Exhibit 3.1
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ACORN PRODUCTS, INC.
The undersigned, for the purpose of amending and restating the Certificate of
Incorporation of Acorn Products, Inc., a Delaware corporation (the
"Corporation"), does hereby certify that:
(1) The name of the Corporation is Acorn Products, Inc.
(2) The date of filing of its original Certificate of Incorporation with the
Secretary of State of Delaware under the Corporation's prior name of New Vision,
Incorporated, was November 3, 1993.
(3) Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Amended and Restated Certificate of Incorporation was
adopted by the Corporation's Board of Directors and stockholders, the
stockholders of the Corporation having approved the Third Amended and Restated
Certificate of Incorporation at a meeting of the stockholders on November 20,
2002. The Amended and Restated Certificate of Incorporation restates and
integrates the provisions of the Certificate of Incorporation of the
Corporation.
(4) This Third Amended and Restated Certificate of Incorporation shall become
effective as of 12:01 a.m. on November 21, 2002.
(5) The Certificate of Incorporation of Acorn Products, Inc. is hereby amended
and restated in its entirety as follows:
FIRST: The name of the Corporation (hereinafter called the "Corporation") is
Acorn Products, Inc.
SECOND: The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 2711
Centerville Road, City of Wilmington 19808, County of New Castle, and the name
of the registered agent of the Corporation in the State of Delaware at such
address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
FOURTH: The total number of shares which the corporation shall have authority to
issue is Twenty One Million (21,000,000) consisting of:
(a) 20,000,000 shares of common stock, par value $0.01 per share (the
"Common Stock"); and
(b) 1,000,000 shares of preferred stock, par value $0.001 per share (the
"Preferred Stock").
The Preferred Stock may be issued from time to time in one or more series. The
Board of Directors is hereby vested with authority to fix by resolution or
resolutions the designations and the powers, preferences and relative
participation, optional or other special rights and qualifications, limitations
or restrictions thereof, including, without limitation, the dividend rate,
conversion or exchange rights, redemption price and liquidation preference, of
any series of the Preferred Stock, and to fix the number of shares constituting
any such series and to increase or decrease
the number of shares of any such series (but not below the number of shares
thereof outstanding). In case the number of shares of any such series shall be
so decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution or resolutions originally
fixing the number of shares of such series.
(c) Express Terms of the Series A Convertible Preferred Stock.
Section 1. DESIGNATION AND AMOUNT. The shares of such series of Preferred
Stock will be designated as Series A Convertible Preferred Stock (the "SERIES A
CONVERTIBLE PREFERRED STOCK"), and the number of shares constituting the Series
A Convertible Preferred Stock will be 827. The liquidation preference of the
Series A Convertible Preferred Stock shall be equal to $10,000.00 per share (the
"LIQUIDATION PREFERENCE AMOUNT"). For the purposes of Section 154 of the DGCL,
the amount to be represented as capital for each share of Series A Convertible
Preferred Stock is and shall at all times be $10,000.00.
Section 2. RANK. The Series A Convertible Preferred Stock will, with
respect to dividend rights and rights on liquidation, winding up and
dissolution, rank senior to the Junior Stock.
Section 3. DIVIDENDS.
(a) Each of the holders of record of the Series A Convertible
Preferred Stock shall be entitled to receive, when and as declared by
the Board, and out of any funds legally available for the purpose,
cumulative dividends at the Dividend Rate and in the manner provided
herein in preference to the payment of dividends on any Junior Stock.
Dividends on each share of the Series A Convertible Preferred Stock
shall accumulate and accrue on each such share from the Issuance Date
and shall accumulate and accrue from day to day thereafter, whether or
not earned or declared. Dividends shall not be affected by the
transfer of shares of Series A Convertible Preferred Stock thereafter
or the cancellation and issuance or reissuance of certificates
evidencing such shares. So long as any shares of Series A Preferred
Stock are issued and outstanding, the Corporation shall not pay cash
dividends on any Junior Stock, or purchase, redeem or retire, or make
any payment on account of, or set apart for payment, cash for a
sinking or other similar fund for, the purchase, redemption or
retirement of, any Junior Stock or any warrants, rights, calls or
options exercisable for or convertible into any Junior Stock, whether
directly or indirectly, except as otherwise provided in Section 8(a).
Dividends on the Junior Stock may be declared and paid in the form of
additional shares of the applicable series and class of such Junior
Stock, in accordance with the terms of the Junior Stock. The holders
of the Series A Preferred Stock also shall be entitled to participate
pari passu with the holders of the Common Stock in any and all
dividends or other distributions declared on the Common Stock, based
on the number of shares of Common Stock that holders of the Series A
Preferred Stock would have obtained had the Series A Preferred Stock
(together with accrued but unpaid dividends thereon) been converted in
full immediately prior to the date of such dividend at the Conversion
Price.
(b) Dividends will be calculated on a daily basis on each share
of Series A Convertible Preferred Stock at the Dividend Rate on the
Liquidation Preference Amount thereof. To the extent not paid in cash
quarterly on March 15, June 15, September 15 or December 15 of any
year (each a "DIVIDEND REFERENCE DATE"), commencing September 15,
2002, all dividends on the Series A Convertible Preferred Stock which
have been accrued during the three-month period (or other period in
the case of the first Dividend Reference Date) ending on such Dividend
Reference Date (each, a "DIVIDEND ACCRUAL PERIOD"), whether or not
earned or declared, will, without duplication, be added to the
Liquidation Preference Amount of the outstanding shares of Series A
Convertible Preferred Stock on such Dividend Reference Date and will
remain a part thereof until such shares of Series A Convertible
Preferred Stock are redeemed, repurchased or otherwise retired in
accordance with the terms hereof. If any Dividend Reference Date is
not a
Business Day, the dividend otherwise due on such date shall be paid on
the next following Business Day (and this extension shall be included
in the determination of such dividend payment).
(c) Each share of Series A Convertible Preferred Stock shall be
entitled to share ratably with each other share of Series A
Convertible Preferred Stock in such dividends as may be paid at such
time and in such amounts as shall be determined by the Board from time
to time.
Section 4. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any (i)
Deemed Liquidation Event (as defined below) or (ii) an actual liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
other than in connection with a Deemed Liquidation Event (an "ACTUAL LIQUIDATION
EVENT"), each holder of Series A Convertible Preferred Stock shall be entitled
to be paid out of the assets of the Corporation available for distribution to
holders of the Corporation's capital stock, before any payment or declaration
and setting apart for payment of any amount shall be made in respect of any
Junior Stock, the Liquidation Preference Amount plus any accrued and unpaid
dividends owing with respect to the Series A Convertible Preferred Stock on such
date.
"DEEMED LIQUIDATION EVENT" means (i) a merger, consolidation, reorganization,
business combination or other change in control transaction involving the
Corporation or a sale of shares of capital stock of the Corporation in any such
case in which any person or group other than POF and/or the TCW Entities
acquires 50% or more of the Common Stock of the Company or (ii) a sale or other
disposition of assets representing 50% or more of the assets of the Corporation
and its Subsidiaries.
Section 5. VOTING RIGHTS. Other than the voting and approval rights
provided in the Stockholders Agreement or as required by law, the holders of
Series A Convertible Preferred Stock shall not have any voting rights.
Section 6. CONVERSION.
(a) CONVERSION INTO COMMON STOCK. Immediately upon expiration of
the Rights Offering (as defined in the Purchase Agreement), all of the
Series A Convertible Preferred Stock shall be converted into such
number of fully paid and nonassessable shares of Common Stock as is
determined by dividing (y) the Liquidation Preference Amount of the
Series A Convertible Preferred Stock (plus amounts in respect of
accrued and unpaid dividends thereon) by (z) the Conversion Price;
provided, that the Series A Convertible Preferred Stock shall not be
converted and shall remain outstanding in the event of any of the
following has occurred: (1) the threatened or actual loss or
termination of employment of a Key Employee (as defined in the
Purchase Agreement), (2) the occurrence of a Material Adverse Effect
(as defined in the Purchase Agreement), or (3) the occurrence, or
likely occurrence, of a default or event of default with respect to
any loan facility or loan agreement of the Corporation or UnionTools,
Inc.
(b) MECHANICS OF CONVERSION. Promptly following the conversion
of the Series A Convertible Preferred Stock pursuant to subsection (a)
above, each holder of Series A Preferred Convertible Stock shall
surrender their certificates of Series A Convertible Preferred Stock
at the office of the Corporation, or at such other place designated by
the Corporation. The Corporation shall, immediately upon receipt of
such certificates of Series A Convertible Preferred Stock, issue and
deliver to or upon the order of the Holder and/or its designees,
against delivery of such certificates of Series A Convertible
Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled. Upon
receipt of such certificate or certificates, each holder of Series A
Convertible Preferred Stock shall mark the certificates representing
such Series A Convertible Preferred Stock "cancelled" and return them
to the Corporation. The Corporation shall promptly effect such
issuance and shall transmit the
certificates to the Holder or its designees. Such conversion shall be
deemed to have been made immediately prior to the close of business on
the date on which the sale of Common Stock pursuant to the Rights
Offering is consummated. The Person or Persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such shares at the
close of business on such date.
Section 7. REDEMPTION. Except as expressly provided in this Section 7, the
Corporation shall not have the right to purchase, call, redeem or otherwise
acquire for value, and no stockholder of the Corporation shall have the right to
require the Corporation to purchase, call, redeem or otherwise acquire for value
any or all of the shares of Series A Convertible Preferred Stock.
(a) MANDATORY REDEMPTION. Subject to the provisions of
Section 6, the Series A Convertible Preferred Stock shall be redeemed
by the Corporation on June 15, 2005 at a price per share equal to the
product of (a) the Liquidation Preference Amount plus accrued and
unpaid dividends thereon multiplied by (b) two (2) (the "REDEMPTION
PRICE").
(b) OPTIONAL REDEMPTION. The Corporation will have the right to
redeem all of the Series A Convertible Preferred Stock at any time
after the date of issuance but prior to the third anniversary of the
Issuance Date at a price equal to the Redemption Price.
(c) PROCEDURE FOR REDEMPTION. Any holder of shares of Series A
Convertible Preferred Stock may exercise such holders' right to
redemption pursuant to this Section 7 and the Corporation may exercise
its right to redemption pursuant to Section 7 by such holder giving
the Corporation or the Corporation giving such holder, as the case may
be, written notice not less than ten calendar days prior to the date
on which the redemption will actually occur, which notice will set
forth the date for such redemption. Any date upon which a redemption
is required to occur in accordance with Section 7 will be referred to
as a "REDEMPTION DATE." The aggregate Redemption Price will be payable
on the Redemption Date.
(d) REDEMPTION PROHIBITED. If, at a Redemption Date, the
Corporation fails for any reason to redeem shares of Series A
Convertible Preferred Stock, including without limitation due to a
prohibition of such redemption under the applicable sections of the
DGCL, then during the period from the Redemption Date through the date
on which such shares are redeemed, the shares of Series A Convertible
Preferred Stock not redeemed will remain outstanding and entitled to
all of the rights and preferences provided in this Certificate of
Designation.
(e) DIVIDEND AFTER REDEMPTION DATE. From and after the
Redemption Date, no shares of Series A Convertible Preferred Stock
subject to redemption will be entitled to any further dividends
pursuant to Section 3 hereof; provided, however, that in the event
that shares of Series A Convertible Preferred Stock are unable to be
redeemed and continue to be outstanding in accordance with Section
7(d) hereof, such shares will continue to be entitled to dividends
thereon as provided in Section 3 until the date on which such shares
are actually redeemed by the Corporation.
(f) SURRENDER OF CERTIFICATES. Upon receipt of the applicable
Redemption Price, each holder of shares of Series A Convertible
Preferred Stock to be redeemed shall surrender the certificate or
certificates representing such shares to the Corporation, duly
assigned or endorsed for transfer (or accompanied by duly executed
stock powers relating thereto), or shall deliver an affidavit of loss
with respect to such certificates at the principal executive office of
the Corporation or the office of the transfer agent for the Series A
Convertible Preferred Stock or such office or offices in the
continental United States of an agent for redemption as may from time
to
time be designated by notice to the holders of Series A Convertible
Preferred Stock, and each surrendered certificate will be canceled and
retired.
Section 8. RESTRICTIONS AND LIMITATIONS. So long as any Series A
Convertible Preferred Stock remains issued and outstanding, the Corporation may
not, without the approval by vote or written consent of the holders of a
majority of the Series A Convertible Preferred Stock:
(a) redeem, purchase or otherwise acquire for value (or pay into
or set aside for a sinking fund for such purpose) any Junior Stock or
any other shares of its capital stock, other than (i) purchases,
redemptions or other acquisitions of Junior Stock or options or
warrants to purchase Junior Stock from directors, officers or existing
or former employees of the Corporation or its Subsidiaries pursuant to
the terms of any employee benefit plan or employment or other
agreement in existence on the Issuance Date, (ii) purchases,
redemptions or other acquisitions of Junior Stock or options or
warrants to purchase Junior Stock from directors, officers or
employees of the Corporation or its Subsidiaries pursuant to the terms
of any employee benefit plan or employment or other agreement adopted
or executed following the Issuance Date, provided that such
redemptions, repurchases or acquisitions pursuant to this clause (ii)
are unanimously approved by the Board, and (iii) except as provided in
Section 7 hereof;
(b) amend, alter or repeal the amended articles of incorporation
or the bylaws of the Corporation in any manner which would have a
material adverse effect on the terms and conditions of the Series A
Convertible Preferred Stock;
(c) declare or pay any dividends or make any distributions with
respect to any Junior Stock, except for dividends payable in the form
of additional shares of Junior Stock, in accordance with the terms of
the Junior Stock;
(d) authorize or issue, or obligate itself to authorize or
issue, additional Series A Convertible Preferred Stock; or
(e) authorize or issue, obligate itself to authorize or issue,
any shares of capital stock, or any other options, warrants,
securities or debt instruments exchangeable for or convertible into
any such shares of capital stock (other than the Series A Convertible
Preferred Stock), senior to or on par with the Series A Convertible
Preferred Stock as to liquidation preferences, dividend rights,
conversion rights, redemption rights, preemptive rights or otherwise.
Section 9. NO REISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK. No share
or shares of Series A Convertible Preferred Stock acquired by the Corporation by
reason of redemption, purchase, or otherwise shall be reissued, and, upon such
event, all such shares shall resume the status of authorized but unissued shares
of Preferred Stock.
Section 10. REPLACEMENT. Upon receipt of evidence reasonably satisfactory
to the Corporation of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing one or more shares of Series A
Convertible Preferred Stock and, in the case of loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Corporation, or, in the case
of 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 Series A Convertible Preferred
Stock represented by such lost, stolen, destroyed or mutilated certificate and
dated the date of such lost, stolen, destroyed or mutilated certificate.
Section 11. FRACTIONAL SHARES. Fractional shares of Series A Convertible
Preferred Stock may be issued.
Section 12. DEFINITIONS. For purposes of this Certificate of Designation,
the following definitions shall apply:
"ACTUAL LIQUIDATION EVENT" has the meaning set forth in
Section 4.
"AFFILIATE" means any Person that directly or indirectly
through one or more intermediaries controls, or is controlled by, or
is under common control with, the Person specified. No Person shall be
deemed to be an Affiliate of another Person solely as a consequence of
the issuance of the Series A Convertible Preferred Stock or the
Stockholders Agreement or the transactions contemplated thereby.
"BOARD" means the board of directors of the Corporation or any
entity that survives a merger, reorganization or consolidation to
which the Corporation is a party.
"BUSINESS DAY" means a day other than Saturday, Sunday or a
statutory holiday on which banking institutions in New York are
authorized to close, and in the event that any action to be taken
hereunder falls on a day which is not a Business Day, then such action
shall be taken on the next succeeding Business Day.
"COMMON STOCK" means the common stock, par value $0.001 per
share, of the Corporation.
"CONVERSION PRICE" means $0.50 per share initially (as adjusted
for stock splits, stock dividends and similar combinations and, at the
reasonable discretion of the Board, to prevent dilution of the
ownership interest in the Corporation's Common Stock of the holders of
the Series A Convertible Preferred Stock from the issuance of shares,
options, warrants, securities or other rights to purchase Common Stock
of the Corporation (other than as contemplated in the Purchase
Agreement)).
"CORPORATION" means Acorn Products, Inc., a Delaware
corporation.
"DEEMED LIQUIDATION EVENT" has the meaning set forth in
Section 4(d).
"DGCL" means the General Corporation Law of the State of
Delaware.
"DIVIDEND ACCRUAL PERIOD" has the meaning set forth in Section
3(b).
"DIVIDEND RATE" means 12% per annum, provided that if the sale
of Common Stock pursuant to the Rights Offering shall not have been
consummated and the conversion of the Series A Convertible Preferred
Stock shall not have occurred on or prior to December 15, 2002,
"Dividend Rate" shall mean 19% per annum and such rate shall be deemed
to have applied at all times following the Issuance Date.
"DIVIDEND REFERENCE DATE" has the meaning set forth in Section
3(b).
"ISSUANCE DATE" means for any share of Series A Convertible
Preferred Stock, the date on which such share of Series A Convertible
Preferred Stock is issued.
"JUNIOR STOCK" means the Common Stock and all other classes and
series of the capital stock of the Corporation, whether presently
outstanding or hereafter authorized, issued or outstanding.
"LIQUIDATION EVENT" means an Actual Liquidation Event or a
Deemed Liquidation Event.
"LIQUIDATION PREFERENCE AMOUNT" has the meaning set forth in
Section 1.
"PERSON" means an individual, corporation, partnership,
association, trust, limited liability company or any other entity or
organization, including a government or political subdivision or an
agency, unit or instrumentality thereof.
"POF" means the OCM Principal Opportunities Fund, L.P., a
Delaware limited partnership.
"PURCHASE AGREEMENT" means the Purchase Agreement, dated as of
June 26, 2002, among the Corporation, UnionTools, Inc. and the other
parties named therein, pursuant to which the 12% Exchangeable Notes of
UnionTools, Inc. were exchanged for shares of the Series A Convertible
Preferred Stock of the Corporation.
"REDEMPTION DATE" has the meaning set forth in Section 7(c).
"SERIES A CONVERTIBLE PREFERRED STOCK" means the Series A
Convertible Preferred Stock, liquidation preference $10,000.00 per
share, of the Corporation.
"SUBSIDIARY" means, with respect to the Corporation, any Person
of which securities or other ownership interest having ordinary voting
power to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly
owned by the Corporation or a Subsidiary of the Corporation.
"TCW ENTITIES" means, collectively, TCW SPECIAL CREDITS
FUND III, a California limited partnership, TCW SPECIAL CREDITS FUND
IIIB, a California limited partnership, TCW SPECIAL CREDITS TRUST
IIIB, a California collective investment trust, THE COMMON FUND FOR
BOND INVESTMENTS, INC., a New York corporation, DELAWARE STATE
EMPLOYEES' RETIREMENT FUND, WEYERHAEUSER COMPANY MASTER RETIREMENT
TRUST (TCW), TCW SPECIAL CREDITS TRUST, a California collective
investment trust, TCW SPECIAL CREDITS TRUST IV, a California
collective investment trust ,TCW SPECIAL CREDITS TRUST IV-A, a
California collective investment trust, TCW SPECIAL CREDITS FUND IV, a
California limited partnership, and TCW SPECIAL CREDITS PLUS FUND, a
California limited partnership.
Section 13. PAYMENT RIGHTS SUBJECT TO CREDIT AGREEMENT. Notwithstanding
anything contained or implied herein to the contrary, any right of redemption
and any right to receive dividends, liquidation preferences or other payments
pursuant to the provisions hereof other than any such payment made in additional
shares of Series A Convertible Preferred Stock or pursuant to the provisions of
Section 6 hereof (collectively, the "Payment Rights") are subject in all
respects to the terms and conditions of that certain Revolving Credit, Term Loan
and Security Agreement, dated as of June 28, 2002 by and among the Corporation,
the Borrower Subsidiaries named therein and CapitalSource Finance LLC, as Agent
for the Lenders named therein (the "Credit Agreement"), and (ii) any and all
such Payment Rights are subordinate and subject in right and time of payment to
the prior indefeasible payment in full in cash of all obligations of the
Corporation under the Credit Agreement.
FIFTH: Transfer Restrictions.
(a) PROHIBITED TRANSFER; EXCESS STOCK. Except as provided in Section (f),
until the Restriction Termination Date, any attempted direct or
indirect Transfer of Stock shall be deemed a "Prohibited Transfer" if
(i) such Transfer would increase the Percentage of Stock Owned by any
Person that (or by any person whose Stock is or by virtue of such
Transfer would be attributed to any Person that), either after giving
effect to the attribution rules (including the option attribution
rules) of Section 382 or without regard to such attribution rules,
Owns, by virtue of such Transfer would Own, or has at any time since
the period beginning three years prior to the date of such Transfer,
Owned, Stock in excess of the Limit, and (ii) such Transfer would
cause an "ownership change" of the Corporation within the meaning of
Section 382. Notwithstanding the foregoing, any Transfer by or to POF
or the TCW Entities, or any of their respective affiliates, shall not
be deemed to be a Prohibited Transfer. Except at otherwise provided in
Section (e), the Stock or Option sought to be Transferred in the
Prohibited Transfer shall be deemed "Excess Stock."
(b) TRANSFER OF EXCESS STOCK TO TRANSFEREE. Except as otherwise provided
in Section (e), a Prohibited Transfer shall be void ab initio as to
the Purported Transferee in the Prohibited Transfer and such Purported
Transferee shall not be recognized as the owner of the Excess Stock
for any purpose and shall not be entitled to any rights as a
stockholder of the Corporation arising from the ownership of Excess
Stock, including, but not limited to, the right to vote such Excess
Stock or to receive dividends or other distributions in respect
thereof or, in the case of Options, to receive Stock in respect of
their exercise. Any Excess Stock shall automatically be transferred to
the Trustee in trust for the benefit of the Charitable Beneficiary,
effective as of the close of business on the business day prior to the
date of the Prohibited Transfer; provided, however, that if the
transfer to the trust is deemed ineffective for any reason, such
Excess Stock shall nevertheless be deemed to have been automatically
transferred to the person selected as the Trustee at such time, and
such person shall have rights consistent with those of the Trustee as
described in this section and in Section (c) below. Any dividend or
other distribution with respect to such Excess Stock paid prior to the
discovery by the Corporation that the Excess Stock has been
transferred to the Trustee ("Prohibited Distributions") shall be
deemed to be held by the Purported Transferee as agent for the
Trustee, and shall be paid to the Trustee upon demand, and any
dividend or distribution declared but unpaid shall be paid when due to
the Trustee. Any vote cast by a Purported Transferee with respect to
Excess Stock prior to the discovery by the Corporation that the Excess
Stock has been transferred to the Trustee will be rescinded as void
and shall be recast in accordance with the desires of the Trustee
acting for the sole benefit of the Charitable Beneficiary. The
Purported Transferee and any other Person holding certificates
representing Excess Stock shall immediately surrender such
certificates to the Trustee. The Trustee shall have all the rights of
the owner of the Excess Stock, including the right to vote, to receive
dividends or other distributions, and to receive proceeds from
liquidation, which rights shall be exercised for the sole benefit of
the Charitable Beneficiary.
(c) DISPOSITION OF EXCESS STOCK. As soon as practicable following receipt
of notice from the Corporation that Excess Stock has been transferred
to the Trustee, the Trustee shall take such actions as it deems
necessary to dispose of the Excess Stock in an arm's-length
transaction that would not constitute a Prohibited Transfer. Upon the
disposition of such Excess Stock, (i) the interest of the Charitable
Beneficiary in the Excess Stock shall terminate, and (ii) the Trustee
shall distribute the net proceeds of the sale as follows: (a) the
Purported Transferee shall receive an amount of the net proceeds of
such sale not to exceed the Purported Transferee's cost incurred to
acquire such Excess Stock, or, if such Excess Stock was Transferred
for less than fair market value on the date of the Prohibited
Transfer, the fair market value of the Excess Stock on the date of the
Prohibited Transfer, in each case less all costs incurred by the
Corporation, the Trustee and the Transfer Agent in enforcing the
Restrictions, and (b) the Charitable Beneficiary shall receive the
balance of the net proceeds from the sale of the Excess Stock, if any,
together with any Prohibited Distributions received from the Purported
Transferee and any other distributions with respect to such Excess
Stock while such Stock was held by the Trustee. In the event the
Purported Transferee has disposed of the Excess Stock and distributed
the proceeds and other amounts otherwise than in accordance with this
section, then (w) such Purported Transferee shall be
deemed to have disposed of such Excess Stock as an agent for the
Trustee, (x) such Purported Transferee shall be deemed to hold such
proceeds and any Prohibited Distributions as an agent for the Trustee,
(y) such Purported Transferee shall be required to return to the
Trustee the proceeds from such sale, together with any Prohibited
Distributions theretofore received by the Purported Transferee with
respect to such Excess Stock, provided that upon receipt of written
permission from the Trustee, the Purported Transferee will be entitled
to retain an amount of such sale proceeds not to exceed the amount
that such purported Transferee would have received from the Trustee if
the Trustee had obtained and resold the Excess Stock, and (z) the
Trustee shall transfer any remaining proceeds to the Charitable
Beneficiary. Neither the Trustee, the Corporation, the Purported
Transferee nor any other party shall claim an income tax deduction
with respect to any transfer to the Charitable Beneficiary and neither
the Trustee nor the Corporation shall benefit in any way from the
enforcement of the Restrictions, except insofar as these restrictions
protect the Corporation's Income Tax Net Operating Loss Carryover.
Neither the Trustee, the Corporation nor the Transfer Agent shall have
any liability to any Person for any loss arising from or related to a
Prohibited Transfer.
(d) TRANSFER AGENT'S RIGHTS AND RESPONSIBILITIES. The Transfer Agent shall
not register any Transfer of Stock on the Corporation's stock transfer
records if it has knowledge that such Transfer is a Prohibited
Transfer. The Transfer Agent shall have the right, prior and as a
condition to registering any Transfer of Stock on the Corporation's
stock transfer records, to request any transferee of the Stock to
submit an affidavit, on a form agreed to by the Transfer Agent and the
Corporation, stating the number of shares of each class of Stock Owned
by the transferee (and by Persons who would Own the transferee's
Stock) before the proposed Transfer and that would, if effect were
given to the proposed Transfer, be Owned by the transferee (and by
Persons who would Own the prospective Transferee's Stock) after the
proposed Transfer. If either (i) the Transfer Agent does not receive
such affidavit, or (ii) such affidavit evidences that the Transfer was
a Prohibited Transfer, the Transfer Agent shall notify the Corporation
and shall not enter the Prohibited Transfer into the Corporation's
stock transfer records, and the Trustee, the Corporation and the
Transfer Agent shall take such steps as provided in the Restrictions
in order to dispose of the Excess Stock purportedly Owned by such
Purported Transferee. If the Transfer Agent, for whatever reason,
enters a Prohibited Transfer in the Corporation's stock transfer
records, such Transfer shall be nonetheless void ab initio and shall
have no force and effect, in accordance with the Restrictions, and the
Corporation's stock transfer records shall be revised to so provide.
(e) CERTAIN INDIRECT PROHIBITED TRANSFERS. In the event a Transfer would
be a Prohibited Transfer as a result of attribution to the Purported
Transferee of the Ownership of Stock by a person (an "Other Person")
who is not controlling, controlled by or under common control with the
Purported Transferee, which Ownership is nevertheless attributed to
the Purported Transferee, the Restrictions shall not apply in a manner
that would invalidate any Transfer to such Other Person, and the
Purported Transferee and any Persons controlling, controlled by or
under common control with the Purported Transferee (collectively, the
"Purported Transferee Group") shall automatically be deemed to have
transferred to the Trustee at the time and in a manner consistent with
Section B hereof, sufficient Stock (which Stock shall (i) consist only
of Stock held legally or beneficially, whether directly or indirectly,
by any member of the Purported Transferee Group, but not Stock held
through any Other Person, other than shares held through a Person
acting as agent or fiduciary for any member of the Purported
Transferee Group, (ii) be deemed transferred to the Trustee, in the
inverse order in which it was acquired by members of the Purported
Transferee Group, and (iii) be treated as Excess Stock) to cause the
Purported Transferee, following such transfer to the Trustee, not to
be in violation of the Restrictions; provided, however, that to the
extent the foregoing provisions of this Section E would not be
effective to prevent a Prohibited Transfer, the Restrictions shall
apply to such other Stock Owned by the Purported Transferree
(including Stock actually owned by Other Persons), in a manner
designed to minimize the amount
of Stock subject to the Restrictions or as otherwise determined by the
Board of Directors to be necessary to prevent a Prohibited Transfer
(which Stock shall be treated as Excess Stock).
(f) EXCEPTIONS. The term "Prohibited Transfer" shall not include: (i) any
Transfer described in Section 382(1)(3)(B) of the Code (relating to
transfers upon death or divorce and certain gifts) if all Persons who
would Own the Stock Transferred would be treated for purposes of
Section 382 as having Owned such Stock at all times beginning more
than three (3) years prior to the date of the Transfer, and (ii) any
Transfer with respect to which the Person who would otherwise be the
Purported Transferee obtains or is granted the prior written approval
of the Board of Directors of the Corporation, which approval shall be
granted in its sole and absolute discretion after considering all
facts and circumstances, including but not limited to future events
the occurrence of which are deemed by the Board of Directors of the
Corporation to be reasonably possible.
(g) LEGEND. All certificates or other instruments evidencing Ownership of
Stock shall bear a conspicuous legend describing the restrictions. The
Board of Directors shall take such actions as it deems necessary to
substitute certificates evidencing ownership of Stock and bearing such
legend for certificates not bearing such legend.
(h) PROMPT ENFORCEMENT; FURTHER ACTIONS. As soon as practicable and within
thirty (30) business days of learning of a purported Prohibited
Transfer, the Corporation through its Secretary or any assistant
Secretary shall demand that the Purported Transferee (or any other
member of the Purported Transferee Group) surrender to the Trustee the
certificates representing the Excess Stock or any resale proceeds
therefrom, and any Prohibited Distributions or other dividends or
distributions received thereon, and if such surrender is not made
within twenty (20) business days from the date of such demand, the
Corporation shall institute legal proceedings to compel such surrender
and for compensatory damages on account of any failure to take such
actions; provided, however, that nothing in this Section (h) shall
preclude the Corporation in its discretion from immediately bringing
legal proceedings without a prior demand, and also provided that
failure of the Corporation to act within the time periods set out in
this section shall not constitute a waiver of any right of the
Corporation to compel any transfer required hereby. Upon a
determination by the Board of Directors that there has been or is
threatened a Prohibited Transfer, the Board of Directors may authorize
such additional action as it deems advisable to give effect to the
Restrictions, including, without limitation, refusing to give effect
on the books of the Corporation to any such purported Prohibited
Transfer or instituting proceedings to enjoin any such purported
Prohibited Transfer. Nothing contained in the Restrictions shall limit
the authority of the Board of Directors to take such other action to
the extent permitted by law as it deems necessary or advisable to
protect the Corporation and the interests of the holders of its
securities in preserving the Income Tax Net Operating Loss Carryover,
including, but not limited to, refusing to give effect to any
Prohibited Transfer or other action on the books of the Corporation or
instituting proceedings to enjoin any Prohibited Transfer or other
action; provided, however, that any Prohibited Transfer shall
nevertheless result in the consequences otherwise described in the
Restrictions.
(i) BOARD AUTHORITY TO INTERPRET. The Board of Directors shall have the
authority to interpret the provisions of the Restrictions for the
purpose of protecting the Income Tax Net Operating Loss Carryover. Any
such interpretation shall be final and binding on any Person who Owns
or purports to acquire Ownership of Stock.
(j) DAMAGES. Any person who knowingly violates the Restrictions, and any
persons controlling, controlled by or under common control with such a
person, shall be jointly and severally liable to the Corporation for,
and shall indemnify and hold the Corporation harmless against, any and
all damages suffered as a result of such violation, including but not
limited to damages resulting from
a reduction in or elimination of the Corporation's ability to utilize
its Income Tax Net Operating Loss Carryover, and attorneys' and
accountants' fees incurred in connection with such violation.
(k) SEVERABILITY. If any part of the Restrictions are judicially
determined to be invalid or otherwise unenforceable, such invalidity
or unenforceability shall not affect the remainder of the
Restrictions, which shall be thereafter interpreted as if the invalid
or unenforceable part were not contained herein, and, to the maximum
extent possible, in a manner consistent with preserving the ability of
the Corporation to utilize to the greatest extent possible the Income
Tax Operating Loss Carryover.
(l) EFFECT ON NASDAQ TRANSACTIONS. Nothing in the Restrictions shall
preclude the settlement of a transaction entered into through the
facilities of Nasdaq. The Stock that is the subject of such
transaction shall continue to be subject to the terms and Restrictions
after such settlement.
(m) DEFINITIONS.
"Charitable Beneficiary" shall mean one or more organizations
described in Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the
Code designated in writing by the Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended and as
it may be amended from time to time hereafter.
"Common Stock" shall mean the common stock of the Corporation, $0.001
par value per share.
"Control" shall mean the possession, direct or indirect, of the power
to direct or cause the direction of the management, policies or
decisions of a Person, whether through the ownership of voting
securities, by contract, family relationship or otherwise. The terms
"controlling," "controlled by" and "under common control with" shall
have correlative meanings. A Person shall be deemed to control or be
under common control with a Purported Transferee if the Excess Stock
Owned by such Person is treated as Owned by the Purported Transferee
by virtue of the family attribution rules of Section 318 of the Code.
"5% Stockholder" shall mean any Person or Public Group who is a
"5-percent stockholder" of the Corporation within the meaning of
Section 382, substituting "4.5 percent" for "5 percent" each place it
appears therein.
"Income Tax Net Operating Loss Carryover" shall mean the net operating
loss, capital loss, net unrealized built-in loss, general business
credit, alternative minimum tax credit, foreign tax credit and any
other carryovers or losses as determined for United States federal
income tax purposes that are or could become subject to limitation
under Section 382, and to which the Corporation is entitled under the
Code and Regulations, at any time during which the Restrictions are in
force.
"Limit" shall mean 4.5 Percent of the Stock.
"Option" shall mean any interest that could give rise to the Ownership
of Stock and that is an option, contract, warrant, convertible
instrument, put, call, stock subject to a risk of forfeiture, pledge
of stock or any interest that is similar to any of such interests or
any other interest that would be treated, under paragraph (d)(9) of
Treasury Regulation Section 1.382-4, in the same manner as an option,
whether or not any of such interests is subject to contingencies.
"Own," and all derivations of the word "Own," shall mean any direct or
indirect, actual or beneficial interest, including, except as
otherwise provided, a constructive ownership interest
under the attribution rules (including the option attribution rules)
of Section 382. In determining whether a Person Owns an amount of
Stock in excess of the Limit, Options Owned by such Person (or other
Persons whose Ownership of Stock is or would be attributable under
Section 382 to such Person) shall be treated as exercised (and the
Stock that would be acquired by such exercise as outstanding) and
Options Owned by other Persons shall be treated as not exercised (and
the Stock that would be acquired by such exercise as outstanding) and
Options Owned by other Persons shall be treated as not exercised (and
the Stock that would be acquired if such Options owned by other
Persons were exercised shall be treated as not outstanding), in each
case without regard to whether such treatment would result in an
ownership change within the meaning of Section 382. In determining
whether a Transfer that is an exercise, conversion or similar
transaction with respect to an Option increases the Percentage
Ownership of Stock of any Person or Public Group, such Option shall be
treated as if it were not Owned by such Person immediately prior to
such Transfer.
"Percent," "Percentage" or "%" shall mean percent or percentage by
value.
"Person" shall mean any individual (other than a Public Group treated
as an individual under Section 382) or any "entity" as that term is
defined in Regulations Section 1.382-3(a).
"Public Group" shall have the meaning assigned to such term in the
applicable Regulations under Section 382.
"Purported Transferee" shall mean a Person or Public Group who
acquires Ownership of Excess Stock in a Prohibited Transfer or, except
as otherwise provided in the Restrictions, any subsequent transferee
of such Excess Stock.
"Purported Transferor" shall mean a Person who Transfers Excess Stock
in a Prohibited Transfer.
"Regulations" shall mean Treasury Regulations, including proposed or
temporary regulations, promulgated under the Code, as the same may be
amended from time to time. References herein to specific provisions of
temporary Regulations shall include the analogous provisions of final
Regulations or other successor Regulations.
"Restriction Effective Date" shall mean November 20, 2002.
"Restriction Termination Date" shall mean the earliest to occur of (a)
the end of the tenth year following the Restriction Effective Date,
(b) the first day of the first taxable year following the taxable year
(or years) in which the Income Tax Net Operating Loss Carryover has
been reduced to zero, or (c) the date upon which the Board of
Directors has determined that there has been a change in law
(including but not limited to the repeal of Section 382 without a
successor provision that places restrictions on the Income Tax Net
Operating Loss Carryover based on changes of ownership of the
Corporation's Stock similar to Section 382) eliminating the need for
the Restrictions in order to preserve the Corporation's ability to
utilize the Income Tax Net Operating Loss Carryover.
"Restrictions" shall mean the restrictions on the Transfer and
Ownership of Stock as set forth in this Article FIFTH.
"Section 382" shall mean Section 382 of the Code and the Regulations
promulgated thereunder, and any successor statute and regulations.
"Stock" shall mean the Common Stock and any interest in the
Corporation that would be treated as stock under Section 382, without
regard to clauses (ii)(B) and (iii)(B) of paragraph (f)(18) of
Temporary Treasury Regulation Section 1.382-2T (but only if, in
determining the Ownership by any Person of Stock, the uniform
treatment of such interest as Stock or as not Stock, as the case may
be, would increase such Person's Percentage Ownership of Stock), and
shall also include any Stock the ownership of which may be acquired by
the exercise of an Option.
"Transfer" shall mean any direct or indirect acquisition or
disposition of stock, whether by sale, exchange, merger,
consolidation, transfer, assignment, conveyance, distribution, pledge,
inheritance, gift, mortgage, the creation of any security interest in,
or lien or encumbrance upon, or any other acquisition or disposition
of any kind and in any manner, whether voluntary or involuntary,
knowing or unknowing, by operation of law or otherwise.
Notwithstanding any understandings or agreements to which an Owner of
Stock is a party, any arrangement, the effect of which is to transfer
any or all of the rights arising from Ownership of Stock, shall be
treated as a Transfer. A Transfer shall also include (i) a transfer of
an interest in an entity and a change in the relationship between two
or more Persons that results in a change in the Ownership of Stock and
(ii) the creation, grant, exercise, conversion, Transfer or other
disposition of or with respect to an Option, regardless of whether
such Option previously had been treated as exercised or converted for
any other purpose.
"Transfer Agent" means the Person responsible for maintaining the
books and records in which are recorded the ownership and transfer of
shares of Stock or any Person engaged by the Corporation for the
purpose of fulfilling the duties required to be fulfilled by the
Transfer Agent hereunder.
"Trustee" means the trustee of the trust appointed by the Corporation,
provided that the Trustee shall be a Person unaffiliated with the
Corporation, any 5% Stockholder, and any Person purchasing or
disposing of Stock in a Prohibited Transfer.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: For the management of the business and the conduct of the affairs of
the Corporation, and in further definition, limitation, and regulation of the
powers of the Corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the Bylaws. The phrase "whole
Board" and the phrase "total number of the directors" shall be deemed
to have the same meaning, to wit, the total number of directors which
the Corporation would have if there were no vacancies.
2. After the original or other Bylaws of the Corporation have been
adopted, amended, or repealed, as the case may be, in accordance with
the provisions of Section 109 of the Delaware General Corporation Law,
and, after the Corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the Bylaws of the
Corporation may be exercised by the Board of Directors of the
Corporation.
EIGHTH: To the full extent permitted by the Delaware General Corporation Law as
the same may be amended or supplemented, a director of the Corporation shall not
be liable to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director. If the Delaware General Corporation Law is
amended after the date of the filing of this Certificate of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended
from time to time. No repeal or modification of this Article EIGHTH by the
stockholders shall adversely affect any right or protection of a director of the
Corporation existing by virtue of this Article EIGHTH at the time of such repeal
or modification.
NINTH: The Corporation shall, to the fullest extent permitted by the Delaware
General Corporation Law, as the same may be amended or supplemented, indemnify
any and all persons whom it shall have power to indemnify under said law from
and against any and all of the expenses, liabilities, or other matters referred
to in or covered by said law, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of such a
person. If the Delaware General Corporation Law is amended after the date of
filing of this Certificate of Incorporation to authorize corporate action
providing for additional indemnification, then the Corporation shall provide for
such indemnification to the fullest extent permitted by the Delaware General
Corporation Law, as so amended from time to time. No repeal or modification of
this Article NINTH by the stockholders shall adversely affect any right of any
person otherwise entitled to indemnification by virtue of this Article NINTH at
the time of such repeal or modification.
TENTH: From time to time, subject to the provisions of any Certificate of
Designation filed by the Board of Directors, any of the provisions of this
Certificate of Incorporation may be amended, altered, or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the Corporation by
this Certificate of Incorporation are granted subject to the provisions of this
Article TENTH.
IN WITNESS WHEREOF, the undersigned has executed, signed and acknowledged this
Third Amended and Restated Certificate of Incorporation on behalf of Acorn
Products, Inc. this 20th day of November, 2002.
Acorn Products, Inc.
By: /s/A. Corydon Meyer
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Its: President and Chief Executive Officer
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