity.
The assigned portion may only be exercised by the person or persons who
acquire a proprietary interest in the NSO pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
NSO immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Administrator may deem appropriate.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as
E-7
well as the price per share of Common Stock covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company. The
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
(b) MERGER OR ASSET SALE. In the event of a merger of the Company with or
into another corporation after which the Company is not the surviving
corporation, or the sale of all or substantially all of the assets of the
Company, the Administrator shall have discretion to require that each
outstanding Option shall be assumed, or a substantially equivalent option or
right be substituted, by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation refuses
to assume or substitute for the Option, the Optionee shall fully vest in and
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully exercisable
for a period of fifteen (15) days from the date of such notice, and the Option
shall terminate upon the expiration of such period. For the purposes of this
paragraph, the Option shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets is
not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option, for each Share
of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Service Provider to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. Except as otherwise provided in
Section 13(b) hereof, the Board may at any time amend, alter, suspend or
terminate the Plan without the consent of the stockholders.
(b) STOCKHOLDER APPROVAL. The Board shall obtain stockholder approval of
any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
E-8
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
14. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the exercise
of an Option unless the exercise of such Option and the issuance and delivery of
such Shares shall comply with Applicable Laws and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
15. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by the
stockholders of the Company within one year after the date the Plan is adopted.
Such stockholder approval shall be obtained in the degree and in the manner
required by Applicable Laws.
E-9
PROXY HA-LO INDUSTRIES, INC. PROXY
ANNUAL MEETING OF SHAREHOLDERS -- AUGUST 31, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned shareholder of HA-LO INDUSTRIES, INC., an Illinois
corporation ("HA-LO" or the "Company")), hereby appoints John R. Kelley, Jr.,
Eric P. Lefkofsky and Gregory J. Kilrea, and each of them, proxies and
attorneys-in-fact of the undersigned, each with full power of substitution,
to attend and act for the undersigned at the annual meeting of shareholders
to be held on Thursday, August 31, 2000 at the Company's officers at 303 East
Wacker Drive, Suite 2300, Chicago, Illinois 60601 and at any adjournments or
postponements thereof, and in connection therewith to vote and represent all
of the shares of common stock or preferred stock of HA-LO which the
undersigned would be entitled to vote.
Said proxies and attorneys, and each of them, shall have the powers which the
undersigned would have if acting in person. Said proxies, without hereby
limiting their general authority, are authorized to vote in accordance with
their best judgment with respect to all matters incident to the conduct of
the annual meeting and all matters presented at the meeting but which are not
known to the board of directors at the time of solicitation of this proxy.
The undersigned hereby revokes any other proxy to vote at such meeting and
hereby ratifies and confirms all that said proxies and attorneys, and each
of them, may lawfully do by virtue hereof.
Each of the above named proxies at said meeting, either in person or by
substitute, shall have and exercise all the powers of said proxies hereunder.
This proxy will be voted in accordance with the choices specified by the
undersigned on this proxy. In their discretion, each of the above-named
proxies is authorized to vote upon such other business incident to the
conduct of the annual meeting as may properly come before the meeting or any
postponements or adjournments thereof.
IF NO INSTRUCTIONS ARE INDICATED HEREIN, THIS PROXY WILL BE TREATED AS A
GRANT OF AUTHORITY TO VOTE FOR THE ELECTION OF THE NOMINEES NAMED ON THE
REVERSE SIDE, FOR PROPOSAL 2, FOR PROPOSAL 3, FOR PROPOSAL 4, FOR PROPOSAL 5
AND ANY OTHER MATTERS TO BE VOTED UPON AT THE ANNUAL MEETING OR AT ANY
POSTPONEMENTS OR ADJOURNMENTS THEREOF.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN THIS CARD
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- -------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
HA-LO INDUSTRIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
1. ELECTION OF DIRECTORS
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
Nominees: 1. Lou Weisbach, 2. Linden D. Nelson, / / / / / /
3. John R. Kelley, Jr., 4. Bradley A. Keywell,
5. Eric P. Lefkofsky, 6. Thomas Herskovits,
7. Marshall J. Katz, 8. Brian M. Hermelin and
9. Richard A. Heise, Jr.
------------------------------------------
INSTRUCTION: To withhold authority to vote
for any individual nominee, write that
nominee's name on the space provided
above
FOR AGAINST ABSTAIN
2. Approval of the merger to effect a change / / / / / /
in the State of Incorporation of the Company
from Illinois to Delaware.
FOR AGAINST ABSTAIN
3. Approval of the adoption of the HA-LO / / / / / /
Industries, Inc. 2000 Stock Option Plan.
FOR AGAINST ABSTAIN
4. Ratification of the reappointment of Arthur / / / / / /
Andersen LLP as the Company's Auditors for 2000.
FOR AGAINST ABSTAIN
5. Approval of any proposal by the board of / / / / / /
directors to postpone or adjourn the meeting.
6. The persons named in this proxy also may
vote, in their discretion, upon such other
matters as may properly come before the
meeting or any adjournment thereof.
7. MARK HERE IF / /
YOU PLAN TO
ATTEND THE
MEETING
MARK HERE FOR ADDRESS
CHANGE AND NOTE BELOW / /
Please complete, sign and mail this proxy promptly in the enclosed envelope.
No postage is required for mailing in the United States.
Dated , 2000
----------------------
Signature(s)
--------------------------------
--------------------------------
IMPORTANT: Please date this proxy and sign exactly as your name appears on
this proxy. If shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please
give title as such. If a corporation, please sign in full corporate name by
president, or authorized officer. If a partnership, please sign in
partnership name by authorized person. (This Proxy should be marked, dated,
signed by the shareholder(s) exactly as his or her name appears hereon, and
returned promptly in the enclosed envelope. Persons signing in a fiduciary
capacity should so indicate. If shares are held by joint tenants or as
community property, both should sign.)