-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mnub3+kvcZs/D5vkxuKzbzha0nDt9oR5M8tKoYWRtxqw8D5pQJ3VZTumWAYKxUD0 jwwTuyIyPKxsMU/Yrk2BbA== 0000950128-99-001103.txt : 19991115 0000950128-99-001103.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950128-99-001103 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991003 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYLVAN INC CENTRAL INDEX KEY: 0000861291 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 251603408 STATE OF INCORPORATION: NV FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18339 FILM NUMBER: 99748041 BUSINESS ADDRESS: STREET 1: 333 MAIN STREET STREET 2: P.O. BOX 249 CITY: SAXONBURG STATE: PA ZIP: 16056-0249 BUSINESS PHONE: 724-352-75 MAIL ADDRESS: STREET 1: 333 MAIN STREET STREET 2: P.O. BOX 249 CITY: SAXONBURG STATE: PA ZIP: 16056-0249 FORMER COMPANY: FORMER CONFORMED NAME: SYLVAN FOODS HOLDINGS INC DATE OF NAME CHANGE: 19930328 10-Q 1 SYLVAN INC. FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED OCTOBER 3, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-18339 SYLVAN INC. (Exact name of registrant as specified in its charter) NEVADA 25-1603408 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 333 MAIN STREET, P.O. BOX 249, SAXONBURG, PA 16056-0249 (Address of principal executive offices) (Zip Code) (724) 352-7520 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares of common stock outstanding as of October 29, 1999...5,813,636 2 SYLVAN INC. AND SUBSIDIARIES INDEX
Page No. -------- Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets October 3, 1999 and January 3, 1999 ............................................................3 Condensed Consolidated Statements of Income, Three Months Ended October 3, 1999 and September 27, 1998 ...................................................5 Condensed Consolidated Statements of Income, Nine Months Ended October 3, 1999 and September 27, 1998 ...................................................6 Condensed Consolidated Statements of Cash Flows, Nine Months Ended October 3, 1999 and September 27, 1998 ...................................................7 Notes to Condensed Consolidated Financial Statements October 3, 1999.................................................................................8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................13 Item 3. Quantitative and Qualitative Disclosures About Market Risk ...................................19 Part II - OTHER INFORMATION Item 1. Legal Proceedings ............................................................................20 Item 6. Exhibits and Reports on Form 8-K .............................................................20
3 Part 1 - Financial Information Item 1. CONDENSED CONSOLIDATED BALANCE SHEETS Sylvan Inc. and Subsidiaries (In Thousands)
October 3, 1999 January 3, 1999 --------------- --------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 7,889 $ 6,497 Trade accounts receivable, net of allowance for doubtful accounts of $832 and $710, respectively 11,622 12,630 Inventories 9,795 9,820 Prepaid income taxes and other expenses 1,877 1,459 Other current assets 3,854 1,505 Deferred income tax benefit 686 856 - ---------------------------------------------------------------------------------------------- Total current assets 35,723 32,767 Property, plant and equipment, net 52,812 53,439 Intangible assets, net of accumulated amortization of $3,742 and $3,249, respectively 11,238 12,218 Other assets, net of accumulated amortization of $326 and $272, respectively 1,358 4,126 - ---------------------------------------------------------------------------------------------- TOTAL ASSETS $101,131 $102,550 ==============================================================================================
The accompanying notes are an integral part of these financial statements. 3 4 CONDENSED CONSOLIDATED BALANCE SHEETS Sylvan Inc. and Subsidiaries (In Thousands Except Share Data)
October 3, 1999 January 3, 1999 --------------- --------------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 2,977 $ 825 Accounts payable - trade 4,642 5,341 Accrued salaries, wages and other employee benefits 3,097 2,504 Other accrued liabilities 1,447 2,150 Income taxes payable 3,782 3,041 - -------------------------------------------------------------------------------------------------------------------- Total current liabilities 15,945 13,861 - -------------------------------------------------------------------------------------------------------------------- Long-term and revolving-term debt 36,231 34,586 - -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities: Other employee benefits 982 1,054 Other 1,147 1,437 - -------------------------------------------------------------------------------------------------------------------- Total other long-term liabilities 2,129 2,491 - -------------------------------------------------------------------------------------------------------------------- Minority interest 1,446 1,348 SHAREHOLDERS' EQUITY: Common stock, voting, par value $.001, 10,000,000 shares authorized, 6,671,601 and 6,637,201 shares issued and 5,813,636 and 6,387,336 shares outstanding at October 3, 1999 and January 3, 1999, respectively 7 7 Common capital contributed in excess of par 16,736 16,443 Retained earnings 45,750 41,657 Less: Treasury stock, at cost, 857,965 and 249,865 shares at October 3, 1999 and January 3, 1999, respectively (9,169) (2,318) -------- -------- 53,324 55,789 Cumulative translation adjustment (4,541) (2,122) Pension adjustment (3,403) (3,403) - -------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive deficit (7,944) (5,525) - -------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 45,380 50,264 - -------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $101,131 $102,550 ====================================================================================================================
The accompanying notes are an integral part of these financial statements. 4 5 CONDENSED CONSOLIDATED STATEMENTS OF INCOME Sylvan Inc. and Subsidiaries (Unaudited, In Thousands Except Share Data)
-------- Three Months Ended --------- October 3, 1999 September 27, 1998 --------------- ------------------ NET SALES $22,222 $22,316 - ----------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES: Cost of sales 13,048 13,380 Selling, administration, research and development 5,009 4,999 Depreciation 1,372 1,358 - ----------------------------------------------------------------------------------------------- 19,429 19,737 - ----------------------------------------------------------------------------------------------- OPERATING INCOME 2,793 2,579 INTEREST EXPENSE, NET, INCLUDING AMORTIZATION OF DEBT ISSUANCE COST 595 557 OTHER INCOME (EXPENSE) (17) (23) - ----------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 2,181 1,999 PROVISION FOR INCOME TAXES 582 580 - ----------------------------------------------------------------------------------------------- INCOME BEFORE MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 1,599 1,419 MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 97 112 - ----------------------------------------------------------------------------------------------- NET INCOME $ 1,502 $ 1,307 =============================================================================================== NET INCOME PER SHARE - BASIC $ 0.25 $ 0.20 =============================================================================================== NET INCOME PER SHARE - DILUTED $ 0.25 $ 0.20 =============================================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES 6,021,483 6,448,245 =============================================================================================== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES 6,048,062 6,528,630 ===============================================================================================
The accompanying notes are an integral part of these financial statements. 5 6 CONDENSED CONSOLIDATED STATEMENTS OF INCOME Sylvan Inc. and Subsidiaries (Unaudited, In Thousands Except Share Data)
-------- Nine Months Ended --------- October 3, 1999 September 27, 1998 --------------- ------------------ NET SALES $65,642 $65,275 - ---------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES: Cost of sales 38,561 38,045 Selling, administration, research and development 15,653 14,753 Depreciation 4,088 3,849 - ---------------------------------------------------------------------------------------------- 58,302 56,647 - ---------------------------------------------------------------------------------------------- OPERATING INCOME 7,340 8,628 INTEREST EXPENSE, NET, INCLUDING AMORTIZATION OF DEBT ISSUANCE COST 1,655 1,619 OTHER INCOME (EXPENSE) 49 (62) - ---------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 5,734 6,947 PROVISION FOR INCOME TAXES 1,543 2,015 - ---------------------------------------------------------------------------------------------- INCOME BEFORE MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 4,191 4,932 MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 98 212 - ---------------------------------------------------------------------------------------------- NET INCOME $ 4,093 $ 4,720 ============================================================================================== NET INCOME PER SHARE - BASIC $ 0.66 $ 0.73 ============================================================================================== NET INCOME PER SHARE - DILUTED $ 0.66 $ 0.72 ============================================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES 6,217,052 6,453,335 ============================================================================================== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES 6,248,502 6,545,331 ==============================================================================================
The accompanying notes are an integral part of these financial statements. 6 7 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Sylvan Inc. and Subsidiaries (Unaudited, In Thousands)
----------Nine Months Ended----------- October 3, 1999 September 27, 1998 --------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,093 $ 4,720 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,635 4,469 Employee benefits 670 (444) Trade accounts receivable 486 1,648 Inventories (293) (1,664) Prepaid expenses and other assets 52 (992) Accounts payable and accrued liabilities (1,201) (2,057) Other 1,255 824 - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 9,697 6,504 - ----------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Payment for acquisition, net of cash acquired 0 (1,619) Net expenditures for property, plant and equipment (5,740) (5,004) - ----------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (5,740) (6,623) - ----------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (542) (444) Net borrowings under revolving credit line 4,698 241 Proceeds from exercise of stock options 293 427 Purchase of treasury shares (6,851) (850) - ----------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (2,402) (626) - ----------------------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATES ON CASH (163) 391 - ----------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,392 (354) CASH AND CASH EQUIVALENTS, beginning of period 6,497 5,567 - ----------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, end of period $ 7,889 $ 5,213 ============================================================================================================================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: Interest paid $ 1,690 $ 1,673 Income taxes paid 628 1,758 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES: In May 1998, the company purchased 90% of the capital stock of International Mushrooms Ltd. (an Irish corporation) for $1.6 million. In conjunction with this acquisition, liabilities were assumed as follows: Fair value of assets acquired $ 4,492 Cash paid for the capital stock (1,619) ------- Liabilities assumed $ 2,873 =======
The accompanying notes are an integral part of these financial statements. 7 8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Sylvan Inc. and Subsidiaries October 3, 1999 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: General ------- These condensed consolidated financial statements of Sylvan Inc. are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim period. These statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the company's Annual Report to Shareholders and its Form 10-K for the year ended January 3, 1999. Cash ---- The company maintains a French-franc denominated cash balance of approximately FF15.0 million with a U.S. bank in support of a loan advanced by a European bank. This balance is reported under "Other Current Assets" as of October 3, 1999. Inventories ----------- Inventories at October 3, 1999 and January 3, 1999 consisted of the following:
(in thousands) October 3, 1999 January 3, 1999 --------------- --------------- Growing crops and compost material $4,756 $4,882 Stores and other supplies 1,675 1,632 Mushrooms and spawn on hand 3,364 3,306 ------ ------ $9,795 $9,820 ====== ======
Labor Agreement --------------- On July 20, 1999, the company's Quincy subsidiary signed a collective bargaining agreement with the United Farm Workers of America. The contract covers various harvesting and packaging employees at the Quincy operation. Acquisition Agreement --------------------- During the quarter ended October 3, 1999, the company entered into a letter of intent to acquire substantially all of the assets of the J.B. Swayne Spawn Company of Kennett Square, Pennsylvania, a modern producer that distributes its product throughout North America. Earnings Per Common Share ------------------------- Earnings per share were calculated using the weighted average number of shares outstanding during the period and including the effect of stock options outstanding. Pursuant to the company's 1990 and 1993 stock option plans, options for a total of 1,368,417 shares of the company's common stock have been granted and options for a total of 526,808 of these shares have been exercised as of October 3, 1999. 8 9 The following tables reconcile the number of shares utilized in the earnings per share calculations for the three and nine months ended October 3, 1999 and September 27, 1998.
Three Months Ended October 3, 1999 September 27, 1998 --------------- ------------------ Net income (in thousands) $ 1,502 $ 1,307 ========== ========== Earnings per common share - basic $ .25 $ .20 ========== ========== Earnings per common share - diluted $ .25 $ .20 ========== ========== Common shares - basic 6,021,483 6,448,245 Effect of dilutive securities: stock options 26,579 80,385 ---------- ---------- Common shares - diluted 6,048,062 6,528,630 ========== ==========
Nine Months Ended October 3, 1999 September 27, 1998 --------------- ------------------ Net income (in thousands) $ 4,093 $ 4,720 ========== ========== Earnings per common share - basic $ .66 $ .73 ========== ========== Earnings per common share - diluted $ .66 $ .72 ========== ========== Common shares - basic 6,217,052 6,453,335 Effect of dilutive securities: stock options 31,450 91,996 ---------- ---------- Common shares - diluted 6,248,502 6,545,331 ========== ==========
Options to purchase approximately 424,000 and 386,000 shares of common stock in the three months and nine months ended October 3, 1999, respectively, and options to purchase 88,000 shares of common stock in both the three and nine months ended September 27, 1998 were outstanding, but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the company's common shares for the periods. Reclassifications ----------------- Certain reclassifications have been made to the prior-year condensed consolidated financial statements to conform to the current-year presentation. 2. LONG-TERM DEBT AND BORROWING ARRANGEMENTS: The company has a Revolving Credit Agreement with two commercial banks, dated August 6, 1998. It provides for revolving credit loans on which the aggregate outstanding balance available to the company may not initially exceed $55.0 million. This aggregate outstanding balance will decline over the life of the agreement as follows: Maximum Aggregate Period Beginning Outstanding Balance ---------------- ------------------- August 6, 2003 $50.0 million August 6, 2004 45.0 million 9 10 Outstanding borrowings under the agreement bear interest at either the Prime Rate or LIBOR (plus an applicable margin) at the company's option. On October 3, 1999, the company had outstanding borrowings under the agreement of $34.3 million. The revolving credit loans mature on August 5, 2005. The agreement provides for the maintenance of various financial covenants and includes limitations as to incurring additional indebtedness and the granting of security interests to third parties. Obligations under the agreement are guaranteed by certain wholly owned subsidiaries of the company. The company has a French-franc denominated loan of FF15.0 million. Interest is payable based on a formula that utilizes a Paris Interbank Offered Rate plus an applicable margin. Repayment is due in January 2000. This loan is supported by a compensating cash balance maintained in a U.S. bank. The company's majority-owned Dutch subsidiary has a long-term plant and equipment and overdraft facility with a Dutch bank. At October 3, 1999, term loans amounting to 2.8 million Dutch guilders were outstanding under this agreement. 3. COMPREHENSIVE INCOME: Comprehensive income consists of the following:
Three Months Ended (in thousands) October 3, 1999 September 27, 1998 --------------- ------------------ Net income $ 1,502 $ 1,307 Other comprehensive income: Foreign currency translation adjustment 1,254 1,921 -------- ------- Comprehensive income $ 2,756 $ 3,228 ======== =======
Nine Months Ended (in thousands) October 3, 1999 September 27, 1998 --------------- ------------------ Net income $ 4,093 $ 4,720 Other comprehensive income (loss): Foreign currency translation adjustment (2,419) 1,361 -------- ------- Comprehensive income $ 1,674 $ 6,081 ======== =======
4. BUSINESS SEGMENT INFORMATION: Sylvan is a worldwide producer and distributor of mushroom products, specializing in spawn (the equivalent of seed for mushrooms) and spawn-related products and services, and is a major grower and marketer of fresh mushrooms in the United States. The company has two reportable business segments: spawn products, which includes spawn-related products and services, and fresh mushrooms. Spawn-related products include casing inoculum, nutritional supplements and disease-control agents. During the quarter and nine months ended October 3, 1999, the company made no changes in the basis of segmentation or in the basis of measurement of segment profit or loss from that reported in the January 3, 1999 financial statements. 10 11
Three Spawn Fresh Months Products Mushrooms (in thousands) Ended Segment Segment Total ----- ------- ------- ----- Total revenues 1999 $15,611 $6,922 $22,533 1998 15,102 7,500 22,602 Intersegment revenues 1999 311 -- 311 1998 286 -- 286 Segment operating income 1999 3,585 57 3,642 1998 3,470 (84) 3,386
Reconciliation to Consolidated Financial Data ---------------------------------------------
Three Months Ended (in thousands) October 3, 1999 September 27, 1998 --------------- ------------------ Total revenues for reportable segments $22,533 $22,602 Elimination of intersegment revenues (311) (286) ------- ------- Total consolidated revenues $22,222 $22,316 ======= ======= Segment operating income $ 3,642 $ 3,386 Unallocated corporate expenses (849) (807) Interest expense, net (595) (557) Other income (expense) (17) (23) ------- ------- Consolidated income before income taxes $ 2,181 $ 1,999 ======= =======
Nine Spawn Fresh Months Products Mushrooms (in thousands) Ended Segment Segment Total ----- ------- ------- ----- Total revenues 1999 $44,956 $21,610 $66,566 1998 42,810 23,301 66,111 Intersegment revenues 1999 924 -- 924 1998 836 -- 836 Segment operating income 1999 9,171 907 10,078 1998 9,658 1,411 11,069
11 12 Reconciliation to Consolidated Financial Data ---------------------------------------------
Nine Months Ended (in thousands) October 3, 1999 September 27, 1998 --------------- ------------------ Total revenues for reportable segments $66,566 $66,111 Elimination of intersegment revenues (924) (836) ------- ------- Total consolidated revenues $65,642 $65,275 ======= ======= Segment operating income $10,078 $11,069 Unallocated corporate expenses (2,738) (2,441) Interest expense, net (1,655) (1,619) Other income (expense) 49 (62) ------- ------- Consolidated income before income taxes $ 5,734 $ 6,947 ======= =======
12 13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Sylvan Inc. and Subsidiaries RESULTS OF OPERATIONS (Three Months Ended October 3, 1999 and September 27, 1998) CONSOLIDATED REVIEW Net Sales - --------- (dollars in thousands) 1999 1998 % Change ---- ---- -------- Net sales $22,222 $22,316 -- Net sales for the three months ended October 3, 1999 were $22.2 million, essentially the same as the $22.3 million reported for the corresponding 1998 quarter. International sales for the quarter increased to 51%, as compared with 50% for the third quarter of 1998. Further strengthening of the U.S. dollar continued to offset the effect of increased international sales volumes. The U.S. dollar was approximately 6% stronger at the end of the current quarter, in terms of the company's applicable foreign currencies, than at the end of the third quarter of 1998. This strengthening of the U.S. dollar had the effect of decreasing sales for the current quarter by approximately $.8 million. Operating Costs and Expenses - ---------------------------- (dollars in thousands) 1999 1998 % Change ---- ---- -------- Cost of sales $13,048 $13,380 (2) Selling, administration, 5,009 4,999 -- research and development Depreciation 1,372 1,358 1 The company's cost of sales, expressed as a percentage of sales, was 58.7% for the third quarter of 1999, versus 60.0% for the third quarter of 1998. Increased production efficiencies were realized in both business segments during the third quarter of 1999, as compared with the corresponding quarter of 1998. Selling, administration, research and development expenses were essentially unchanged at $5.0 million for the quarters ended October 3, 1999 and September 27, 1998. These expenses were 22.5% of sales and 22.4% of sales, respectively. Depreciation expense for the third quarter of 1999 was $1.4 million, $14,000 higher than for the third quarter of 1998. Interest Expense - ---------------- The company's net interest expense for the third quarter of 1999 was $595,000, 7% higher than for the corresponding 1998 quarter. The effective borrowing rate for the current quarter was 6.5%, as compared with 6.8% for the third quarter of 1998. Higher levels of indebtedness between periods were slightly offset by the lower effective interest rate. Income Tax Expense - ------------------ The effective income tax rate was 27% for the third quarter of 1999, as compared with 29% for the corresponding quarter of 1998. 13 14 BUSINESS SEGMENTS Spawn Products Segment - ---------------------- (dollars in thousands) 1999 1998 % Change ---- ---- -------- Sales, including intersegment $15,611 $15,102 3 Operating expenses 12,026 11,632 3 Operating income 3,585 3,470 3 Net sales of spawn and spawn-related products were $15.6 million for the quarter ended October 3, 1999, a 3% improvement over the corresponding period in 1998. Spawn product sales volume increased 6%, with a 9% increase in overseas markets and with essentially no change in the Americas. Strong volume increases were achieved during the quarter in France, Canada and Hungary. The overseas U.S. dollar equivalent selling price was 6% lower during the current quarter, primarily due to the strengthening of the U.S. dollar. The average selling price in the Americas was 2% lower than that of the corresponding 1998 quarter. Sales of disease-control agents and nutritional supplements, which accounted for 13% of consolidated net sales for the third quarter of 1999, were consistent with the same period of 1998. Operating expenses increased proportionately with sales to $12.0 million during the quarter ended October 3, 1999, versus $11.6 million during the 1998 period. Within operating expenses, cost of sales, as a percentage of sales, was 50% for the quarter ended October 3, 1999 as well as the corresponding period in 1998. The remaining operating expenses increased by 4% to $4.2 million for the current quarter. Operating income increased by 3% to $3.6 million for the quarter ended October 3, 1999 from $3.5 million for the third quarter of 1998. For the third quarters of both 1999 and 1998, operating income was 23% of sales. Fresh Mushrooms Segment - ----------------------- (dollars in thousands) 1999 1998 % Change ---- ---- -------- Sales $6,922 $7,500 (8) Operating expenses 6,865 7,584 (9) Operating income 57 (84) 168 Fresh mushroom sales decreased during the current quarter to $6.9 million, as compared with $7.5 million for the same period in 1998. This decrease was due to 6% fewer pounds sold and a 1% decrease in the average selling price per pound. The percentage of mushrooms sold through the fresh channel was 91% for the third quarter of 1999 and 93% for the corresponding quarter of 1998. Highly competitive market conditions exist in the southeastern United States and are expected to continue into 2000. The fresh mushroom cost of sales was $5.5 million, or 80% of sales, for the third quarter of 1999, versus $6.1 million, or 81% of sales, for the corresponding period of 1998. Beginning in the third quarter of 1998 and continuing into the first quarter of 1999, Quincy experienced production inefficiencies that contributed to production yield reductions, spreading a cost structure that is primarily fixed in nature over fewer pounds. Production efficiencies substantially improved in March 1999; however, during the third quarter Quincy once again experienced production difficulties, which improved by the end of the quarter. The fresh mushroom operating income of 1%, as a percentage of sales, was $141,000 higher than the 1% operating loss, as a percentage of sales, for the corresponding 1998 quarter. 14 15 RESULTS OF OPERATIONS (Nine Months Ended October 3, 1999 and September 27, 1998) CONSOLIDATED REVIEW Net Sales - --------- (dollars in thousands) 1999 1998 % Change ---- ---- -------- Net sales $65,642 $65,275 1 Net sales for the nine months ended October 3, 1999 were $65.6 million, a 1% increase over the $65.3 million reported for the corresponding 1998 period. International sales for the current nine-month period were 50%, up from 47% for the nine months ended September 27, 1998. The U.S. dollar was approximately 4% stronger at the end of the current period, when measured in terms of the company's applicable foreign currencies, than at the end of the first nine months of 1998. This strengthening of the U.S. dollar had the effect of decreasing sales for the current nine-month period by approximately $1.6 million. Operating Costs and Expenses - ---------------------------- (dollars in thousands) 1999 1998 % Change ---- ---- -------- Cost of sales $38,561 $38,045 1 Selling, administration, 15,653 14,753 6 research and development Depreciation 4,088 3,849 6 The company's cost of sales, expressed as a percentage of sales, was 58.7% for the first nine months of 1999, versus 58.3% for the corresponding 1998 period. The company expensed approximately $220,000 during the current period in connection with the replacement of the blender that was removed from service at the Australian facility. Excluding this charge, the cost of sales percentage for the current period was 58.4%. Selling, administration, research and development expenses increased to $15.7 million, or 23.8% of sales, as compared with $14.8 million, or 22.6% of sales, for the corresponding 1998 period. Much of this increase relates to increased professional fees, additional bad debt reserves, the May 1998 acquisition of International Mushrooms Ltd. and increased employee medical insurance amounts recorded during the first quarter of 1999. Depreciation expense for the current nine-month period was $4.1 million, $239,000 higher than the $3.8 million for the corresponding period of 1998. Interest Expense - ---------------- The company's net interest expense for the nine months ended October 3, 1999 was $1.7 million, $36,000 higher than that of the corresponding nine-month period of 1998. The effective borrowing rate for the current period was 6.5%, as compared with 6.9% for the first nine months of 1998. Increases in total borrowing costs, resulting from higher levels of indebtedness, were offset by the lower effective interest rate. Income Tax Expense - ------------------ The effective income tax rate was 27% for the current period, as compared with 29% for the corresponding 1998 period. The proportion of fresh mushroom earnings, compared with total earnings, had the effect of decreasing the consolidated income tax rate. 15 16 BUSINESS SEGMENTS Spawn Products Segment - ---------------------- (dollars in thousands) 1999 1998 % Change ---- ---- -------- Sales, including intersegment $44,956 $42,810 5 Operating expenses 35,785 33,152 8 Operating income 9,171 9,658 (5) Net sales of spawn and spawn-related products were $45.0 million for the nine months ended October 3, 1999, a 5% improvement over the corresponding period in 1998. Spawn product sales volume increased by 6%, with an 8% increase in overseas markets and a 3% increase in the Americas. Strong volume increases were achieved during the nine-month period in France, Canada, South Africa and Australia. The overseas U.S. dollar equivalent selling price was 4% lower as local currency selling price increases were more than offset by the effect of the continued strengthening of the U.S. dollar. The average selling price in the Americas was equivalent to that of the corresponding 1998 period. Sales of disease-control agents and nutritional supplements accounted for 13% of consolidated net sales, which was consistent with the corresponding period of 1998. Operating expenses were $35.8 million during the first nine months of 1999. Within operating expenses, cost of sales increased by 9% to $23.2 million, or 52% of sales, versus $21.4 million, or 50% of sales, for the corresponding 1998 period. This increase is primarily due to the $220,000 nonrecurring charge taken during the second quarter in connection with the replacement of the blender that was removed from service at the Australian facility, and decreased margins on nutritional supplements. The increased administrative charges mentioned in the nine-month consolidated review accounted for most of the increase in the remaining operating expenses, which totaled $12.6 million for the current period. Operating income declined to 20% of sales during the first nine months of 1999, versus 23% for the corresponding period of 1998. Fresh Mushrooms Segment - ----------------------- (dollars in thousands) 1999 1998 % Change ---- ---- -------- Sales $21,610 $23,301 (7) Operating expenses 20,703 21,890 (5) Operating income 907 1,411 (36) Fresh mushroom sales decreased 7% to $21.6 million for the first nine months of 1999, as compared with $23.3 million for the corresponding period in 1998. This decrease was due to 6% fewer pounds sold and a 1% decrease in average selling price per pound. The percentage of mushrooms sold through the fresh channel was 89% for the current period of 1999 and 92% for the corresponding period of 1998. Highly competitive market conditions exist in the southeastern United States and are expected to continue into 2000. The fresh mushroom cost of sales was $16.3 million for the first nine months of 1999, as compared with $17.5 million for the corresponding period of 1998. Much of the $1.2 million decrease in the current period was due to Quincy purchasing lower quantities of third-party produced mushrooms on the open market, as compared with the prior-year period. The cost of sales, as a percentage of sales, was 75% for both the 1999 and 1998 nine-month periods. Beginning in the third quarter of 1998 and continuing into the first quarter of 1999, Quincy experienced production inefficiencies that contributed to production yield reductions, spreading a cost structure that is primarily fixed in nature over fewer pounds. Production efficiencies substantially improved in March 1999; however, during the third quarter Quincy once again experienced production difficulties, which improved by the end of the quarter. 16 17 Fresh mushroom operating income was 4% as a percentage of sales, or $.9 million, for the current nine-month period, as compared with 6%, or $1.4 million, for the corresponding nine months of 1998. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the nine months ended October 3, 1999 was $9.7 million, an increase of $3.2 million over the $6.5 million provided for the nine months ended September 27, 1998. Employee benefit accruals increased by $.7 million for the nine months ended October 3, 1999, as compared with the $.4 million decrease during the corresponding 1998 period, due to a change in the timing of funding certain employee benefits. Trade accounts receivable contributed $.5 million to operating cash flow for the 1999 nine-month period, as compared with $1.6 million for the nine months ended September 27, 1998. During 1999, the spawn products segment experienced a reduction in its trade accounts receivable balance through management's efforts to reduce overall receivable exposures. For the 1998 period, the majority of the change was related to the collection of accounts receivable of a French subsidiary acquired in December 1997. Inventories increased by $.3 million during the nine months ended October 3, 1999, as compared with an increase of $1.7 million during the 1998 corresponding period. Relatively minor variations occurred within the inventories during 1999; whereas, during the nine months ended September 27, 1998, the company significantly increased inventory levels within its North American spawn business. Accounts payable and accrued liabilities decreased by $1.2 million during the first nine months of 1999 due to payments made to contractors, which had been held back pending the satisfactory completion of equipment start-up tests at the French inoculum laboratory, and due to litigation settlements. The majority of the net decrease of $2.1 million during the nine months ended September 27, 1998 resulted from the settlement of trade payables in a French subsidiary acquired in December 1997. Cash used by investing activities was $5.7 million for the nine months ended October 3, 1999, versus the $6.6 million used during the corresponding period of 1998. During the quarter ended October 3, 1999 plant modifications, including installation of blender technology, commenced in Ireland. Other significant capital projects during 1999 included the continued construction and completion of a spawn production facility in South Africa, a replacement blender in Australia, upgrading chilling equipment at Quincy, additional cold store capacity in the Netherlands and additional equipment for the company's biological products operation. Capital expenditures in 1999 are expected to total between $6 million and $8 million for existing operations, with additional expenditures for any acquisitions or new initiatives. The company believes that it has sufficient cash resources from current cash balances, internally generated funds and available bank credit facilities to meet its ongoing capital needs, including the expected fourth-quarter acquisition of the J.B. Swayne Spawn Company. Available credit under the company's revolving credit arrangement was $20.7 million as of October 3, 1999. Term debt and revolving credit increased $4.2 million during the nine months ended October 3, 1999, as compared with a decrease of $.2 million during the corresponding period of 1998. Most of this increase in revolving credit was due to the repurchase of $4.3 million of treasury stock during the third quarter. During the first nine months of 1999, the company repurchased 608,100 shares of its common stock at an average price of $11.27 per share. By comparison, 59,025 shares were repurchased during the first nine months of 1998 at an average price of $14.39 per share. YEAR 2000 ISSUES State of Readiness: Sylvan is currently executing an overall Year 2000 compliance strategy through an evaluation conducted by its business systems department. The program consists essentially of addressing issues related to four primary risk areas. These are: o business information systems; o company products and customers; o third-party product and service providers; and o facilities. 17 18 Business Information Systems: Sylvan believes that, as a result of software upgrades and computer system purchases, the computer systems of its sales, production and administrative subsidiaries will either not have a Year 2000 problem or will be warranted to be Year 2000 compliant by third-party vendors by the end of 1999. Company Products and Customers: Exposures in production process areas relate almost entirely to the presence of imbedded operating systems for spawn production blenders and mushroom compost processing operations. The company believes that its mushroom compost processing systems and spawn processing imbedded systems in the United States are Year 2000 compliant. Software modifications have been and are being implemented for some European imbedded systems. Because the company is in a narrowly structured industry, a substantial portion of its revenues is derived from a small number of customers worldwide and, to some extent, Sylvan's business is dependent upon the efforts of those entities to address their own Year 2000 issues. However, the company believes that, due to the fungible nature of the raw materials, supplies and services utilized by Sylvan's customers and the relative ease of access to their customers and markets, the risks of Year 2000 related disruptions for such third parties are small and are not likely to have a material adverse effect on the company's business, results of operations, equity or financial condition. The company will continue to monitor this and other issues raised herein and respond accordingly. Third-Party Product and Service Providers: The company believes that Year 2000 risk exposures relating to most of the raw materials and operating supplies used in the production of the company's products are low due to their fungible nature. Issues could, but are not expected to, exist with respect to the company's ability to obtain certain limited use items from third parties, such as packaging for spawn products. In addition, the company's production facilities are dependent upon third-party suppliers of electricity, water and other utilities. The company believes that brief interruptions of these services will have little effect on its operations and that the risk of prolonged interruptions to all nine of its geographically dispersed spawn plants is low. Contingency plans have been formulated and are evaluated from time to time and, if changes appear warranted, the company believes that they can be implemented expeditiously. Facilities: A review of issues related to the Year 2000 compliance of Sylvan's facilities infrastructure has been completed and no major problems or significant risks are anticipated. Year 2000 Cost: The total cost for the company's Year 2000 compliance efforts is currently estimated to be approximately $70,000. Most of the expenditures relate to computer system installations and software upgrades and have been, or will be, capitalized and charged to expense over the estimated useful life of the associated software and hardware. Additional costs could be incurred if significant remediation activities are required, particularly with respect to third-party suppliers, but the company does not anticipate that such costs will be material. Risks and Contingency Plans: Based on the Year 2000 compliance work conducted to date and described above, the company's most significant risk in its most likely worst case scenario appears to be that, upon completion of its review of its third-party product and service providers, certain of these suppliers may not be compliant. Future operating results could be adversely affected, if such product and service providers do not become compliant in a timely manner and cannot provide Sylvan with the products and services that it requires in a timely and cost-effective manner, and if the company is not able to obtain an inventory of such items as spawn product packaging to deal with the compliance problems of bag vendors. However, the company believes that its vendor management process will identify these potential risks. At this time, a formal contingency plan for dealing with third-party product and service providers who are not Year 2000 compliant has not been developed because Sylvan does not believe that these issues are sufficiently material to warrant it and the company anticipates that potential supply interruptions can be avoided as described below. 18 19 The company believes that the raw materials, operating supplies and packaging supplies that it requires are readily available from a number of suppliers and that its service needs are not significantly different from those of other companies. The company also believes that for most, if not all, of its suppliers who may be identified as being noncompliant, various remediation strategies can be employed with particular suppliers as an alternative to switching suppliers. These remediation strategies include, but are not limited to, increasing purchases from suppliers in question prior to January 1, 2000 to provide a safety stock. Remediation strategies also include the development of plans to implement production increases at plants that are not affected by utility interruptions to make up most, if not all, of the production shortfalls at plants that are affected by prolonged interruptions. EURO CURRENCY Sylvan does not believe that the conversion to the Euro has a material impact on its business or financial condition. FORWARD-LOOKING AND CAUTIONARY STATEMENTS From time to time in this report and in other written reports and oral statements, references are made to expectations regarding future performance of the company. These "forward-looking statements" are based on currently available competitive, financial and economic data and the company's operating plans, but they are inherently uncertain. Events could turn out to be significantly different from what is expected, depending upon such factors as mushroom raw material production and growing process inconsistencies, specific pricing or product initiatives of the company's competitors and competitive conditions in the U.S. mushroom market in general, changes in currency and exchange risks, or changes in a specific country's or region's political or economic conditions. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The information presented under this item in the company's Form 10-K for the fiscal year ended January 3, 1999 has not changed materially. Information relating to the sensitivity to foreign currency exchange rate changes of the company's firmly committed sales transactions, in addition to what is presented in Item 2 of this filing, is omitted because it is an immaterial portion of total sales. 19 20 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS In March 1998, the company's Quincy subsidiary was served with a complaint filed in the Circuit Court of the Second Judicial Circuit of Florida for Gadsden County. The complaint sought compensation, including loss of earnings, for a group of approximately 60 former Quincy employees who alleged that they were illegally terminated in March 1996 as a result of their participation in collective bargaining activities. Although the company believed that the complaint and its claims were without merit, Quincy executed a settlement agreement with the claimants in May 1999 that provided for Quincy's payment of $420,000 to them and their attorneys and for the implementation of procedures to reinstate the claimants' employment. The settlement was approved by final order of the court dated July 6, 1999. There are no other material pending legal proceedings to which Sylvan or any of its subsidiaries is a party, or of which any of their property is subject, other than ordinary, routine litigation incidental to their respective businesses. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K 3.3 Articles of Incorporation of S. F. Nevada, Inc., filed on May 27, 1994 with the Secretary of State of the State of Nevada and submitted herewith. 3.4 Articles of Merger of S. F. Nevada, Inc. (a Nevada Corporation) and Sylvan Foods Holdings, Inc. (a Delaware Corporation) and attached Exhibit A, filed on June 28, 1994 with the Secretary of State of the State of Nevada and submitted herewith. 3.5 Bylaws, as amended June 28, 1994 and submitted herewith. 10.12 Sylvan Inc. 1990 Stock Option Plan, as amended and restated on February 10, 1999 and as amended April 29, 1999 and submitted herewith. 11 Statement re computation of per share earnings is not required because the relevant computation can be clearly determined from the material contained in the financial statements included herein. 27 Financial Data Schedule (b) Reports on Form 8-K None 20 21 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 10, 1999 SYLVAN INC. ------------------- By: /s/ Donald A. Smith ------------------------------ Donald A. Smith Chief Financial Officer By: /s/ Fred Y. Bennitt ------------------------------ Fred Y. Bennitt Secretary/Treasurer 21 22 INDEX TO EXHIBITS Exhibit No. Description Page No. - ----------- ----------- -------- 3.3 Articles of Incorporation of S. F. Nevada, Inc. 3.4 Articles of Merger of S. F. Nevada, Inc. and Sylvan Foods Holdings, Inc. with exhibit 3.5 Bylaws 10.12 1990 Stock Option Plan as amended and restated 27 Financial Data Schedule EX-3.3 2 EXHIBIT 3.3 1 EXHIBIT 3.3 FILED IN THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF NEVADA MAY 27 1994 CHERYL A. LAU SECRETARY OF STATE /s/ Cheryl A. Lau No. 8145-94 --------------------- ARTICLES OF INCORPORATION OF S. F. NEVADA, INC. a Nevada Corporation KNOW ALL MEN BY THESE PRESENTS: The undersigned incorporator has this day associated himself into a corporation under and by virtue of the laws of the State of Nevada, and for the purposes therein set forth as provided in Chapter 78 of Nevada Revised Statutes, and hereby certifies: ARTICLE I NAME The name of the Corporation is: S. F. NEVADA, INC. ARTICLE II NAME AND LOCATION OF RESIDENT AGENT The name and address of its Resident Agent is Robert C. Anderson, 245 East Liberty Street, Third Floor, Reno, Nevada 89501. The Corporation may maintain offices at such places within or without the State of Nevada as it may from time to time determine. Corporate business of every kind and nature may be conducted, and meetings of Directors and shareholders may be held outside the State of Nevada with the same effect as if in the State of Nevada. ARTICLE III PURPOSE The nature of the business or purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the laws of the State of Nevada. The 1 2 Corporation shall possess and exercise all the powers and privileges granted by the laws of the State of Nevada, by any other law or by these Articles of Incorporation, together with any powers incidental thereto as far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the purposes of the Corporation. ARTICLE IV CAPITAL STOCK 1. Authorized Number and Classes of Stock. The total number of shares which the Corporation shall have authority to issue is 11,000,000 shares of capital stock as follows: 10,000,000 shares of Common Stock, par value $.001 per share; and 1,000,000 shares of Preferred Stock, par value $.01 per share 2. Common Stock. The powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions with respect thereto, of the shares of Common Stock are set forth below. a. Dividends. The holders of outstanding shares of Common Stock shall be entitled to share equally and ratably with all other holders of shares of Common Stock then outstanding in any dividends or distributions declared on outstanding shares of Common Stock, when, as and if any such dividends or distributions are declared by the Corporation's Board of Directors from funds legally available therefor. b. Liquidation. etc. The holders of outstanding shares of Common Stock shall be entitled to share equally and ratably with all other holders of Common Stock then outstanding in the assets of the Corporation to be distributed among the holders of shares of the Common Stock upon any liquidation or winding up of the Corporation, whether voluntary or involuntary. c. Voting Rights. Each holder of Common Stock shall be entitled to vote for the election and removal of the directors of the Corporation and on all other matters on which stockholders are entitled to vote under the 2 3 laws of the State of Nevada and shall have one (1) vote for each share of Common Stock held of record. 3. Preferred Stock. Shares of Preferred Stock may be issued in one or more series as the Board of Directors may determine. Authority is hereby expressly vested in the Board of Directors to fix from time to time, by resolution or resolutions providing for the issue of any series of Preferred Stock, the designation of such series and the powers, preferences and rights of the shares of such series, and the qualifications, limitations or restrictions thereof, including the following: a. The distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors authorizing such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by like action of the Board of Directors; b. The dividend rate or rates, if any, on the shares of such series and the preferences, if any, over any other series (or of any other series over such series) with respect to any dividends, the terms and conditions upon which any dividends shall be payable, whether and upon what conditions any such dividends shall be cumulative and, if cumulative, the date or dates from which any dividends shall accumulate; c. Whether or not the shares of such series shall be redeemable, the price or prices, limitations and restrictions, and any other terms and conditions with respect to such redemptions; d. The rights to which the holders of such series shall be entitled, and the preferences, if any, over any other series (or of any other series over such series), upon the voluntary or involuntary liquidation, dissolution or winding up of the corporation; e. Whether or not the shares of such series shall be subject to the operation of a purchase, retirement or sinking fund, and, if so, whether and upon what conditions such purchase, retirement or sinking fund shall be cumulative or noncumulative, the extent to which and the manner in which such fund shall be applied to the purchase or redemption of the shares of such series for retirement or to other corporate purposes and the terms and provisions relative to the operation thereof; f. Whether or not the shares of such series shall be convertible into or exchangeable for shares of stock of any other class or classes, or of any other series of the same class and, if so convertible or exchangeable, the 3 4 price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of such conversion or exchange; g. The voting powers, if any, of the shares of such series; and whether or not and under what conditions the shares of such series shall be entitled to vote separately as a single class for the election of one or more additional directors of the corporation in case of dividend arrearage or other specified events, or upon other matters; and h. Any other preferences, privileges and powers, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of such series, as the Board of Directors, or any Executive Committee thereof, may deem advisable and as shall not be inconsistent with the provisions of these Articles of Incorporation. Shares of Preferred Stock which are redeemed or converted, or which are issued and reacquired in any manner and retired, shall be retired and restored to the status of authorized and unissued Preferred Stock and may be reissued by the Board of Directors as shares of the same or any other series, unless otherwise provided with respect to any series in the resolution of the Board of Directors creating such series. ARTICLE V NO ASSESSMENT OF STOCK The capital stock of this Corporation, when issued and delivered, shall be conclusively deemed to have been paid for in full, and the capital stock of the Corporation shall not be subject to assessment to pay for the debts of the Corporation, or for any other reason, after the subscription price has been paid. ARTICLE VI DIRECTORS The members of the governing board of the Corporation shall be styled "Directors" and the first Board of the Corporation shall be SIX (6) in number. The number of Directors shall not be reduced to less than ONE (1), and may, at any time or times, be increased to a number not to exceed FIFTEEN (15) or decreased by a duly adopted amendment to the Articles of Incorporation or in such manner as shall be provided in the Bylaws 4 5 of the Corporation or by an amendment to the Bylaws of the Corporation duly adopted by either the Board of Directors or the shareholders. The names and residence or business addresses of the first Board of Directors are as follows: NAME ADDRESS Virgil H. Jurgensmeyer J & M Farms, Inc. Route 2, Box 15 Miami, Oklahoma 74354 Gilbert H. Lamphere Noel Group, Inc. 667 Madison Ave. New York, New York 10021 Richard F. Lazzarini, Jr. Quincy Corporation Route 4, Box 245 Quincy, Florida 32351 Donald T. Pascal Noel Group, Inc. 667 Madison Ave. New York, New York 10021 Samuel F. Pryor, IV Noel Group, Inc. 667 Madison Ave. New York, New York 10021 Dennis C. Zensen Quincy Corporation Route 4, Box 245 Quincy, Florida 32351 ARTICLE VII LIMITATION OF DIRECTOR AND OFFICER LIABILITY No Director or officer of the Corporation shall be personally liable to the Corporation or its shareholders for damages for breach of their fiduciary duty as a Director or officer; 5 6 provided, however, that this Article VII shall not eliminate or limit the liability of a Director or officer for (i) acts or omissions which involve intentional misconduct, fraud or a knowing violation of law; or (ii) authorizing the unlawful payment of distributions in violation of Nevada Revised Statutes Section 78.300. ARTICLE VIII INCORPORATORS The name and residence or business address of the incorporator and subscriber to these Articles of Incorporation is as follows: NAME ADDRESS Blayne L. Asher, Jr. 245 E. Liberty Street, Third Floor Reno, Nevada 89501 ARTICLE IX PROPERTY OF SHAREHOLDERS EXEMPT The private property of the shareholders of the Corporation shall be, and hereby is, made forever exempt from liability for debts or obligations of the Corporation. ARTICLE X DURATION The duration of this Corporation shall be perpetual. ARTICLE XI AMENDMENT The Corporation reserves the right to amend or repeal any provisions contained in these Articles of Incorporation from time to time and at any time in the manner now or hereafter prescribed by the law of the State of Nevada, and all rights herein conferred upon stockholders, Directors and officers are subject to this reserved power. 6 7 ARTICLE XII REORGANIZATION Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Nevada may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders of the class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors and/or on all the stockholders or class of stockholders of this Corporation, as the case may be, and also on this Corporation. ARTICLE XIII INDEMNIFICATION Any person made a party to any action, suit or proceeding by reason of the fact that he, his testator or intestate, is or was a Director, officer or employee of the Corporation or of any Corporation which he served as such at the request of the Corporation, shall be indemnified by the Corporation against all expenses and other amounts for which indemnification may be made under law. The indemnification provided for herein shall be made at the times, in the manner and to the extent provided by law. ARTICLE XIV INAPPLICABILITY OF CONTROLLING INTEREST AND BUSINESS COMBINATION PROVISIONS OF NEVADA LAW The provisions of Sections 78.378 to 78.3793 and 78.411 to 78.444, all inclusive, of Nevada Revised Statutes shall not apply to the Corporation. 7 8 IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of May, 1994. /s/ Blayne L. Asher, Jr. ---------------------------------- Blayne L. Asher, Jr. STATE OF NEVADA ) )ss. COUNTY OF WASHOE ) On this 27th day of May, 1994, before me a Notary Public duly commissioned and sworn, personally appeared Blayne L. Asher, Jr., personally known (or proved) to me to be the person whose name is subscribed to the within instrument and who acknowledged to me that he has read the foregoing Articles of Incorporation, knows the contents thereof and executed the same freely and voluntarily for the intents and purposes therein mentioned. /s/ Victoria L. Allen -------------------------------- NOTARY PUBLIC VICTORIA L. ALLEN [SEAL] NOTARY PUBLIC - STATE OF NEVADA Appointment Recorded in Storey County MY APPOINTMENT EXPIRES AUG. 24, 1997 8 9 FILED IN THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF NEVADA MAY 27 1994 CHERYL A. LAU SECRETARY OF STATE /s/ Cheryl A. Lau No. 8145-94 --------------------- CERTIFICATE OF ACCEPTANCE OF APPOINTMENT OF RESIDENT AGENT I, ROBERT C. ANDERSON, hereby certify that on the 27th day of May, 1994, I accepted the appointment as Resident Agent of S. F. NEVADA, INC. in accordance with Nevada Revised Statutes Chapter 78, Sections 78.030 and 78.090. Furthermore, that the registered office in this State is located at 245 East Liberty Street, Third Floor, Reno, Nevada 89501. IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of May, 1994. /s/ Robert C. Anderson ----------------------------- Robert C. Anderson EX-3.4 3 EXHIBIT 3.4 1 EXHIBIT 3.4 FILED ARTICLES OF MERGER IN THE OFFICE OF THE SECRETARY OF STATE OF THE S. F. NEVADA, INC., STATE OF NEVADA A Nevada Corporation (Surviving Corporation) JUN 28 1994 CHERYL A. LAU and SECRETARY OF STATE SYLVAN FOODS HOLDINGS, INC., A Delaware Corporation /s/ Cheryl A. Lau No. 8145-94 --------------------- In compliance with the requirements of Nevada Revised Statutes Section 78.458 and Section 1108 of the Delaware General Corporation Law, the undersigned corporations, desiring to effect a merger, hereby certify that: 1. The constituent corporations to the merger are S. F. Nevada, Inc., a Nevada corporation ["S. F. Nevada, Inc."], which is also the surviving corporation, and SYLVAN FOODS HOLDINGS, INC., a Delaware corporation ["SYLVAN FOODS HOLDINGS, INC."]. 2. An Agreement and Plan of Merger, adopted by the Board of Directors of each corporation that is a party to this merger is attached hereto as Exhibit "A". 3. The Plan and Agreement of Merger is to be effective on the 1st day of July, 1994 , at 12:01 am. 4. The Plan and Agreement of Merger was submitted to the stockholders by the Board of Directors of each of the constituent corporations and unanimously approved by the shareholders of each corporation:
Shares Approved Objected Outstanding Merger to Merger ----------- ------ --------- S. F. Nevada, Inc., a Nevada corporation 1 1 -0- SYLVAN FOODS HOLDINGS, Inc., a Delaware corporation, Common shares. 6,194,053 5,142,320 20,312 SYLVAN FOODS HOLDINGS, Inc., a Delaware corporation, Preferred shares. -0-
5. Article I of the Articles of Incorporation of the surviving corporation shall be amended as of the effective date to read as follows: Page 1 2 "The name of the Corporation is Sylvan Inc." 6. The Plan and Agreement of Merger, the performance of the terms thereunder, and the approval thereof, has been authorized by all action required by the laws under which each of the constituent corporations has been incorporated or organized and by their respective constituent documents. We declare under penalty of perjury under the laws of the States of Nevada and Delaware that the foregoing matters stated in the Articles of Merger are true and correct to the best of our knowledge. Executed at Sarver, Pennsylvania, on this 14th day of June , 1994. S. F. NEVADA, INC., A NEVADA CORPORATION By: /s/ Dennis C. Zensen ------------------------------------ "Dennis C. Zensen, President STATE OF PENNSYLVANIA ) ) ss. COUNTY OF BUTLER ) On this l4th day of June, 1994, personally appeared before me, a notary public, DENNIS C. ZENSEN, known (or proved) to me to be the President of S. F. Nevada, Inc., a Nevada corporation, and upon oath, he did depose and say that he is the officer of the corporation as above designated, that the signature to the instrument was made by an officer of the corporation as indicated after the signature, and acknowledged to me that the corporation executed the instrument freely and voluntarily for the uses and purposes therein mentioned. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. /s/ Louise O. Allen ---------------------------------- Notary Public ------------------------------------------- Notarial Seal Louise 0. Allen, Notary Pubic Buffalo Twp., Butler County My Commission Expires Dec 22, 1997 ------------------------------------------- Member Pennsylvania Association of Notaries Page 2 3 S. F. NEVADA, INC., a Nevada Corporation By: /s/ Fred Y. Bennitt ------------------------------- Fred Y. Bennitt, Secretary STATE OF PENNSYLVANIA ) ) ss. COUNTY OF BUTLER ) On this 14th day of June, 1994, personally appeared before me, a notary public, FRED Y. BENNITT, known (or proved) to me to be the Secretary of S. F. Nevada, Inc., a Nevada Corporation, and upon oath, he did depose and say that he is the officer of the corporation as above designated, that the signature to the instrument was made by an officer of the corporation as indicated after the signature, and acknowledged to me that the corporation executed the instrument freely and voluntarily for the uses and purposes therein mentioned. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. /s/ Louise O. Allen ---------------------------------- Notary Public ------------------------------------------- Notarial Seal Louise 0. Allen, Notary Pubic Buffalo Twp., Butler County My Commission Expires Dec 22, 1997 ------------------------------------------- Member Pennsylvania Association of Notaries Page 3 4 SYLVAN FOODS HOLDINGS, INC., a Delaware Corporation By: /s/ Dennis C. Zensen ------------------------------------ Dennis C. Zensen, President STATE OF PENNSYLVANIA ) ) ss. COUNTY OF BUTLER ) On this 14th day of June, 1994, personally appeared before me, a notary public, DENNIS C. ZENSEN, known (or proved) to me to be the President of SYLVAN FOODS HOLDINGS, INC., a Delaware Corporation, and upon oath, he did depose and say that he is the officer of the corporation as above designated, that the signature to the instrument was made by an officer of the corporation as indicated after the signature, and acknowledged to me that the corporation executed the instrument freely and voluntarily for the uses and purposes therein mentioned. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. /s/ Louise O. Allen ---------------------------------- Notary Public ------------------------------------------- Notarial Seal Louise 0. Allen, Notary Pubic Buffalo Twp., Butler County My Commission Expires Dec 22, 1997 ------------------------------------------- Member Pennsylvania Association of Notaries Page 4 5 SYLVAN FOODS HOLDINGS, INC., a Delaware Corporation By: /s/ Fred Y. Bennitt ------------------------------------ Fred Y. Bennitt, Secretary STATE OF PENNSYLVANIA ) ) ss. COUNTY OF BUTLER ) On this 14th day of June, 1994, personally appeared before me, a notary public, FRED Y. BENNITT, known (or proved) to me to be the Secretary of SYLVAN FOODS HOLDINGS, INC., a Delaware Corporation, and upon oath, he did depose and say that he is the officer of the corporation as above designated, that the signature to the instrument was made by an officer of the corporation as indicated after the signature, and acknowledged to me that the corporation executed the instrument freely and voluntarily for the uses and purposes therein mentioned. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. /s/ Louise O. Allen ---------------------------------- Notary Public ------------------------------------------- Notarial Seal Louise 0. Allen, Notary Pubic Buffalo Twp., Butler County My Commission Expires Dec 22, 1997 ------------------------------------------- Member Pennsylvania Association of Notaries Page 5 6 Exhibit A to Articles of Merger AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of this 14th day of June 1994 by and between S. F. NEVADA, INC., a Nevada corporation ("Sylvan Nevada" or the "Surviving Corporation"), and SYLVAN FOODS HOLDINGS, INC., a Delaware corporation ("Holdings") (Sylvan Nevada and Holdings being herein sometimes collectively referred to as the "Constituent Corporations"). WITNESSETH: WHEREAS, the Constituent Corporations desire that, in order to facilitate a mere change in identity and place of organization of Holdings, to minimize any state taxes imposed on Holdings, and to minimize the administrative expense incurred in the operations of Holdings, Holdings be merged with and into Sylvan Nevada, with Sylvan Nevada being the surviving corporation, upon the terms and conditions set forth herein and in accordance with Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended; WHEREAS, Sylvan Nevada was created solely for the purpose of facilitating a mere change in identity and place of organization of Holdings, has heretofore been a nonoperating entity and subsequent hereto will operate in the same line of business as Holdings and carry on the same business activities of Holdings; WHEREAS, the Board of Directors and stockholders of Holdings have adopted resolutions approving this Plan of Merger in accordance with the Delaware General Corporation Law (the "Delaware GCL"); and WHEREAS, the Board of Directors and stockholders of Sylvan Nevada have adopted resolutions approving this Plan of Merger in accordance with the General Corporation Law of Nevada (the "Nevada GCL"). NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Holdings and Sylvan Nevada hereby agree as follows: 1. Terms of Merger. On the Effective Date (as hereinafter defined), Holdings shall be merged with and into Sylvan Nevada pursuant to the provisions of Section 78.461 of the Nevada GCL (the "Merger"). 2. Surviving Corporation. The corporation surviving the Merger shall be Sylvan Nevada. 3. Treatment of Shares. (a) Upon the Effective Date, each share of Common Stock, par value $.OO1 per share, of Holdings ("Holdings Common Stock") that is issued and outstanding or held in the treasury of Holdings immediately prior to the Merger shall, by virtue of the Merger and without 7 any action on the part of the holder thereof, be deemed converted into one share of Common Stock, par value $.001 per share, of Sylvan Nevada ("Sylvan Nevada Common Stock"). (b) Upon the Effective Date, Holdings' 1990 Stock Option Plan (the "1990 Plan") and 1993 Stock Option Plan for Nonemployee Directors (the "1993 Plan") shall automatically, and without any further action, be assumed by and shall become stock option plans of Sylvan Nevada Accordingly, each outstanding option to purchase shares of Holdings Common Stock under the 1990 Plan and the 1993 Plan shall be converted into and become an option to purchase an equal number of shares of Sylvan Nevada Common Stock. Each such option shall be upon the same terms and conditions and shall have the same provisions that were applicable thereto immediately prior to the Effective Date. Similarly, each share of Holdings Common Stock reserved for issuance pursuant to the 1990 Plan and the 1993 Plan but not yet covered by an option shall be converted into a share of Sylvan Nevada Common Stock. (c) All outstanding rights (including preemptive rights) shall automatically, and without any further action, continue outstanding as a right to purchase, in lieu of the right to purchase each share of Holdings Common Stock, a share of Sylvan Nevada Common Stock upon the same terms and conditions as applicable immediately prior to the Effective Date under the relevant rights. (d) No exchange of certificates representing shares of Holdings Common Stock converted pursuant to Section 3(a) above shall be required; and from and after the Effective Date and until certificates representing such Holdings Common Stock are presented for exchange or registration of transfer, all such certificates shall be deemed for all purposes to represent the same number of shares of Sylvan Nevada Common Stock into which they were so converted. After the Effective Date, whenever certificates which formerly represented shares of Holdings Common Stock are presented for exchange or registration of transfer, Sylvan Nevada will cause to be issued in respect thereof certificates representing an equal number of shares of Sylvan Nevada Common Stock. If any certificate representing Sylvan Nevada Common Stock is to be issued in a name other than that of the registered holder of the certificate representing Holdings Common Stock presented, it shall be a condition of issuance that (i) the certificate so surrendered shall be properly endorsed or accompanied by a stock power and shall otherwise be in proper form for transfer and (ii) the person requesting such issuance shall pay to Sylvan Nevada or its transfer agent any transfer or other taxes required by reason of the issuance of certificates representing Sylvan Nevada Common Stock in a name other than that of the registered holder of the certificate presented, or establish to the satisfaction of Sylvan Nevada or its transfer agent that such taxes have been paid or are not applicable. 4. Effective Date. If this Agreement is not terminated as contemplated by Section 8 hereof, (i) Articles of Merger (the "Articles of Merger"), executed in accordance with the Nevada GCL, shall be delivered to the appropriate Nevada state officials for filing and (ii) a Certificate of Merger, executed in accordance with the Delaware GCL, shall be delivered to the appropriate Delaware state officials for filing. The Merger shall become effective upon the filing of the Articles of Merger with the Secretary of State of Nevada (the "Effective Date"). 8 5. Articles of Incorporation. The Articles of Incorporation of Sylvan Nevada as in effect on the Effective Date, as hereinafter amended by this Section 5, from and after the Effective Date and until further amended as provided by applicable law, shall be, and may be separately certified as, the Articles of Incorporation of the Surviving Corporation. As of the Effective Date, the Articles of Incorporation of Sylvan Nevada shall be amended by changing Article 1 thereof so that, as amended, said Article shall be and read as follows: "The name of the Corporation is Sylvan Inc." 6. Bylaws. The Bylaws of Sylvan Nevada, as in effect on the Effective Date, shall be the Bylaws of the Surviving Corporation, to remain unchanged until amended in accordance with the provisions thereof and of applicable law. 7. Directors and Officers. Upon the Effective Date, the Board of Directors of the Surviving Corporation shall consist of those persons who were directors of Holdings immediately prior to the Effective Date, and the officers of the Surviving Corporation shall be the persons who were officers of Holdings immediately prior to the Effective Date, each such person to hold, in accordance with the Bylaws and at the pleasure of the Board of Directors of the Surviving Corporation, the same office or offices with the Surviving Corporation as he or she then held with Holdings. 8. Termination and Amendment. This Agreement may be terminated by the Board of Directors of either Sylvan Nevada or Holdings at any time prior to the Effective Date. In addition, the Boards of Directors of Sylvan Nevada and Holdings may amend this Agreement at any time prior to the Effective Date; provided, however, that no such amendment not adopted and approved by the stockholders shall affect the rights of the stockholders of Holdings in a manner which is materially adverse to Holdings stockholders, in the sole judgment of the Board of Directors of Holdings. 9. Miscellaneous. Upon the Effective Date, all the property, rights, privileges, franchises, patents, trademarks, licenses, registrations and other assets of every kind and description of Holdings shall be transferred to, vested in and devolve upon Sylvan Nevada without further act or deed and all property, rights, and every other interest of Sylvan Nevada and Holdings shall be as effectively the property of Sylvan Nevada as they were of Sylvan Nevada and Holdings, respectively. Holdings hereby agrees from time to time, as and when requested by Sylvan Nevada or by its successors or assigns, to execute and deliver or cause to be executed and delivered all such deeds and instruments and to take or cause to be taken such further or other action as Sylvan Nevada may deem necessary or desirable in order to vest in and confirm to Sylvan Nevada title to and possession of any property of Holdings acquired or to be acquired by reason of or as a result of the Merger herein provided for and otherwise to carry out the intent and purposes hereof and the proper officers and directors of Holdings and the proper officers and directors of Sylvan Nevada are fully authorized in the name of Holdings or otherwise to take any and all such action. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware. 9 IN WITNESS WHEREOF, Sylvan Nevada and Holdings have caused this Agreement to be executed by their respective Presidents or Vice Presidents and attested by their respective Secretaries or Assistant Secretaries all as of the date first above written. ATTEST: S. F. NEVADA, INC. /s/ Fred Y. Bennitt By: /s/ Dennis C. Zensen - ------------------------------- ----------------------------- Secretary President ATTEST: SYLVAN FOODS HOLDINGS, INC. /s/ Fred Y. Bennitt By: /s/ Dennis C. Zensen - ------------------------------- ----------------------------- Secretary President 10 ACKNOWLEDGMENT THE UNDERSIGNED, President of S. F. NEVADA, INC., who executed on behalf of said corporation the foregoing Agreement and Plan of Merger, of which this Acknowledgment is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing Agreement and Plan of Merger to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information and belief the matters and facts set forth therein are true in all material respects. /s/ Dennis C. Zensen ---------------------------- ACKNOWLEDGMENT THE UNDERSIGNED, President of SYLVAN FOODS HOLDINGS, INC. who executed on behalf of said corporation the foregoing Agreement and Plan of Merger, of which this Acknowledgment is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing Agreement and Plan of Merger to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein are true in all material respects. /s/ Dennis C. Zensen ---------------------------- EX-3.5 4 EXHIBIT 3.5 1 EXHIBIT 3.5 BYLAWS OF SYLVAN INC. ARTICLE 1. MEETING OF STOCKHOLDERS Section 1.1 Annual Meetings The annual meeting of stockholders for the election of directors and for the transaction of such other business as properly may come before such meeting shall be held each year on such date, and at such time and place, within or without the State of Nevada, as may be designated by the Board of Directors. Section 1.2 Special Meetings Special meetings of the stockholders for any proper purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board, the President or any Vice President, to be held on such date, and at such time and place within or without the State of Nevada, as the Board of Directors, the Chairman of the Board, the President or any Vice President, whichever has called the meeting, shall direct. A special meeting of the stockholders shall be called by the Chairman of the Board, the President or any Vice President whenever stockholders owning a majority of the shares of the Corporation then issued and outstanding and entitled to vote on matters to be submitted to stockholders of the Corporation shall make application therefor in writing. Any such written request shall state a proper purpose or purposes of the meeting and shall be delivered to the Chairman of the Board, the President or any Vice President. Section 1.3 Notice of Meeting Written notice, signed by the Chairman of the Board, the President, any Vice President, the Secretary or an Assistant Secretary, of every meeting of stockholders, stating the date and time when, and the place where, it is to be held, shall be delivered either personally or by mail to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the meeting, except as otherwise provided by law. The purpose or purposes for which the meeting is called may in the case of an annual meeting, and shall in the case of a special meeting, also be stated. If mailed, such notice shall be directed to a stockholder at his or her address as it shall appear on the stock books of the Corporation, unless he or she shall have filed with the Secretary a written request that notices intended for him or her be mailed to some other address, in which case it shall be mailed to the address designated in such request. Section 1.4 Quorum The presence at any meeting, in person or by proxy, of the holders of record of a majority of the shares then issued and outstanding and entitled to vote shall be necessary and sufficient to constitute a quorum for the transaction of business, except as otherwise provided by law. Section 1.5 Adjournments In the absence of a quorum, a majority in interest of the stockholders entitled to vote, present in person or by proxy, or, if no stockholder entitled to vote is present in person or by proxy, any officer entitled to preside at or act as secretary of such meeting, may adjourn the meeting from time to time until a quorum shall be present. Section 1.6 Order of Business (a) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the annual meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder who complies with the procedures set forth in this Section 1.6. (b) For business properly to be brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than thirty days nor more than sixty days prior to the annual meeting; provided, however, that 1 2 in the event that less than forty days' notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder to be timely must be received no later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. To be in proper written form, a stockholder's notice to the Secretary shall set forth in writing as to each matter the stockholder proposes to bring before the annual meeting, (i) a brief description of the business desired to be brought before the annual meeting; (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business; (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder; and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 1.6. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the annual meeting that business was not properly brought before the annual meeting in accordance with the provisions of this Section 1.6 and, if he should so determine, he shall so declare to the annual meeting and any such business not properly brought before the annual meeting shall not be transacted. Section 1.7 Voting Directors shall be chosen by a plurality of the votes cast at the election, and, except as otherwise provided by law, all questions shall be determined by a majority of the votes cast on such question. Section 1.8 Proxies Any stockholder entitled to vote may vote by proxy, provided that the instrument authorizing such proxy to act shall have been executed in writing (which shall include telegraphing or cabling) by the stockholder himself or by his or her duly authorized attorney. Section 1.9 Judges of Election The Board of Directors may appoint judges of election to serve at any election of directors and at balloting on any other matter that may properly come before a meeting of stockholders. If no such appointment shall be made, or if any of the judges so appointed shall fail to attend or refuse or be unable to serve, then such appointment may be made by the presiding officer at the meeting. 2 3 ARTICLE 2. ACTION OF STOCKHOLDERS WITHOUT A MEETING Section 2.1 Any action which might have been taken under these Bylaws by vote of the stockholders at a meeting thereof may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken shall be signed by the holders of outstanding shares of stock of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, provided that prompt notice shall be given to those stockholders who have not so consented if less than unanimous written consent is obtained. ARTICLE 3. BOARD OF DIRECTORS Section 3.1 Number The number of directors which shall constitute the whole Board of Directors shall be fixed from time to time by resolution of the Board of Directors or stockholders (any such resolution of either the Board of Directors or stockholders being subject to any later resolution of either of them). The first Board of Directors and subsequent Boards of Directors shall consist of six directors until changed as herein provided. Section 3.2 Election of Term of Office Directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3.3 or Section 3.7. Each director (whether elected at any annual meeting or to fill a vacancy or otherwise) shall continue in office until his or her successor shall have been elected and qualified or until his or her earlier death, resignation or removal in the manner hereinafter provided. Section 3.3 Nominations of Directors Nominations for the election of directors may be made by the Board or a committee appointed by the Board, or by any stockholder entitled to vote generally in the election of directors who complies with the procedures set forth in this Section 3.3. All nominations by the stockholders shall be made pursuant to timely notice in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than thirty days nor more than sixty days prior to the meeting; provided, however, that in the event that less than forty days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. To be in proper written form, such stockholder's notice shall set forth in writing, (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including, without limitation, such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected, and (ii) as to the stockholder giving notice (x) the name and address, as they appear on the Corporation's books, of such stockholder and (y) the class and number of shares of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation the information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. In the event that a stockholder seeks to nominate one or more directors, the Secretary shall appoint two inspectors, who shall not be affiliated with the Corporation, to determine whether the stockholder has complied with this Section 3.3. If the inspectors shall determine that a stockholder has not complied with this Section 3.3, the inspectors shall direct the chairman of the meeting to declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws of the Corporation, and the chairman shall so declare to the meeting and the defective nomination will be disregarded. Section 3.4 Vacancies and Additional Directorships If any vacancy shall occur among the directors by reason of death, resignation or removal or as the result of an increase in the number of directorships, a majority of the directors then in office or a sole remaining director, though less than a quorum, may fill any such vacancy. 3 4 Section 3.5 Meetings A meeting of the board of Directors shall be held for organization, for the election of officers and for the transaction of such other business as may properly come before the meeting, within thirty days after each annual election of directors. The Board of Directors by resolution may provide for the holding of regular meetings and may fix the times and places at which such meetings shall be held. Notice of regular meetings shall not be required to be given, provided that whenever the time or place of regular meetings shall be fixed or changed, notice of such action shall be mailed promptly to each director who shall not have been present at the meeting at which such action was taken, addressed to him or her at his or her residence or usual place of business. Special meetings of the Board of Directors may be called by or at the direction of the Chairman of the Board, the President, any Vice President or any two directors, except that when the Board of Directors consists of one director, then the one director may call a special meeting. Except as otherwise required by law, notice of each special meeting shall be mailed to each director, addressed to him or her at his or her residence or usual place of business, at least five days before the day on which the meeting is to be held, or shall be sent to him or her at such place by telegram, radio or cable, or telephoned or delivered to him or her personally, not later than two days before the day on which the meeting is to be held. Such notice shall state the time and place of such meeting but need not state the purpose thereof, unless otherwise required by law, the Certificate of Incorporation of the Corporation or these Bylaws. Notice of any meeting need not be given to any director who shall attend such meeting in person or who shall waive notice thereof, before or after such meeting, in a signed writing. Section 3.6 Quorum and Manner of Action At each meeting of the Board of Directors, the presence of a majority of the total number of members of the Board of Directors, as constituted from time to time, shall be necessary and sufficient to constitute a quorum for the transaction of business. Except as otherwise provided by law, the Certificate of Incorporation of the Corporation or these Bylaws, a vote of the majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. Section 3.7 Resignation of Directors Any director may resign at any time by giving written notice of such resignation to the Board of Directors, the Chairman of the Board, the President, any Vice President or the Secretary. Unless otherwise specified in such notice, such resignation shall take effect upon receipt thereof by the Board of Directors or any such officer and the acceptance of such resignation shall not be necessary to make it effective. Section 3.8 Removal of Directors At any special meeting of the stockholders duly called as provided in these Bylaws, any director or directors may be removed from office, either with or without cause, as provided by law. At such meeting, a successor or successors may be elected by a plurality of the votes cast, or if any such vacancy is not so filled, it may be filled by the directors as provided in Section 3.4. Section 3.9 Compensation of Directors Directors shall receive such reasonable compensation for their services as such, whether in the form of salary or a fixed fee for attendance at meetings, with expenses, if any, as the Board of Directors may from time to time determine. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE 4. ACTION OF THE BOARD WITHOUT A MEETING Section 4.1 Any action which might have been taken under these Bylaws by vote of the directors at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all the members of the Board of Directors or such committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of the Board of Directors or such committee. 4 5 ARTICLE 5. COMMITTEES OF THE BOARD Section 5.1 Designation, Power, Alternate Members and Terms of Office The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in such resolution and permitted by law, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business affairs of the Corporation and may authorize the seal of the Corporation or a facsimile thereof to be affixed to or reproduced on all such papers as said committee shall designate. The Board of Directors may designate one or more directors as alternate members of any committee who, in the order specified by the Board of Directors, may replace any absent or disqualified member at any meeting of the committee. If at a meeting of any committee one or more of the members thereof should be absent or disqualified, and if either the Board of Directors has not so designated any alternate member or members or the number of absent or disqualified members exceeds the number of alternate members who are present at such meeting, then the member or members of such committees (including alternates) present at any meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. The term of office of the members of each committee shall be as fixed from time to time by the Board of Directors, subject to these Bylaws; provided, however, that any committee member who ceases to be a member of the Board of Directors shall ipso facto cease to be a committee member. Each committee shall appoint a secretary, who may be the Secretary of the Corporation or an Assistant Secretary thereof. Section 5.2 Meetings, Notices and Records Each committee may provide for the holding of regular meetings, with or without notice, and may fix the times and places at which such meetings shall be held. Special meetings of each committee may be called by or at the direction of any one of its members. Except as otherwise provided by law, notice of each special meeting of a committee shall be mailed to each member of such committee, addressed to him or her at his or her residence or usual place of business, at least five days before the day on which the meeting is to be held, or shall be sent to him or her at such place by telegram, radio or cable, or telephoned or delivered to him or her personally, no later than two days before the day on which the meeting is to be held. Such notice shall state the time and place of such meeting, but need not state the purpose thereof, unless otherwise required by law, the Certificate of Incorporation of the Corporation or these Bylaws. Notice of any meeting of a committee need not be given to any member thereof who shall attend such meeting in person or who shall waive notice thereof, before or after such meeting, in a signed writing. Each committee shall keep a record of its proceedings. Section 5.3 Quorum and Manner of Acting At each meeting of any committee the presence of a majority of its members then in office shall be necessary and sufficient to constitute a quorum for the transaction of business, except that when a committee consists of one member, then the one member shall constitute a quorum. In the absence of a quorum, a majority of the members present at the time and place of any meeting may adjourn the meeting from time to time until a quorum shall be present and the meeting may be held as adjourned without further notice or waiver. The act of a majority of the members present at any meeting at which a quorum is present shall be the act of such committee. Subject to the foregoing and other provisions of these Bylaws and except as otherwise determined by the Board of Directors, each committee may make rules for the conduct of its business. Section 5.4 Resignations Any member of a committee may resign at any time by giving written notice of such resignation to the Board of Directors, the Chairman of the Board, the President, any Vice President or the Secretary. Unless otherwise specified in such notice, such resignation shall take effect upon receipt thereof by the Board of Directors or any such officer, and the acceptance of such resignation shall not be necessary to make it effective. Section 5.5 Removal Any member of any committee may be removed with or without cause at any time by the Board of Directors. 5 6 Section 5.6 Vacancies If any vacancy shall occur in any committee by reason of death, resignation, disqualification, removal or otherwise, the remaining member or members of such committee, so long as a quorum is present, may continue to act until such vacancy is filled by the Board of Directors. Section 5.7 Compensation Committee members shall receive such reasonable compensation for their services as such, whether in the form of salary or a fixed fee for attendance at meetings, with expenses, if any, as the Board of Directors may from time to time determine. Nothing herein contained shall be construed to preclude any committee member from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE 6. OFFICERS Section 6.1 Officers The officers of the Corporation shall be a Chairman of the Board, a President and Chief Executive Officer, a Secretary, a Treasurer, and, if elected by the Board of Directors, one or more Vice Presidents, and such other officers as may be appointed in accordance with the provisions of Section 6.3. Section 6.2 Election, Term of Office and Qualifications Each officer (except such officers as may be appointed in accordance with the provisions of Section 6.3) shall be elected by the Board of Directors. Unless otherwise provided in the resolution of election, each officer (whether elected at the first meeting of the Board of Directors, after the annual meeting of stockholders or to fill a vacancy or otherwise) shall hold his or her office until the first meeting of the Board of Directors after their next annual meeting of stockholders and until his or her successor shall have been elected, or until his or her death, or until he or she shall have resigned in the manner provided in Section 6.4, or shall have been removed in the manner provided in Section 6.5. Section 6.3 Subordinate Officers and Agents The Board of Directors from time to time may appoint other officers or agents (including one or more Assistant Secretaries and one or more Assistant Treasurers), to hold office for such period, have such authority and perform such duties as are provided in these Bylaws or as may be provided in the resolution appointing them. The Board of Directors may delegate to any officer or agent the power to appoint any such subordinate officers or agents and to prescribe their respective terms of office, authorities and duties. Section 6.4 Resignations Any officer may resign at any time by giving written notice of such resignation to the Board of Directors, the Chairman of the Board, the President, the Vice President or the Secretary. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or any such officer, and the acceptance of such resignation shall not be necessary to make it effective. Section 6.5 Removal Any officer specifically designated in Section 6.1 may be removed with or without cause at any meeting of the Board of Directors by affirmative vote of a majority of the directors then in office. Any officer or agent appointed in accordance with the provisions of Section 6.3 may be removed with or without cause at any meeting of the Board of Directors by affirmative vote of a majority of the directors present at such meeting or any time by any superior officer or agent by the Board of Directors. Section 6.6 Vacancies A vacancy in any office by reason of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed by these Bylaws for regular election or appointments to such office. Section 6.7 The Chairman of the Board The Chairman of the Board shall be elected by the Board of Directors. He or she shall preside at all meetings of the Board of Directors and at all meetings of stockholders and shall see that all orders and resolutions of the Board of Directors are carried into effect. Subject to the direction of the Board of Directors, he or she shall have general charge of the business affairs and property of the Corporation and general supervision over its officers and agents. He or she may sign, with any other officer thereunto duly 6 7 authorized, certificates representing stock of the corporation, the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature), and may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts, agreements or other instruments duly authorized by the Board of Directors, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent. From time to time he or she shall report to the Board of Directors all matters within his or her knowledge which the interests of the Corporation may require to be brought to their attention. He or she shall have such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors or these Bylaws. Section 6.8 The President If there is no Chairman of the Board, or in the absence of the Chairman of the Board, the President shall be the Chief Executive Officer of the Corporation. The President shall, subject to the authority of the Chairman of the Board, if there is one, have all of the powers and duties granted to and imposed upon the Chairman of the Board. The President is charged with the day-to-day supervision of the business affairs and property of the Corporation. Section 6.9 The Vice President At the request of the President, or, in his or her absence or disability, the Vice President designated by the Board of Directors, shall perform all the duties of the President and, when so acting, shall have all the powers of and be subject to all restrictions upon the President. Any Vice President may also sign, with any other officer thereunto duly authorized (the signature to which may be a facsimile signature), and execute in the name of the Corporation deeds, mortgages, bonds, contracts, agreements or other instruments duly authorized by the Board of Directors, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent. Each Vice President shall have such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President or these Bylaws. Section 6.10 Secretary The Secretary shall (a) record all the proceedings of the meetings of the stockholders, the Board of Directors, and any committees in a book or books to be kept for that purpose; (b) cause all notices to be duly given in accordance with the provisions of these Bylaws and as required by law; (c) whenever any committee shall be appointed in pursuance of a resolution of the board of Directors, furnish the chairman of such committee with a copy of such resolution; (d) be custodian of the records and of the seal of the corporation, and cause such seal to be affixed to or a facsimile to be reproduced on all certificates representing stock of the Corporation prior to the issuance thereof and to all instruments, the execution of which on behalf of the Corporation and under its seal shall have been duly authorized; (e) see that the lists, books, reports, statements, certificates and other documents and records required by law are properly kept and filed; (f) have charge of the stock and transfer books of the Corporation, and exhibit such stock books at all reasonable times to such persons as are entitled by law to have access thereto; (g) sign (unless the Treasurer or an Assistant Secretary or an Assistant Treasurer shall sign) certificates representing stock of the Corporation, the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature); and (h) in general, perform all duties incident to the office of Secretary and have such other powers, and perform such other duties, as may from time to time be prescribed by the Board of Directors, the President or these Bylaws. 7 8 Section 6.11 Assistant Secretaries At the request of the Secretary or in his or her absence or disability, the Assistant Secretary designated by him or her (or in the absence of such designation, the Assistant Secretary designated by the Board of Directors, the Chairman of the Board or the President) shall perform all the duties of the Secretary, and, when so acting, shall have all the powers of and be subject to all restrictions upon the Secretary. Each Assistant Secretary shall have such other powers, and perform such other duties, as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President, the Secretary or these Bylaws. Section 6.12 Treasurer The Treasurer shall (a) have charge of and supervision over and be responsible for the funds, securities, receipts and disbursements of the Corporation; (b) cause the moneys and other valuable effects of the Corporation to be deposited in the name and to the credit of the Corporation in such banks or trust companies, or with such bankers or other depositories, as shall be selected in accordance with Section 8.3 or to be otherwise dealt with in such manner as the Board of Directors may direct; (c) cause the funds of the Corporation to be disbursed by checks or drafts upon the authorized depositories of the Corporation, and cause to be taken and preserved proper vouchers for all moneys disbursed; (d) render to the Board of Directors or the President, whenever requested, a statement of the financial condition of the corporation and of all of his or her transactions as Treasurer; (e) cause to be kept at the Corporation's principal office, correct books of account of all its business and transactions and such duplicate books of account as he or she shall determine and upon application, cause such books or duplicates thereof to be exhibited to any director; (f) be empowered, from time to time, to require from the officers or agents of the Corporation reports or statements giving such information as he or she may desire with respect to any and all financial transactions of the Corporation; (g) sign (unless the Secretary or Assistant Secretary or an Assistant Treasurer shall sign) certificates representing stock of the corporation, the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature); and (h) in general, perform all duties incident to the office of the Treasurer and have such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President or these Bylaws. Section 6.13 Assistant Treasurer At the request of the Treasurer or in his or her absence or disability, the Assistant Treasurer designated by him (or in the absence of such designation, the Assistant Treasurer designated by the Board of Directors, the Chairman of the Board or the President) shall perform all the duties of the Treasurer, and, when so acting, shall have all the powers of and be subject to all restrictions upon the Treasurer. Each Assistant Treasurer shall have such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President, the Treasurer or these Bylaws. Section 6.14 Salaries The salaries of the officers of the Corporation shall be fixed from time to time by the Board of Directors, except that the Board of Directors may delegate to any person the power to fix the salaries or other compensation of any officers or agents appointed in accordance with the provisions of Section 6.3. No officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the Corporation. 8 9 ARTICLE 7. INDEMNIFICATION Section 7.1 Indemnification The Corporation shall indemnify and advance expenses to, in the manner and to the full extent permitted by law, any person (or the estate of any person) who was or is a party to, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceedings, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative, investigative, or otherwise, by reason of the fact that such person is or was a director, officer, employee, fiduciary or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, trustee, fiduciary, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnification and advancement of expenses provided for herein shall be construed as a general authorization of advancement of expenses and such indemnification will not create an obligation to repay unless a specific determination is made that the person is not entitled to be indemnified as authorized by law. The Corporation may, to the full extent permitted by law, purchase and maintain insurance on behalf of any such person against any liability which may be asserted against him or her. The indemnification and advancement of expenses provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expenses to the full extent permitted by law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any 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. ARTICLE 8. EXECUTION OF INSTRUMENTS AND DEPOSIT OF CORPORATE FUNDS Section 8.1 Execution of Instruments Generally The Chairman of the Board, the President, any Vice President, the Secretary or the Treasurer, subject to the approval of the Board of Directors, may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. The Board of Directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation, and such authorization may be general or confined to specific instances. Section 8.2 Borrowing No loans or advances shall be obtained or contracted for, by or on behalf of the Corporation, and no negotiable paper shall be issued in its name, unless and except as authorized by the Board of Directors. Such authorization may be general or confined to specific instances. Any officer or agent of the Corporation thereunto so authorized may obtain loans and advances for the Corporation, and for such loans and advances may make, execute and deliver promissory notes, bonds, or other evidences of indebtedness of the Corporation. Any officer or agent of the Corporation so authorized may pledge, hypothecate or transfer as security for the payment of any and all loans, advances, indebtedness and liabilities of the Corporation, any and all stocks, bonds, other securities and other personal property at any time held by the Corporation, and to that end may endorse, assign and deliver the same and do every act and thing necessary or proper in connection therewith. Section 8.3 Deposits All funds of the Corporation not otherwise employed shall be deposited from time to time to its credit in such banks or trust companies or with such bankers or other depositories as the Board of Directors may select, or as may be selected by any officer or officers or agent or agents authorized so to do by the Board of Directors. Endorsements for deposit to the credit of the Corporation in any of its duly authorized depositories shall be made in such manner as the Board of Directors from time to time may determine. Section 8.4 Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, and all notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers or agent or agents of the Corporation, and in such manner, as from time to time shall be determined by the Board of Directors. 9 10 Section 8.5 Proxies Proxies to vote with respect to shares of stock of other corporations owned by or standing in the name of the Corporation may be executed and delivered from time to time on behalf of the Corporation by the Chairman of the Board, the President or any Vice President or by any other person or persons thereunto authorized by the Board of Directors. ARTICLE 9. RECORD DATES Section 9.1 Record Dates In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. Only those stockholders of record on the date so fixed shall be entitled to any of the foregoing rights, notwithstanding the transfer of any such stock on the books of the Corporation after any such record date fixed by the Board of Directors. ARTICLE 10. STOCK Section 10.1 Form and Execution of Certificates The certificates of shares of stock of the Corporation shall be in such form as shall be approved by the Board of Directors. The certificates shall be signed by the Chairman of the Board, the President or a Vice President and the Treasurer, the Secretary, and Assistant Treasurer or an Assistant Secretary, except that where any such certificates shall be countersigned by a transfer agent and by a registrar, the signatures of any of the officers above specified, and the seal of the Corporation upon such certificates, may be facsimiles, engraved or printed. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of its issue. ARTICLE 11. CORPORATE SEAL Section 11.1 Corporate Seal The corporate seal shall be circular in form and shall bear the name of the Corporation and words and figures denoting its organization under the laws of the State of Nevada and the year thereof and otherwise shall be in such form as shall be approved from time to time by the Board of Directors. 10 11 ARTICLE 12. FISCAL YEAR Section 12.1 Fiscal Year. The Fiscal Year of the Corporation shall begin on the Monday next following the Sunday nearest December 31 of each calendar year or such other day as the Board of Directors may determine by resolution. ARTICLE 13. AMENDMENTS Section 13.1 Amendments. All Bylaws of the Corporation may be amended or repealed, and new Bylaws may be made, by a majority of the votes cast at any Board of Directors meeting or by a majority of the votes cast at any annual or special stockholders meeting by holders of outstanding shares of stock of the Corporation entitled to vote. ADOPTED as of the 28th day of June 1994. /s/ DENNIS C. ZENSEN ----------------------------- Dennis C. Zensen, President /s/ FRED Y. BENNITT ----------------------------- Fred Y. Bennitt, Secretary 11 EX-10.12 5 EXHIBIT 10.12 1 EXHIBIT 10.12 SYLVAN INC. 1990 STOCK OPTION PLAN AMENDED AND RESTATED FEBRUARY 10,1999 AMENDED APRIL 29, 1999 SECTION 1. Establishment. There is hereby established the Sylvan Inc. 1990 Stock Option Plan, pursuant to which employees and any other persons who perform substantial services for or on behalf of Sylvan Inc. (the "Company"), its subsidiaries and certain other entities may be granted options to purchase shares of common stock of the Company, par value $.001 per share, and thereby share in the future growth of the business. The subsidiaries of the Company included in this Plan (the Subsidiaries) shall be any subsidiary of the Company as defined in Section 424 of the Internal Revenue Code of 1986, as amended (the "Code"). SECTION 2. Status of Options. The options that may be granted pursuant to this Plan will constitute either incentive stock options within the meaning of Section 422 of the Code, or options that are not incentive stock options. Incentive Stock Options and Nonincentive Stock Options shall be collectively referred to herein as "options." SECTION 3. Eligibility. All employees of the Company or the Subsidiaries who are employed at the time of the adoption of this Plan or thereafter, and any other persons who perform substantial services for or on behalf of the Company, affiliates or any entity in which the Company has an interest (collectively, the Grantees) shall be eligible to be granted Nonincentive Stock Options to purchase shares of common stock under this Plan. All employees of the Company or the Subsidiaries who are employed at the time of adoption of this Plan or thereafter shall be eligible to be granted Incentive stock options under this Plan. Notwithstanding the foregoing, any director who is not an employee of the Company or a Subsidiary of the Company shall be ineligible to receive options under this Plan. SECTION 4. Number of Shares Covered by Options; No Preemptive Rights. The total number of shares of common stock which may be issued and sold pursuant to options granted under this Plan shall be 1,700,000 (or the number and kind of shares of stock or other securities which, in accordance with Section 9 of this Plan, shall be substituted for such shares of common stock or to which said shares shall be adjusted. Hereinafter, all references to shares of common stock are deemed to be references to said substituted shares or shares so adjusted.) The maximum aggregate number of shares of common stock that shall be available for the grant of stock options to any one individual under the Plan during any calendar year shall be limited to 50,000 shares. The limitation in the preceding sentence shall be interpreted and applied in a manner consistent with Section 162(m) of the Code. If any outstanding option granted under this Plan expires or is terminated, for any reason, the shares of common stock subject to the unexercised portion of the option will again be available for options issued under this Plan. SECTION 5. Administration. (a) This Plan shall be administered by the committee (the "Committee") referred to in paragraph (b) of this Section 5. Subject to the express provisions of this Plan, the Committee shall have complete authority, in its discretion, to interpret this Plan; to prescribe, amend and rescind rules and regulations relating to it; to determine the terms and provisions of the respective option agreements (which need not be identical); to determine the Grantees to whom, and the times and prices at which, options shall be 1 2 granted; to determine the option periods, the number of shares of common stock to be subject to each option and whether each option shall be an Incentive Stock Option or a Nonincentive Stock Option; and to make all other determinations necessary or advisable for the administration of the Plan. Each option shall be clearly identified at the time of grant as to its status. In making such determinations, the Committee may take into account the nature of the services rendered by the respective Grantees, their present and potential contributions to the success of the Company and such other factors as the Committee, in its discretion, shall deem relevant. Nothing contained in this Plan shall be deemed to give any Grantee the right to be granted an option to purchase shares of common stock except to the extent and upon such terms and conditions as may be determined by the Committee. The Committee's determination on all of the matters referred to in this Section 5 shall be conclusive. (b) The Committee shall consist of not less than two members of the Board who (1) are nonemployee directors and otherwise meet the "disinterested administration" rules of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and (2) are "outside directors" under Section 162(m)(4)(c) of the Code, or any successor provision. The Committee shall be appointed by the Board, which may at any time, and from time to time, remove any member of the Committee, with or without cause, appoint additional members to the Committee and fill vacancies, however caused, in the Committee. A majority of the members of the Committee shall constitute a quorum and all determinations of the Committee shall be made by a majority of such quorum. Any decision or determination of the Committee reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made at a meeting duly called and held. (c) The Committee may at its election provide in any option agreement covering the grant of options under this Plan that, upon the exercise of such options, the Company will loan to the holder thereof such amount as shall equal the purchase price of the shares of common stock issuable upon such exercise. Such loan shall be on terms and conditions deemed appropriate by the Committee, except that any loan made with respect to an Incentive Stock Option shall bear interest at a rate such that no portion of the principal amount of the loan shall be treated as unstated or imputed interest or result in original issue discount under Treasury Regulationss.1.421-7(e) and Sections 483 or 1272-1275 of the Code, or under corresponding provisions of any future Internal Revenue laws or regulations. (d) Notwithstanding any provisions hereof to the contrary, the Committee shall have sole and exclusive authority with respect to the grant of options to employee directors. (e) The Committee may at its election provide in any option agreement covering the grant of options under this Plan that, upon the exercise of such options, the person exercising such options may require the Company to withhold from the number of shares or other securities to which such person would otherwise be entitled upon exercise of such options a number of shares or other securities with an aggregate fair market value (as determined in accordance with Section 6(h) below) equal to the amount of any withholding taxes payable as a result of such exercise. (f) The Committee may at its election provide in any option agreement covering the grant of options under this Plan that upon a "Change of Control" of the Company, as defined below, all of the options covered thereby shall become immediately exercisable. 2 3 For purposes of this Section 5(f), the following terms shall have the following meanings: (1) The term "Person" shall be used as that term is used in Sections 13(d) and 14(d) of the 1934 Act. (2) "Beneficial Ownership" shall be determined as provided in Rule 13d-3 under the 1934 Act as in effect on the effective date of the Plan. (3) "Voting Shares" shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors (without consideration of the rights of any class of stock other than the common stock to elect directors by a separate class vote); and a specified percentage of "Voting Power" of a company shall mean such number of the Voting Shares as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors (without consideration of the rights of any class of stock other than the common stock to elect directors by a separate class vote). (4) "Tender Offer" shall mean a tender offer or exchange offer to acquire securities of the Company (other than such an offer made by the Company or any Subsidiary), whether or not such offer is approved or opposed by the Board. (5) "Change of Control" shall mean the date upon which any of the following events occurs: (i) The Company acquires actual knowledge that any Person other than the Company, a Subsidiary or any employee benefit plan(s) sponsored by the Company has acquired the Beneficial Ownership, directly or indirectly, of securities of the Company entitling such Person to 25% or more of the Voting Power of the Company; (ii) A Tender Offer is made to acquire securities of the Company entitling the holders thereof to 25% or more of the Voting Power of the Company; (iii) A solicitation subject to Rule 14a-11 under the 1934 Act (or any successor rule) relating to the election or removal of 50% or more of the members of any class of the Board shall be made by any person other than the Company; or (iv) The shareholders of the Company shall approve a merger, consolidation, share exchange, division or sale or other disposition of assets of the Company as a result of which the shareholders of the Company immediately prior to such transaction shall not hold, directly or indirectly, immediately following such transaction a majority of the Voting Power of (a) in the case of a merger or consolidation, the surviving or resulting corporation, (b) in the case of a share exchange, the acquiring corporation or (c) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the transaction, holds more than 10% of the consolidated assets of the Company immediately prior to the transaction; 3 4 provided, however, that (i) if securities beneficially owned by a Grantee are included in determining the Beneficial Ownership of a Person referred to in paragraph 5(f)(5)(i), (ii) a Grantee is required to be named pursuant to Item 2 of the Schedule 14D-1 (or any similar successor filing requirement) required to be filed by the bidder making a Tender Offer referred to in paragraph 5(f)(5)(ii), or (iii) if a Grantee is a "participant" as defined in 14a-11 under the 1934 Act (or any successor rule) in a solicitation (other than a solicitation by the Company) referred to in paragraph 5(f)(5)(iii), then no Change of Control with respect to such Grantee shall be deemed to have occurred by reason of such event. SECTION 6. Terms of Incentive Stock Options. Each Incentive Stock Option granted under this Plan shall be evidenced by an Incentive Stock Option agreement which shall be executed by the Company and by the person to whom such Incentive Stock Option is granted, and shall be subject to the following terms and conditions: (a) The price at which shares of common stock covered by each Incentive Stock Option may be purchased pursuant thereto shall be determined in each case on the date of grant by the Committee, but shall be an amount not less than one hundred percent (100%) of the fair market value of such shares on the date of grant, except as provided in Section 6(e). (b) The option price of the shares to be purchased pursuant to each Incentive Stock Option shall be paid in full in cash, or by delivery (i.e., surrender) of shares of common stock of the Company then owned by the Grantee, at the time of the exercise of the Incentive Stock Option. Shares of common stock so delivered will be valued on the day of delivery for the purpose of determining the extent to which the option price has been paid thereby, in the same manner as provided for the purchase price of Incentive Stock Options as set forth in paragraph (h) of this Section 6. (c) Each Incentive Stock Option agreement shall provide that such Incentive Stock Option may be exercised by the Grantee, in such parts and at such times as may be specified in such Agreement, within a period specified in the Incentive Stock Option agreement which does not exceed ten years after the date on which the Incentive Stock Option is granted or such shorter period specified in Section 6(e) (hereinafter called the "Incentive Stock Option Period"); and, in any event, only during the continuance of the employee's employment by the Company or the Subsidiaries during the period of three months (or twelve months if the employee is disabled within the meaning of Section 422(c)(6) of the Code or any successor provision) after the termination of such employment to the extent that the right to exercise such Incentive Stock Option had accrued at the date of such termination; provided, however, that if Incentive Stock Options as to 100 or more shares are held by a Grantee, then such Incentive Stock Options may not be exercised for less than 100 shares at any one time, and if Incentive Stock Options for less than 100 shares are held by a Grantee, then Incentive Stock Options for all such shares must be exercised at one time; and provided, further, that, if the Grantee, while still employed by the Company or the Subsidiaries, shall die within the Incentive Stock Option Period, the Incentive Stock Option may be exercised, to the extent specified in the Incentive Stock Option Agreement, and as herein provided, but only prior to the first to occur of: (1) the expiration of the period of one year after the date of the Grantee's death, or (2) the expiration of the Incentive Stock Option Period, by the person or persons entitled to do so under the Grantee's will, or, if the Grantee shall fail to make testamentary disposition of said Incentive Stock Option, or shall die intestate, by the Grantee's legal representative or representatives. 4 5 (d) Each Incentive Stock Option granted under this Plan shall by its terms be nontransferable by the Grantee except by will or by the laws of descent and distribution, and each Incentive Stock Option shall by its terms be exercisable during the Grantee's lifetime only by him. (e) Notwithstanding the foregoing, if an Incentive Stock Option is granted to a person at any time when such person owns, within the meaning of Section 424(d) of the Code, more than 10% of the total combined voting power of all classes of stock of the employer corporation (or a parent or subsidiary of such corporation within the meaning of Section 424 of the Code), the price at which each share of common stock covered by such Incentive Stock Option may be purchased pursuant to such Incentive Stock Option shall not be less than 110% of the fair market value (determined as in paragraph (h) of this Section) of the shares of common stock at the time the Incentive Stock Option is granted, and such Incentive Stock Option Period during which such Incentive Stock Option must be exercised may not exceed five years after the date on which such Incentive Stock Option is granted. (f) The Incentive Stock Option agreement entered into pursuant hereto may contain such other terms, provisions and conditions not inconsistent herewith as shall be determined by the Committee, including, without limitation, provisions (1) requiring the giving of satisfactory assurances by the Grantee that the shares are purchased for investment and not with a view to resale in connection with a distribution of such shares, and will not be transferred in violation of applicable securities laws, (2) restricting the transferability of such shares during a specified period, and (3) requiring the resale of such shares to the Company at the Option price if the employment of the employee terminates prior to a specified time. In addition, the Committee, in its discretion, may afford to holders of Incentive Stock Options granted under this Plan the right to require the Company to cause to be registered under the Securities Act of 1933, as amended, for public sale by the holders thereof, shares of common stock subject to such Incentive Stock Options upon such terms and subject to such conditions as the Committee may determine to be appropriate. (g) In the discretion of the Committee, a single option agreement may include both Incentive Stock Options and Non-incentive Stock Options, provided that each type of option is identified within the option agreement, or those options may be included in separate option agreements. (h) For all purposes under the Plan, fair market value of the common stock shall be the mean between the following prices, as applicable, for the date as of which fair market value is to be determined as quoted in The Wall Street Journal (or in such other reliable publication as the Committee, in its discretion, may determine to rely upon): (1) if the common stock is listed on the New York Stock Exchange, the highest and lowest sales prices per share of the common stock as quoted in the NYSE-Composite Transactions listing for such date, (2) if the common stock is not listed on such exchange, the highest and lowest sales prices per share of common stock for such date on (or on any composite index including) the principal United States securities exchange registered under the 1934 Act on which the common stock is listed, or (3) if the common stock is not listed on any such exchange, the highest and lowest sales prices per share of common stock for such date on the National Association of Securities Dealers Automated Quotations System or any successor system then in use 5 6 ("NASDAQ"). If there are no such sale price quotations for the date as of which fair market value is to be determined but there are such sale price quotations within a reasonable period both before and after such date, then fair market value shall be determined by taking a weighted average of the means between the highest and lowest sales prices per share of common stock as so quoted on the nearest date before and the nearest date after the date as of which fair market value is to be determined. The average should be weighted inversely by the respective numbers of trading days between the selling dates and the date as of which fair market value is to be determined. If there are no such sale price quotations on or within a reasonable period both before and after the date as of which fair market value is to be determined, then fair market value of the common stock shall be the mean between the bona fide bid and asked prices per share of common stock as so quoted for such date on NASDAQ, or if none, the weighted average of the means between such bona fide bid and asked prices on the nearest trading date before and the nearest trading date after the date as of which fair market value is to be determined, if both such dates are within a reasonable period. The average is to be determined in the manner described above in this Section 6(h). If the fair market value of the common stock cannot be determined on the basis previously set forth in this Section 6(h) on the date as of which fair market value is to be determined, the Committee shall in good faith determine the fair market value of the common stock on such date. Fair market value shall be determined without regard to any restriction other than a restriction which, by its terms, will never lapse. SECTION 7. Terms of Nonincentive Stock Options. Each Nonincentive Stock Option granted under this Plan shall be evidenced by a Nonincentive Stock Option agreement which shall be executed by the Company and by the person to whom such Nonincentive Stock Option is granted, and shall be subject to the following terms and conditions: (a) The price at which shares of common stock covered by each Nonincentive Stock Option may be purchased pursuant thereto shall be an amount not less than one hundred percent (100%) of the fair market value of such shares. (b) Each Nonincentive Stock Option agreement shall provide that such Nonincentive Stock Option may be exercised by the Grantee, in such parts and at such times as may be specified in such agreement, within a period up to and including ten years after the date on which the Nonincentive Stock Option is granted. (c) Each Nonincentive Stock Option granted under this Plan shall by its terms be non-transferable by the Grantee except by will or by the laws of descent and distribution, and each Nonincentive Stock Option shall by its terms be exercisable during the Grantee's lifetime only by him. (d) The Nonincentive Stock Option Agreement entered into pursuant hereto may contain such other terms, provisions and conditions not inconsistent herewith as shall be determined by the Committee, in its sole discretion, including without limitation the terms, provisions and conditions set forth in Section 6(f) with respect to Incentive Stock Option agreements. SECTION 8. Limit on Option Amount. Notwithstanding any provision contained herein or in any Option agreement, the aggregate fair market value (determined under Section 6(h) as of the time such Incentive Stock Options are granted) of the shares of common stock with respect to which Incentive Stock Options are first exercisable by any employee during any calendar year (under all 6 7 stock option plans of the employee's employer corporation and its parent and subsidiary corporation within the meaning of Section 424 of the Code) shall not exceed $100,000. If the date on which one or more of such Incentive Stock Options could first be exercised would be accelerated pursuant to any provision of the Plan or any option agreement, and the acceleration of such exercise date would result in a violation of the restriction set forth in the preceding sentence, then, notwithstanding any such provision, but subject to the provisions of the next succeeding sentence, the exercise dates of such Incentive Stock Options shall be accelerated only to the date or dates, if any, that do not result in a violation of such restriction and, in such event, the exercise dates of the Incentive Stock Options with the lowest option prices shall be accelerated to the earliest such dates. The Committee may, in its discretion, authorize the acceleration of the exercise date of one or more Incentive Stock Options even if such acceleration would violate the $100,000 restriction set forth in the first sentence of this paragraph and even if such Incentive Stock Options are thereby converted in whole or in part to Nonincentive Stock Options. The limit in this paragraph shall not apply to options that are designated as Nonincentive Stock Options, and, except as otherwise provided herein, there shall be no limit on the amount of such options, which may be first exercisable in any year. SECTION 9. Adjustment of Number of Shares. In the event that a dividend shall be declared upon the shares of common stock payable in shares of common stock, the number of shares of common stock then subject to any option granted hereunder, the number of shares reserved for issuance pursuant to this Plan but not yet covered by an option, and the number of shares which may be awarded under the Plan to any one individual during any calendar year shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the shareholders entitled to receive such stock dividend. In the event that the outstanding shares of common stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger or consolidation, then there shall be substituted for each share of common stock subject to any such option and for each share of common stock reserved for issuance pursuant to the Plan but not yet covered by an option, the number and kind of shares of stock or other securities into which each outstanding share of common stock shall be so changed or for which each such share shall be exchanged; provided, however, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Board such substitution cannot be effected or would be inappropriate, or if the Company shall sell all or substantially all of its assets, the Company shall use reasonable efforts to effect some other adjustment of each then outstanding option which the Board, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this Section 9, in the number or kind of outstanding shares of common stock or of any stock or other securities into which such shares of common stock shall have been changed or for which they shall have been exchanged, then, if the Board shall determine that such change equitably requires an adjustment in the number or kind of shares theretofore reserved for issuance pursuant to the Plan but not yet covered by an option and of the shares then subject to an option or options, such adjustment shall be made by the Board and shall be effective and binding for all purposes of this Plan and of each option agreement. Notwithstanding the foregoing, if any adjustment in the number of shares which may be issued and sold pursuant to options is required by the Code or regulations issued pursuant thereto to be approved by the shareholders in order to enable the Company to issue Incentive Stock Options pursuant to this Plan, then no such adjustment shall be made without the approval of the shareholders. In the case of any such substitution or adjustment as provided for in this Section 9, the option price in each option agreement for each share covered thereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share 7 8 shall have been adjusted pursuant to this Section 9. No adjustment or substitution provided for in this Section 9 shall require the Company, in any option agreement, to sell a fractional share, and the total substitution or adjustment with respect to each option agreement shall be limited accordingly. Notwithstanding the foregoing, in the case of Incentive Stock Options, if the effect of the adjustments or substitution is to cause the Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option or to cause a modification, extension or renewal of such Incentive Stock Option within the meaning of Section 424 of the Code, the Board shall use reasonable efforts to effect such other adjustment of each then outstanding option as the Board, in its sole discretion, shall deem equitable. SECTION 10. Amendments. This Plan may be terminated or amended from time to time by vote of the Board; provided, however, that no such termination or amendment shall materially adversely affect or impair any then outstanding option without the consent of the Grantee thereof and no amendment which shall (a) change the total number of shares which may be issued and sold pursuant to options granted under this Plan, or (b) change the designation of employees eligible to receive Incentive Stock Options or the class of employees or other persons eligible to receive options, or (c) reprice previously granted options, or (d) materially modify the Plan in other ways, shall be effective without the approval of the shareholders. Notwithstanding the foregoing, the Plan may be amended by the Committee to incorporate any amendments made to the Code which the Committee deems to be necessary or desirable to (a) preserve incentive stock option status for outstanding Incentive Stock Options and to preserve the ability to issue Incentive Stock Options pursuant to this Plan, or (b) permit stock options under the Plan to qualify for exemption from Section 16(b) of the 1934 Act. SECTION 11. Effective Date and Termination. The effective date and date of adoption of this Plan shall be February 10, 1999, the date of adoption of the amended and restated Plan by the Board, provided that such adoption of the Plan by the Board is approved by shareholders in compliance with Nevada law at a duly held meeting of the shareholders held on or prior to February 10, 2000, at which a quorum representing a majority of the outstanding voting stock of the Company is, either in person or by proxy, present and voting. No option granted under the Plan may be exercised until after and is contingent upon such approval. Except to the extent necessary to govern outstanding options, this Plan shall terminate on, and no additional options shall be granted after, ten years from the date that the Plan is adopted, or ten years from the date the Plan is approved by the shareholders, whichever is earlier. 8 EX-27 6 EXHIBIT 27
5 0000861291 SYLVAN INC. 1,000 9-MOS JAN-02-2000 JAN-04-1999 OCT-03-1999 7,889 0 12,454 832 9,795 35,723 84,891 32,079 101,131 15,945 0 0 0 7 45,373 101,131 65,642 65,642 38,561 58,302 (49) 0 1,655 5,734 1,543 0 0 0 0 4,093 0.66 0.66
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