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 Second 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) 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,
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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"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
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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 Amended and Restated Certificate of Incorporation on behalf of
Acorn Products, Inc. this 21st 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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