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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-8615
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BRC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1533071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 WEST MOCKINGBIRD LANE 75247
SUITE 1400 (Zip Code)
DALLAS, TEXAS
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 688-1800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.10
PAR VALUE
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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 periods 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 20, 1998, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was $223,396,000. As of March 20, 1998, the
number of shares outstanding of common stock of the registrant was 7,071,614.
------------------------
THE FOLLOWING DOCUMENT IS INCORPORATED BY REFERENCE INTO THE INDICATED PARTS
OF THIS ANNUAL REPORT TO THE EXTENT SPECIFIED IN SUCH PARTS:
PART III OF THIS ANNUAL REPORT INCORPORATES BY REFERENCE INFORMATION IN THE
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS OF BRC HOLDINGS, INC. TO
BE HELD ON MAY 14, 1998.
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PART I
ITEM 1. BUSINESS.
HISTORICAL BACKGROUND
BRC Holdings, Inc., a Delaware corporation (the "Company"), provides
specialized information technology services primarily to local governments and
healthcare institutions through three wholly-owned subsidiaries: Business
Records Corporation, Inc. ("BRC"), BRC Health Care, Inc. ("BRC Health Care"),
and The Pace Group, Inc. ("The Pace Group").
The Company was originally organized as Cronus Industries, Inc. in September
1976. In the 1980's, the Company's BRC subsidiary expanded its operations
through numerous acquisitions of small, privately-held corporations which
provided information systems and services to county and local governments. The
businesses acquired by BRC generally provided products associated with land
records indexing and micrographic reproduction, election systems and supplies,
and governmental software. During this time, the Company divested all other
operating subsidiaries other than BRC and changed its name to Business Records
Corporation Holding Company.
As a part of the Company's efforts to expand its strategy to provide a
broader range of specialized information technology products and services and
enter the information systems outsourcing market, the Company consummated the
acquisition of CMSI, a privately-held Oregon corporation, in 1993. CMSI provided
information systems outsourcing services, consulting services and other
management services to local governments and healthcare institutions. In 1995,
CMSI's name was changed to BRC Health Care, Inc.
In 1996, the Company changed its name from Business Records Corporation
Holding Company to BRC Holdings, Inc., and expanded its business into the
managed healthcare consulting market with the acquisition of The Pace Group, a
Dallas-based management consulting firm.
During 1997, the Company has further defined its business as an information
technology services company serving a variety of industries while maintaining
its expertise in the healthcare and government sectors. This effort has been
evidenced by the divestiture of its election business in November, which was
initially reclassified as a discontinued operation in 1996, and the sale of its
title services business in July of 1997. In addition, the Company purchased the
operations and assets of Code Rite, Inc. ("Code Rite") in May 1997, and
Management Consulting Solutions, Inc. ("MCSI") in July 1997. See Notes 11 and 13
to the Consolidated Financial Statements.
The divestiture of the Company's election business was consummated on
November 20, 1997 after a lengthy antitrust review of the transaction, which was
originally entered into in November 1996. Effective November 20, 1997, the
Company consummated the sale of substantially all of the operating assets of the
elections division of BRC. Certain minor operations of this business will be
managed by BRC through transition periods potentially extending to November
1999. See Note 11 to the Consolidated Financial Statements.
PRODUCTS AND SERVICES
The Company's products and services can be classified into four major
categories: Information Systems and Services, Government Records Management,
Consulting Services and Millennium Technololgy Services. These products and
services are provided on a direct sales basis with the exception of its binders
business which is sold through a distributor network.
INFORMATION SYSTEMS AND SERVICES
The Company provides a variety of information technology systems and
services, including related software applications, to the local government and
healthcare industries. These services include on-site
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information systems management, strategic planning, remote data processing and
systems integration, implementation and consulting services. In addition, the
Company also provides its customers with a variety of related proprietary
software.
When providing on-site information systems management, the Company typically
enters multi-year, fixed fee contracts with customers to provide direct
management of their information technology department. Under these contracts,
the Company usually employs the customer's information systems personnel and
assumes responsibility for the customer's ongoing information systems
operations, including centralized data processing systems, local area networks
and personal computers. In some cases, the Company will also acquire the
customer's computer equipment.
Under on-site information systems management contracts, the Company's
personnel typically work through a strategic planning process with the
customer's senior management team to determine the objectives and requirements
the institution has for its information technology department. These
requirements may involve assistance in selecting new hardware and software,
implementing changes to existing software, increasing productivity and
management effectiveness and assessing other related activities which affect the
performance of the information technology department. In addition, the Company
often undertakes special projects on the client's behalf on a time and materials
or project fee basis.
The Company provides remote data processing services from data centers it
owns and operates to certain of its customers. In most cases, these data centers
provide processing capacity for non-proprietary applications which are specific
to the customer's industry. However, the Company is currently undertaking an
effort to market remote processing of its proprietary software to local
governments.
The Company's MCSI business unit provides systems consulting and integration
services to customers in a variety of industries with a specialization in
providing such services to healthcare providers.
In addition to information technology services, the Company offers
specialized proprietary software packages for license to healthcare and
government customers. The Company has developed and provides healthcare
customers with EmStat, an automated emergency department system and software.
This system assists emergency departments in the triage, clinical order
processing, charting, and billing activities of the emergency room. The
Company's Triple Option Dental software provides claims processing capabilities
to HMO third party administrators, indemnity insurance carriers and prepaid
dental health plans. The Company's PRISM software assists eyewear manufacturers
and retailers with a complete software package from the automated manufacturing
of eyeware through retail point-of-sale and accounting activities. The Company
also provides over 31 modules of specialized software to assist local and county
governments in automating financial, public protection, tax assessment and tax
collection information systems processing functions.
Information systems and services constituted 61% of the Company's revenues
from continuing operations during 1997 as compared to 66% and 63% during 1996
and 1995, respectively.
GOVERNMENT RECORDS MANAGEMENT
County and municipal governments are responsible for recording and indexing
real property transactions. Typically, these government entities have relied
upon manual methods to record deeds and other title documents and to maintain
indexes of transactions. The Company provides microfilm, optical recording and
computer indexing services to counties and municipal governments allowing them
to organize and automate the recording and indexing of deeds, real property
liens and other legal documents.
The Company provides two types of computerized indexing services: data entry
performed by customers using the Company's microcomputers in the customers'
offices and data entry performed by Company personnel at a center operated by
the Company. With each type of indexing service, the Company provides periodic
updates for each customer using mainframe computers located in Syracuse, New
York.
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The Company also provides record re-creation services to a number of
customers. These services provide archival-quality reprints of old records with
microfilm backup copies, thereby reducing required storage space and improving
security in case of fire or other loss. As part of its current recording and
records re-creation services, the Company provides custom record binders
imprinted to the specifications of each customer.
The Company provides binders to governmental and commercial customers
through its Enduro Binders business unit ("Enduro"). Enduro markets
high-quality, custom leather records and business binders through a nationwide
distributor market. These binders are typically used by counties for the long-
term storage of county records, however, Enduro also markets several styles of
commercial binders.
Government records management constituted 24%, 26% and 27% of the Company's
revenues from continuing operations during 1997, 1996 and 1995, respectively.
CONSULTING SERVICES
The Company's subsidiary, The Pace Group, acquired in September 1996,
provides consulting, development and management services to providers of
healthcare services. These services include operational assessment, managed care
strategies, HMO feasibility analysis and temporary executive management of
hospitals and managed care organizations.
Consulting services constituted 12% and 3% of the Company's revenues from
continuing operations during 1997 and 1996, respectively.
MILLENNIUM TECHNOLOGY SERVICES
In late 1996, the Company entered the millennium services ("Year 2000")
market. As a result of the use of a two-digit convention for the designation of
the year in many computer programs, once the date passes the year 1999, these
programs may incorrectly interpret a date of "00" as "1900" in mathematical
computations. Due to the significant number of computer programs which have
relied upon this type of date convention, and the interdependency of computer
programs on one another, significant planning, analysis and conversion
activities are necessary to address potential Year 2000 concerns facing
companies and governments world wide. The Company markets consulting services
and re-markets certain computer code conversion services to its clients to
assist them in addressing Year 2000 issues related to their computer systems.
The Company's services currently involve the use of its own dedicated staff as
well as the reselling of code conversion services offered by MatriDigm
Corporation. See Note 13 to the Consolidated Financial Statements for additional
discussion on MatriDigm. The Company incurred $2.6 million in start up expenses
during 1997 and recorded no material revenues.
OTHER PRODUCTS AND SERVICES
Other products and services have traditionally consisted of those business
lines that were not clearly aligned with the core business units discussed
above. Over the last three years, all of these businesses have been disposed of,
and other products and services no longer represent a significant part of the
Company. The businesses of selling tape media and public records data were sold
in December 1995. In July 1997, the Company disposed of its title services
business as further discussed in Note 11 to the Consolidated Financial
Statements. Revenues derived from other products and services constituted 3%, 5%
and 10% of revenues from continuing operations during years 1997, 1996 and 1995,
respectively.
DIVESTITURE OF THE ELECTION BUSINESS
On November 20, 1997 the Company divested of its business of providing
products and services utilized by public authorities in the conduct of elections
after the culmination of a year long antitrust
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review by the United States Department of Justice. The election business has
been classified as a discontinued operation for all public filings made since
November 1996.
Pursuant to this transaction, the Company received cash payments totaling
$33.2 million, was issued a $14.1 million promissory note and recorded a gain,
net of taxes, on disposal of the business of $18.3 million. The terms of the
asset purchase agreements executed with the acquirers of the business are
further discussed in Item 7, Management Discussion and Analysis, and in the
Notes to the Consolidated Financial Statements.
Transition agreements executed in connection with the divestiture require
the Company to continue operating the Berkeley, California and Rockford,
Illinois facilities for periods potentially extending through November 1999. The
Company will be reimbursed for costs incurred in operating these facilities on
behalf of the acquirers.
There are also certain other agreements entered into as a part of the
divestiture which provide for the Company to receive commissions upon the
successful closure of sales to specific customers in process at the time of the
divestiture and certain classes of potential customers. Revenues related to
these transactions and the likelihood of success cannot be estimated at this
time. See Note 11 to the Consolidated Financial Statements.
STATUS OF YEAR 2000 COMPLIANCE
In 1996, the Company began the process of evaluating the extent of its Year
2000 date convention problems within its software products sold or licensed to
customers and the obligations it may have under software support, outsourcing
and other service contracts with existing customers. Additionally, during 1996
the Company reviewed its internal accounting systems to determine the scope and
extent of the Year 2000 date conversion problem with respect to these systems.
Based on these evaluations, during 1996 and 1997, the Company has dedicated
extensive resources to reprogramming its tax and financial software packages
licensed to government entities and expects to complete the upgrade process with
customers to Year 2000 compliant software by August 1999. The Company's EmStat
software is undergoing extensive reprogramming efforts and is expected to be
complete by April 1999. The Company has certain obligations to upgrade both
hardware and software to Year 2000 compliant versions for existing EmStat
customers. The Company's dental and vision care softwares are also in varying
stages of reprogramming and the Company expects to offer Year 2000 compliant
versions during 1999. The contracts under which the Company provides customers
with on-site information systems management outline varying degrees of
responsibility for Year 2000 compliant hardware and software, ranging from
financial responsibility for the systems to simply advising on
customer-sponsored Year 2000 projects. The government records management
business is currently updating its records indexing software to a Year 2000
compliant version. Software and hardware will need to be replaced at most
customer sites to become Year 2000 compliant. Internally, the Company will
upgrade its accounting systems to Year 2000 compliant software in March 1998.
The Company's successful completion of the various efforts to become Year
2000 compliant by the year 2000 is largely dependent on the availability of
labor resources. While the Company has not experienced significant problems with
the availability of resources to date, it has been publicly speculated that
labor resources are not adequate to address the reprogramming requirements and
needs of the entire economy on a timely basis. Assuming the continued
availability of resources, the Company does not anticipate difficulty achieving
timely completion of its Year 2000 projects. At this time, and based upon
current labor costs, the Company has estimated its costs to address Year 2000
issues at $5.5 million.
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CUSTOMERS
The Company's products and services are primarily provided to county and
local governments, hospitals, managed care institutions, health insurance
related organizations, vision care specialists and other providers of healthcare
related services throughout the United States.
The Company typically enters into long-term contracts with customers for
whom it provides information systems outsourcing services. The Company has
normally been able to manage its activities and costs under these long-term
contracts such that it has been able to fulfill contract requirements in a
profitable manner; however, due to their long-term nature and the inherent risks
associated with changes in operating conditions, there can be no assurance that
such contracts will continue to be profitable on a prospective basis. Certain
long-term contracts with the Company's local government customers contain
clauses which enable the customer to cancel or reduce its contractual commitment
in the event that funding is not available in a given year. While the Company
has not experienced such a termination or reduction, there can be no assurance
that such events will not occur in future periods. For systems integration and
consulting services, the Company has not historically entered into long-term
contracts with its customers. The Company typically establishes payment terms
and time and billing arrangements on a contract-by-contract basis. During the
previous three years, Memorial Health Services, a technology outsourcing
customer, accounted for 12%, 12% and 13% of the Company's revenues from
continuing operations for the years 1997, 1996 and 1995, respectively.
BACKLOG
As of December 31, 1997, the Company had a backlog of approximately $145.0
million associated with long-term service contracts. This compares to a backlog
of approximately $158.5 million as of December 31, 1996. This backlog primarily
relates to the Company's technology outsourcing services provided to healthcare
institutions and local governments. The decline in the backlog can be attributed
to new contract sales to healthcare outsourcing customers being less in amount
and duration than the amount of backlog expiring in 1997. The Company expects
that $52.6 million of this backlog will be provided during the year ended
December 31, 1998. The Company is unable to predict the impact, if any, on its
future revenues that may result from reductions in the budgets of government
jurisdictions.
INDUSTRY SEGMENTS
The Company considers its current operating units to operate in one industry
segment: specialized information technology services.
COMPETITION
The Company's major competitors for its information systems and services are
other providers of certain types of information systems and services to local
governments and healthcare institutions. The Company is routinely subject to
competitive bidding. Management believes that the Company's competitiveness is
directly related to its ability to maintain effective pricing and service. The
Company's primary competitors are discussed by product and service category
below:
INFORMATION SYSTEMS AND SERVICES
The Company's primary competitor in providing on-site information systems
management services to local governments is Systems and Computer Technology
Corporation ("SCTC"), a publicly-traded information technology company
headquartered in Malvern, Pennsylvania. The Company's primary competitor in
providing on-site information systems management contracts for healthcare
enterprises is HBO & Company ("HBOC"), a publicly-traded provider of proprietary
healthcare applications headquartered in Atlanta, Georgia. In addition to these
firms, there are a variety of other providers of information
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technology services who compete on a regional basis, or on individual contracts.
Some of these competitors are substantially larger and have greater resources
than the Company.
The Company has various competitors for its individual software
applications. With the exception of HBOC, and its emergency room module as a
potential competitor to the Company's EmStat system, these competitors are
usually smaller than the Company and they typically vary from one software
application to the next.
GOVERNMENT RECORDS MANAGEMENT
The Company's largest competitor in government records management is Tyler
Corporation, a governmental information systems provider headquartered in
Dallas, Texas. The Company also competes with a variety of other privately-held
companies who provide government records management and micrographic services.
These firms vary in size and typically compete on a regional basis. Some of the
Company's competition who provide microfilming and records management services
are substantially larger and have greater resources than the Company.
CONSULTING SERVICES
The Company competes with a wide variety of other consulting firms who
provide services to healthcare enterprises. These competitors include the
consulting divisions of the nations six largest public accounting firms, and
other providers of management consulting services. Some of these competitors are
substantially larger and have greater resources than the Company.
MILLENNIUM TECHNOLOGY SERVICES
There are a significant number of information technology firms who offer
products and services designed to address the Year 2000 computer date problem.
These firms include Electronic Data Systems, Inc. ("EDS"), a publicly-traded
company headquartered in Plano, Texas; Computer Sciences Corporation, a
publicly-traded company headquartered in El Segudo, California; Keane and
Associates, a publicly-traded company headquartered in Boston, Massachusetts;
and International Business Machines Corporation ("IBM"), a publicly-traded
company headquartered in White Plains, New York. Additionally, the consulting
divisions of the nation's largest public accounting firms often provide systems
consulting services. Many of these competitors are substantially larger and have
greater resources than the Company. Due to the nature of the underlying Year
2000 problem, there is a limited amount of time for potential customers to
identify and resolve their computer systems problems. It cannot be determined
what effect this limitation of time, and the number and nature of its
competitors, will have on the Company's ability to successfully market and sell
its millennium technology services.
EMPLOYEES
At December 31, 1997, the Company had approximately 970 employees, none of
which are covered by a collective bargaining agreement. The Company generally
has enjoyed satisfactory relations with its employees.
OTHER
During recent years, numerous legislative proposals have been introduced or
proposed in Congress and in some state legislatures that would effect major
changes in the U.S. healthcare system nationally or at the state level. The
following proposals are under consideration: cost controls on hospitals,
insurance market reforms to increase the availability of group health insurance
to small businesses, requirements that all businesses offer health insurance
coverage to their employees and the creation of a single government health
insurance plan that would cover all citizens. It is not clear at this time what
proposals will be adopted, if any, or, if adopted, what effect, if any, such
proposals would have on the Company's business.
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There can be no assurance that currently proposed or future healthcare
legislation or other changes in the administration or interpretation of
governmental healthcare programs will not have an adverse effect on the
financial results or operations of the Company. In addition, rapid changes are
occurring in the healthcare industry as a result of technological, economic and
demographic change. In general, consolidation is occurring among healthcare
providers, including hospitals, health maintenance organizations and
professional practices while healthcare cost payors, including employers and
insurance companies, are placing increasing pressure upon healthcare providers
to maintain costs. It is not clear what effect, if any, these changes in the
healthcare industry will have on the Company's business. There can be no
assurance, however, that such changes will not have an adverse effect on the
financial results or operations of the Company.
The Company is currently in the process of evaluating and reprogramming its
software products sold to customers to address the Year 2000 date convention
issue. In addition, the Company may have obligations under certain software
support, outsourcing and other service contracts with existing customers to
convert their hardware and software to Year 2000 compliant versions. While the
Company believes it has made a comprehensive assessment of the extent of the
issue and has several projects underway to re-code the software, no guarantee
can be made at this time that all Year 2000 related problems can be solved, or
solved in a timely manner. In addition, no assurance can be given that the
Company will not become a party to one or more disputes with customers or former
customers with regard to responsibility for the costs associated with converting
software and hardware to be Year 2000 compliant or any liability or damage that
may arise from the use of noncompliant software or hardware.
In October 1997, Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), was issued and addresses software revenue recognition matters
primarily from a conceptual level and does not include specific implementation
guidance. The SOP supersedes SOP 91-1 and is effective for transactions entered
into for fiscal years beginning after December 15, 1997. Based on its reading
and interpretation of SOP 97-2, the Company believes it is currently in
compliance with the final standard. However, detailed implementation guidelines
for this standard have not yet been issued. Once issued, such detailed
implementation guidance could lead to unanticipated changes in the Company's
current revenue accounting practices, and such changes could be material to the
Company's revenues and earnings.
Since the Company's manufactured products are limited, the Company has not
been, and does not currently anticipate being, subject to materially adverse
financial effects from price inflation associated with its raw materials and
supplies purchased.
During 1997, 1996 and 1995, research and development expenses did not
constitute a material portion of the Company's expenses.
ITEM 2. PROPERTIES.
As of March 1, 1998, the principal offices, warehouses and shops used by the
Company, all of which are leased except as otherwise indicated in the column
captioned "Expiration Date of Lease", are listed below. Properties indicated
with an asterisk (*) represent offices of the sold elections business which BRC
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will operate through transition periods ending in November 1999. For further
discussion of the Company's discontinued operations, see Note 11 to the
Consolidated Financial Statements.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FEET
OF FLOOR EXPIRATION DATE OF
LOCATION SPACE LEASE PRIMARY USE
- --------------------------------------------------------- ------------- ---------------------- ---------------
<S> <C> <C> <C>
Washington, Missouri..................................... 65,000 Owned Office and
processing
facilities
Dallas, Texas............................................ 35,082 July 31, 2001 Corporate
Headquarters
Dallas, Texas............................................ 30,906 Owned
Dewitt, New York......................................... 24,280 July 14, 1998
Berkeley, California(*).................................. 20,000 December 31, 2000
Long Beach, California................................... 18,600 January 31, 2000
Pittsburgh, Pennsylvania................................. 17,388 Owned
Tucson, Arizona.......................................... 16,454 April 30, 2003
Waite Park, Minnesota.................................... 14,000 February 28, 2004
Austin, Texas............................................ 12,452 March 31, 2003
Ft. Worth, Texas......................................... 10,079 July 31, 2000
Dallas, Texas............................................ 9,992 March 31, 2000
Portland, Oregon......................................... 8,458 September 24, 2000
Dallas, Texas............................................ 8,407 March 31, 2000 Office and
processing
facilities
Greensboro, North Carolina............................... 6,500 April 30, 1998
Berkeley, California (*)................................. 6,440 Monthly
Rockford, Illinois (*)................................... 5,960 April 30, 2000
Wexford, Pennsylvania.................................... 5,681 April 30, 2003
Washington, Missouri..................................... 5,400 Monthly
Colorado Springs, Colorado............................... 4,000 January 31, 2000
Milpitas, California..................................... 3,811 September 30, 2000
Sarasota, Florida........................................ 3,671 September 30, 1998
Laguna Hills, California................................. 2,932 January 31, 2000
Stockton, California..................................... 2,750 August 1, 1998
Parsippany, New Jersey................................... 2,692 December 31, 1999
Sacramento, California................................... 2,127 April 30, 1999
Boyers, Pennsylvania..................................... 1,500 February 28, 2003
</TABLE>
The Company also occupies various facilities provided by its clients
pursuant to its on-site information technology management contracts, but is not
subject to lease payments or related obligations associated with such locations.
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The Company believes that the machinery, equipment, buildings and facilities
owned and leased by the Company are well maintained and are suitable and
adequate for the Company's operations for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to various lawsuits arising in the ordinary course of
its business and does not believe that the outcome of these lawsuits will have a
material effect on the Company's financial position or results from operations.
However, due to the unpredictability of the legal environment, the Company can
make no assurances that any threatened or pending legal claim or action could
not ultimately have a material adverse effect on the Company's financial
position or results from operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the Company's shareholders for a vote during
the fourth quarter of the year ended December 31, 1997.
ITEM 5. MARKET FOR REGISTRANT'S EQUITY STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's common stock, $.10 par value per share (the "Common Stock"),
is the only class of common equity of the Company and represents the only issued
and outstanding voting securities of the Company. As of March 20, 1998, there
were approximately 1,845 stockholders of record of the Common Stock. The
Company's Common Stock trades on the NASDAQ Stock Market ("NASDAQ") under the
symbol BRCP.
The following table provides the high and low sales quotations as reported
by NASDAQ for the Common Stock for each quarter during the two most recent
fiscal years:
<TABLE>
<CAPTION>
PRICE RANGE
----------------------
HIGH LOW
----- ---
<S> <C> <C>
1997:
First Quarter.............................................................. $ 481/2 $ 33
Second Quarter............................................................. 39 26
Third Quarter.............................................................. 391/2 341/2
Fourth Quarter............................................................. 437/8 34
1996:
First Quarter.............................................................. $ 391/2 $ 351/2
Second Quarter............................................................. 39 33
Third Quarter.............................................................. 37 291/2
Fourth Quarter............................................................. 533/4 34
</TABLE>
The prices indicated herein reflect inter-dealer prices, without retail
markup, markdown or commission and may not necessarily represent actual
transactions. The Company has not paid cash dividends on the Common Stock since
its inception and has no present plans to pay cash dividends on the Common
Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data presents results of the Company for
each of the previous five years ending with the year ended December 31, 1997.
These results were affected by the following activities:
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The Company divested of its elections business on November 20, 1997 with an
effective date of October 31, 1997. Accordingly, revenues and expenses
associated with this business have been reflected in "income (loss) from
discontinued operations" through October 31, 1997, and a gain on sale of
discontinued operations of $18,339,000, net of tax, was recorded. See Note 11 to
the Consolidated Financial Statements.
In the fourth quarter of 1997 and third quarter of 1996, the Company
recognized unusual charges against earnings of $5,779,000 and $15,266,000,
respectively. The charges primarily relate to the write-off of goodwill and
intangible assets associated with the Company's healthcare business and the
write-off of an investment in a joint venture. See Note 20 to the Consolidated
Financial Statements.
The Company's results for 1997 and 1996 reflect the September 1996 purchase
of The Pace Group. The Pace Group contributed revenues of $13.0 and $3.4 million
in 1997 and 1996, respectively. The results of the Company were also affected by
the Company's acquisition of CMSI in May of 1993 and have been restated to
reflect the merger transaction with Clinical Resource Systems, Inc. ("CRS") as a
pooling of interests. See Note 13 to the Consolidated Financial Statements for
further discussion of acquisitions.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128") was issued. The Company was required to adopt
SFAS 128 effective December 31, 1997. The statement requires restatement of all
prior-period earnings per share ("EPS") data. As such, EPS figures for years
1993 to 1996 have been restated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues.................................................... $ 107,487 $ 100,248 $ 103,567 $ 101,541 $ 78,921
Cost of products and services............................... 77,828 74,434 75,529 72,006 54,203
Selling, general and administrative......................... 21,363 16,245 13,979 16,217 15,630
Unusual charges............................................. 5,779 15,266 -- -- 6,548
---------- ---------- ---------- ---------- ----------
Operating profit (loss)..................................... 2,517 (5,697) 14,059 13,318 2,540
Other income................................................ -- -- 1,283 15 110
Interest income, net........................................ 4,527 3,522 3,052 665 43
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations before income taxes
and cumulative effect of accounting change................ 7,044 (2,175) 18,394 13,998 2,693
Income taxes................................................ (4,478) (3,437) (7,362) (5,381) (1,078)
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations before cumulative
effect of accounting change............................... 2,566 (5,612) 11,032 8,617 1,615
Discontinued operations, net:
Income (loss) from operations............................. (655) 4,246 (337) 4,772 790
Gain on sale.............................................. 18,339 -- -- -- --
Cumulative effect of accounting change.................... -- -- -- -- 4,352
---------- ---------- ---------- ---------- ----------
Net income (loss)....................................... $ 20,250 $ (1,366) $ 10,695 $ 13,389 $ 6,757
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Basic EPS:
Income (loss) before discontinued operations and
accounting change....................................... $ .37 $ (.85) $ 1.74 $ 1.48 $ .32
Discontinued operations:
Income (loss) from operations........................... (.09) .64 (.05) .83 .16
Gain on sale............................................ 2.62 -- -- -- --
Accounting change......................................... -- -- -- -- .86
---------- ---------- ---------- ---------- ----------
Net income (loss)....................................... $ 2.90 $ (.21) $ 1.69 $ 2.31 $ 1.34
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Diluted EPS:
Income (loss) before discontinued operations and
accounting change....................................... $ .36 $ (.85) $ 1.68 $ 1.39 $ .36
Discontinued operations:
Income (loss) from operations........................... (.09) .64 (.05) .74 .13
Gain on sale............................................ 2.58 -- -- -- --
Accounting change......................................... -- -- -- .73
---------- ---------- ---------- ---------- ----------
Net income (loss)....................................... $ 2.85 $ (.21) $ 1.63 $ 2.13 $ 1.22
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total assets................................................ $ 202,062 $ 175,240 $ 155,292 $ 128,980 $ 121,415
Long-term obligations....................................... $ 144 $ 14 $ 579 $ 1,361 $ 3,102
</TABLE>
Income (loss) from discontinued operations is reflected net of income taxes
(benefit) of $(431,000), $2,831,000, $(224,000), $3,181,000 and $526,000 for
years 1997, 1996, 1995, 1994 and 1993, respectively. Income taxes related to the
gain on sale of discontinued operations were $12,483,000.
The Company has declared no cash dividends since its inception.
Total assets have been restated for years 1993-1996 to reflect certain
effects of the divestiture of the Company's election business.
See Notes to Consolidated Financial Statements and Management's Discussion
and Analysis of Financial Condition.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION.
GENERAL CONSIDERATIONS
Except for the historical information contained herein, the matters
discussed may include forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from those
discussed in the forward-looking statements. Potential risks and uncertainties
include market responses to pricing, continued competitive factors and pricing
pressures, changes in product and service mix, results from litigation, the
timely development and acceptance of new products and services, changes in
customer preferences, inventory risks due to shifts in market demand and costs
and liabilities associated with the compliance of the Company provided computer
software and hardware with the Year 2000 date convention. Consequently, the
actual results realized by the Company could differ materially from the
statements made herein.
12
<PAGE>
DISCONTINUED OPERATIONS
On November 20, 1997, the Company and its wholly-owned subsidiary, BRC,
consummated the divestiture of its business of providing goods and services
utilized by public authorities in the conduct of elections. The asset purchase
agreements executed in connection with this divestiture provided for the sale of
the assets and operations of the election business to two companies: American
Information Systems, Inc. ("AIS"), now known as Election Systems and Software,
Inc., and the Sequoia Pacific Systems division of the Smurfit Packaging
Corporation ("Sequoia"). Pursuant to the Asset Purchase Agreement executed with
AIS, BRC received consideration consisting of $27.8 million in cash and a $14.1
million promissory note. Under an Asset Purchase Agreement executed with
Sequoia, BRC received a cash payment of $5.4 million. The Company recorded a
pre-tax gain on sale of the election business of $30,822,000. For accounting
purposes, the effective date of the divestiture was October 31, 1997.
Accordingly, the operations of the election business were treated as
discontinued operations on the Consolidated Statements of Income through the
effective date of disposal.
In connection with the divestiture, the Company agreed to operate its
Berkeley, California and Rockford, Illinois facilities for the benefit of AIS
and Sequoia through transition periods potentially extending to November 1999.
Accordingly, the Company has continued to reflect the activity of these
operations as a discontinued operation during the period ended December 31,
1997. See Note 11 to the Consolidated Financial Statements and Subsequent Events
discussed later in this section.
Revenues of election products and services constituted approximately 18% of
the Company's combined revenues from continuing and discontinued operations
during 1997, as compared to 32% of such revenues during 1996.
ACQUISITIONS AND DIVESTITURES
On July 31, 1997, the Company acquired the assets and operations of
Management Consulting Services, Inc. ("MCSI"), a Pittsburgh, Pennsylvania-based
provider of systems consulting and integration services, for $3.2 million. In
addition, on May 28, 1997, the Company acquired the assets and operations of
Code Rite, Inc., now known as Coding Systems, Inc. ("CSI"), a Ft. Worth,
Texas-based provider of healthcare coding and transcription services for $1.5
million. See Note 13 to the Consolidated Financial Statements.
On July 31, 1997, the Company divested its title services business unit for
a purchase price of $6.0 million. The Company will record the gain on
divestiture of $4.2 million under the installment method of accounting due to
the uncertain collectibility of the note and future operational success of the
buyers. This business unit had revenues of $5.1 million for the twelve months
ended December 31, 1996, and $2.8 million for the first seven months of 1997.
See Note 11 to the Consolidated Financial Statements.
On September 5, 1996, the Company consummated the merger of The Pace Group
with a wholly-owned subsidiary of the Company. The Pace Group provides
consulting and management services to providers of healthcare services. See Note
13 to the Consolidated Financial Statements.
OTHER CONSIDERATIONS
The Company's successful completion of the various efforts to become Year
2000 compliant by the year 2000 is largely dependent on the availability of
labor resources. While the Company has not experienced significant problems with
the availability of resources to date, it has been publicly speculated that
labor resources are not adequate to address reprogramming requirements and needs
of the entire economy. Assuming the continued availability of resources, the
Company does not anticipate a significant risk associated with the completion of
its Year 2000 projects. At this time, and based upon current labor costs, the
Company has estimated its internal costs to address Year 2000 issues at $5.5
million. These costs
13
<PAGE>
are exclusive of the costs related to the Company's sales, marketing and other
costs associated with the start up of its millenium technology services business
discussed below.
1997 COMPARED TO 1996
OVERVIEW
Revenues from continuing operations for 1997 were $7.2 million, or 7%, more
than those reported for 1996. Increased revenues can be attributed to a $6.5
million increase in sales of government information systems and services and a
$9.6 million increase in consulting service revenues. These increases were
offset by decreased revenues due to the cancellation of healthcare outsourcing
accounts in late 1996, and the sale of the Company's title services business.
Results from each of the business units are discussed in detail below.
REVENUES
Revenues from information systems and services decreased slightly from $65.7
million in 1996 to $65.5 million in 1997. Revenues related to government
information systems and services rose $6.5 million, or 26%, in 1997 when
compared to 1996. Specifically, revenues related to on-site systems management
for government entities increased $5.2 million, or 35%, over 1996. This increase
can be primarily attributed to the City of Riverside, California contract signed
in December 1996. In addition, revenues associated with the sale of specialized
software to hospital emergency care departments represented an increase of $2.8
million, or 90%, in 1997 over 1996. The Company's newly acquired businesses, CSI
and MCSI, acquired in May and July, respectively, contributed total combined
revenues of $3.6 million in 1997.
The increases in revenues in information systems and services discussed
above were offset by decreased 1997 revenues related to healthcare outsourcing
contracts of $14.6 million, or 41%, when compared to 1996. As has been discussed
in the prior periods, the Company had several healthcare outsourcing contracts
cancel in late 1996 which accounted for the majority of this decrease. The
primary cancellation related to contracts with the Sisters of Providence Health
Care System which accounted for $11.9 million of the Company's revenues during
1996.
Government records management revenues increased $0.3 million, or 1%, in
1997 when compared to 1996. This increase relates primarily to additional
government indexing sales revenues, which increased by $0.8 million, or 17%, and
Enduro Binders revenues which increased by $0.9 million, or 14%. These increases
were offset by packaged services revenues which decreased by $1.2 million, or
16%.
Consulting service revenues, which primarily represents the operations of
The Pace Group, were $13.0 million in 1997. During 1996, consulting service
revenues were only $3.4 million as The Pace Group was acquired in September
1996.
The Company expended $2.6 million in 1997 to develop, market and staff its
millenium technology services business. Although several contracts to provide
Year 2000 conversion and consulting services were executed in the last half of
1997, no significant revenues were recognized.
Other 1997 revenues of $2.8 million were generated from the title services
business which was sold on July 31, 1997. Revenues derived from this business in
1996 were $5.1 million.
EXPENSES AND NET INCOME
The Company's gross margin from continuing operations increased from 26% in
1996 to 28% during 1997. This increase can be attributed to a shift in the
Company's revenues to higher margin consulting and software businesses, as well
as reductions in the Company's costs associated with government records
management production and support operations.
14
<PAGE>
Gross contribution from product sales increased from $3.2 million during
1996 to $4.1 million during 1997. Although gross contribution increased, gross
margin on product sales showed a slight decrease from 26% of revenues in 1996 to
25% of revenues in 1997. This decrease can be attributed to slightly lower
margins on the Company's sales of proprietary government software packages.
The Company's gross contribution from services increased from $22.6 million,
or 26% of revenues to $25.6 million, or 28% of revenues when compared to 1996.
Gross margin on consulting services increased from 29% in 1996 to 36% in 1997.
Gross margins in healthcare information systems and services also increased from
11% in 1996 to 21% in 1997. Both businesses experienced increased demand for
services during 1997.
In the fourth quarter of 1997, the Company recognized a $5,779,000 pre-tax
charge against earnings, of which $4,984,000 million was associated with the
write-off of goodwill and other intangible assets related to the Company's payor
services healthcare business unit. The charge was necessitated by poor financial
results from the Company's THINC joint venture and insufficient continuing cash
flows from other operations within the business unit. This write-off was
determined in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS 121"). Decreases in expected continuing cash
flows from this business unit also relate to the discontinuance in December 1997
of a dental claims processing contract which accounted for revenues of $4.9
million during the year. In addition, at December 31, 1997, the Company
recognized a $795,000 unusual charge associated with its 20% investment in the
THINC joint venture. See Note 20 to the Consolidated Financial Statements.
The Company's selling, general and administrative expenses increased by $5.1
million, or 32%, as compared to the previous year. This increase can be
attributed to higher professional services and contract labor costs, additional
bad debt expense and increased legal expenses related to the Company's
activities associated with the sale of its election business and the related
costs of the DOJ's antitrust investigation.
The Company's operating profit increased from a loss of $5.6 million in 1996
to earnings of $2.6 million in 1997. However, in 1996, a $15.3 million unusual
charge against earnings was recorded as compared to a $5.8 million unusual
charge taken in 1997. Eliminating the effect of the unusual charges, the
Company's operating profit for 1997 was $1.3 million less than 1996. This
decrease in operating profit can primarily be attributed to the additional
selling, general and administrative costs discussed above, and the start up
costs of $2.6 million expended in 1997 associated with the millennium services
business unit. See Note 20 to the Consolidated Financial Statements for a
discussion of the Company's unusual charges.
SUBSEQUENT EVENTS
In February, 1998, the Company's wholly-owned subsidiary, The Pace Group,
acquired the assets and operations of MIDS, Inc. ("MIDS") for $7.6 million. MIDS
is a Tucson, Arizona-based provider of specialized case management and quality
measurement software and related services for the healthcare industry. MIDS had
revenues of approximately $5.4 million in 1997. The purchase price consisted of
$3.8 million in cash and $3.8 million in the Company's common stock.
As contingent compensation for the sale of the election business, and as a
part of the transactions previously discussed, the Company may receive a
commission of up to $2.0 million associated with the sale of computerized vote
tabulation equipment to a specific customer account by April 30, 1999, and the
Company has retained the right to act as a sales representative with respect to
sales of certain election equipment to jurisdictions within the continent of
Africa for a period not to exceed seventy-five months from December 31, 1997.
Given the uncertainty as to the outcome of activities related to these retained
rights, it cannot be ascertained whether the Company will receive any future
amounts revenues related thereto.
15
<PAGE>
On March 3, 1998, the Board of Directors of the Company voted to issue a
100% common stock dividend to shareholders of record on March 20, 1998. The
distribution date for the common stock dividend was set by the Board of
Directors as April 6, 1998. The effect of the dividend has not been reflected in
the accompanying financial statements. The effect will be reflected in financial
statements issued subsequent to the distribution date.
WORKING CAPITAL AND LIQUIDITY
During 1997, the Company's net working capital decreased by $25.5 million
from 1996. This change is due primarily to: a net decrease of $9.0 million in
cash and cash equivalents and short-term investments as cash was re-allocated to
longer term investments; an increase in accrued income taxes of $11.1 million
associated with the sale of the election business; and minor changes in other
working capital accounts. As of December 31, 1997, the Company's total current
assets were 2.1 times total current liabilities.
The Company's cash flows from continuing operating activities were $20.4
million during 1997, an increase of $8.0 million, or 64%, as compared to the
previous year and an increase of $4.1 million when compared to 1995. This
increase in 1997, when compared to 1996, can be attributed to an $8.0 million
increase in cash provided from changes in accounts receivable. In 1997, payments
on employee receivables totaled $1.2 million, and net trade receivables
decreased by $2.5 million. This compares to an increase in receivables during
1996 of $4.7 million. In addition, other assets reflected a reduction in
pre-paid taxes of $3.0 million during 1997.
Net cash flows used in investing activities of continuing operations
(excluding capital expenditures of discontinued operations) decreased by $9.9
million when compared to 1996. This decrease can be attributed to the cash flow
provided by the proceeds from the sale of the elections business of $33.2
million, additional net cash flows from notes receivable activity of $6.2
million and a reduction in capital expenditures from continuing operations of
$0.6 million. These sources of cash flows are offset by a net increase in
marketable securities purchased over those sold of $25.3 million, and an
increase in resources expended to acquire business of $4.0 million.
During 1997, net cash used in financing activities of continuing operations
increased by $14.3 million over 1996. During 1997, the Company repurchased
shares of its own stock for $10.2 million. Additionally, cash flows from stock
issued in connection with the company stock option plans decreased by $4.5
million.
Due to continuing positive cash flows from existing operations and
anticipated continuing exercises of stock options, the Company generally
foresees continuing positive cash flows during the coming year.
During the upcoming year, the Company may seek acquisitions or mergers to
further its strategic and financial objectives. There can be no assurance,
however, that any acquisition will be consummated. To the extent the Company
identifies an appropriate acquisition candidate and consummates a transaction,
the Company's cash flows and financial position could be materially affected.
Additionally, the Company's short-term cash flows could be affected in a
materially adverse manner in the event of an unforeseen change in business
conditions, material loss associated with legal proceedings, internal expansion
of operations, or other such events.
The Company is not currently subject to any material indebtedness or aware
of any liabilities which would cause it to believe it will be subject to a
materially adverse long-term liquidity position. However, the Company's
long-term operating cash flows and liquidity may be subject to materially
adverse change based on the factors discussed above.
Due to the foregoing, and its working capital position, the Company does not
maintain any active lines of credit.
16
<PAGE>
1996 COMPARED TO 1995
OVERVIEW
Revenues from continuing operations for 1996 were $3.3 million, or 3%, less
than those reported for 1995. Government records management revenues decreased
by $1.7 million, or 6%, when compared to 1995, and revenues associated with
businesses divested of in late 1995 represented $5.5 million. These decreases in
revenues were offset by an increase in consulting revenues of $3.4 million
associated with the September 1996 purchase of The Pace Group. Each business
unit is discussed in further detail below.
REVENUES
Revenues from information systems and services remained consistent at $65.8
million for 1996 and 1995. While revenues of $3.1 million associated with the
sale of specialized software to hospital emergency care departments represented
an increase of $2.0 million, or 183%, in 1996 over 1995, revenues of the
insurance and vision care units, totaling $8.9 million, had a combined decrease
of $1.1 million, or 11%. Increases in revenues associated with hospital
emergency care department software are related to the Company's enhanced
marketing of its "EmStat" computer system. Decreases in revenues from the
insurance and vision care units relates to reduced sales of packaged software.
On-site information systems management revenues related to healthcare
decreased $1.8 million, or 5%, during 1996. During the third quarter of 1996,
certain outsourcing contracts with the Sisters of Providence Health System were
canceled. Total revenues derived from these contracts in 1996 were $11.9
million. As a result of the cancellation of the contracts, the Company took a
$15.3 million pre-tax charge against earnings in the third quarter of 1996. This
charge related primarily to the write-off of goodwill and other intangible
assets of the Company's "HealthSource" business unit pursuant to SFAS 121. See
Note 20 to the Consolidated Financial Statements.
Government records management revenues decreased $2.5 million, or 12%, as
compared to the previous year. This decrease relates primarily to the
discontinuance of government records management services provided to Cook
County, Illinois during the fourth quarter of 1995. Cook County accounted for
$2.0 million in revenues during 1995. The Company also sold other government
records management accounts during the third quarter of 1995.
The Pace Group was purchased in September 1996 and the Company created its
consulting business unit as a result. Consulting service revenues for the four
months of 1996 were $3.4 million. The Pace Group's revenues for the annual
period ended December 31, 1996 were $9.8 million. See Note 13 to the
Consolidated Financial Statements
Revenues from other products and services reflected a net decrease of $4.1
million, or 25%, as compared to 1995. A decrease in revenues of $5.5 million
relates to the sale of a business unit involved in reselling a variety of public
records data to nationwide credit bureaus and other providers of information
retrieval services and the discontinuance of a tape media sale and repair
business in 1995.
EXPENSES AND NET INCOME
The Company's gross margin from continuing operations decreased slightly
from 27% during 1995 to 26% during 1996. Gross contribution from product sales
of continuing operations decreased slightly from $3.4 million during 1995 to
$3.2 million during 1996. Although gross contribution decreased, gross margin on
product sales showed a slight increase from 25% of revenues in 1995 to 26% of
revenues in 1996.
The Company's gross contribution from services decreased from $24.6 million,
or 27% of revenues to $22.6 million, or 26% of revenues when compared to 1995.
This decrease can be primarily attributed to on site information systems
management activity where gross margins fell from 18% in 1995 to 11% in 1996. As
previously discussed, certain of the Company's healthcare technology outsourcing
contracts were
17
<PAGE>
canceled during 1996. Decreased revenues associated with these contract
cancellations were not offset by corresponding decreases in expenses. In
addition, decreased service revenues associated with government records
management were only partially offset by decreased production expenses.
The Company's selling, general and administrative expenses from continuing
operations increased by $2.3 million, or 16%, as compared to the previous year.
This increase can be attributed to additional expenses associated with Company's
employee benefit plans, increased contract labor costs and selling, general and
administrative costs related to consulting services.
The Company's operating profit from continuing operations decreased from
earnings of $14.1 million in 1995 to a loss of $5.7 million in 1996. This can be
attributed to a $15.3 million unusual charge against earnings recorded in the
third quarter of 1996 and to the changes in gross margin and selling, general
administrative expenses set forth immediately above. See Note 20 to the
Consolidated Financial Statements for a discussion of the Company's third
quarter unusual charge.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14(a).
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to directors and executive officers of the Company
is incorporated herein by reference to the information under the captions
"DIRECTORS AND EXECUTIVE OFFICERS" contained in the Proxy Statement for the
Annual Meeting of Stockholders of the Company to be held on May 14, 1998 (the
"Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to compensation of directors and executive officers
of the Company is incorporated herein by reference to the information under the
captions "MANAGEMENT COMPENSATION--Summary Compensation Table; Option Grants
During 1997 Fiscal Year; Option Exercises During 1997 Fiscal year and Fiscal
Year-End Option Values; Report of the Compensation Committee of the Board of
Directors on Executive Compensation; and Compensation of Directors" contained in
the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership by persons known to the
Company to beneficially own more than five percent of the Common Stock, by each
director of the Company and by all directors and executive officers as a group
is incorporated herein by reference to the information under the captions
"PRINCIPAL STOCKHOLDERS" and "PROPOSAL ONE: ELECTION OF DIRECTORS" contained in
the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related transactions
is incorporated herein by reference to the information under the caption
"MANAGEMENT COMPENSATION--Certain Transactions" contained in the Proxy
Statement.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
Reference is made to the listing on page 21 of all financial
statements filed as a part of this report.
2. Financial statement schedule
Reference is made to the listing on page 21 of the schedule filed as a
part of this report.
3. Exhibits
Reference is made to the Index to Exhibits beginning on page 51 for a
list of all exhibits filed as part of this report.
(b) During the period from October 1, 1997 through December 31, 1997, the
Company filed the following Current Reports on Form 8-K.
<TABLE>
<CAPTION>
DATE OF REPORT ITEM(S) REPORTED
- ---------------------- -----------------------------------------------------------------------------
<S> <C>
November 20, 1997 Press Release: BRC Announces Restructuring of Election Business Sale and
Signing of Definitive Agreements.
December 3, 1997 Asset Purchase Agreements consummated on November 18, 1997 between a
subsidiary of BRC Holdings, Inc. and American Information Systems, Inc. and
the Sequoia Pacific Systems division of Smurfit Packaging Corporation.
December 5, 1997 Pro forma balance sheet of BRC Holdings, Inc. as of September 30, 1997 to
reflect the sale and divestiture of its election business.
</TABLE>
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BRC HOLDINGS, INC.
By: /s/ PERRY E. ESPING
------------------------------------------
Perry E. Esping,
Chairman and Chief Executive Officer
Date: March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
in the capacities and on the date indicated.
DATE
-------------------------
/s/ PERRY E. ESPING
- ----------------------------------------
Perry E. Esping,
Chairman, Chief Executive Officer and
Director (Principal Executive Officer)
/s/ J. L. MORRISON
- ----------------------------------------
J. L. Morrison,
President and Chief Operating Officer
/s/ THOMAS E. KIRALY
- ----------------------------------------
Thomas E. Kiraly,
Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
March 25, 1998
/s/ L. D. BRINKMAN
- ----------------------------------------
L. D. Brinkman, Director
/s/ DAVID H. MONNICH
- ----------------------------------------
David H. Monnich,
Director and Member of the Audit
Committee
/s/ PAUL T. STOFFEL
- ----------------------------------------
Paul T. Stoffel,
Director and Member of the Audit
Committee
/s/ ROBERT E. MASTERSON
- ----------------------------------------
Robert E. Masterson, Director
20
<PAGE>
BRC HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
[ITEM 14(a)]
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated statements of income for the three years ended December 31, 1997.............................. 22
Consolidated balance sheets at December 31, 1997 and 1996.................................................. 23
Consolidated statements of changes in shareholders' equity for the three years ended December 31, 1997..... 24
Consolidated statements of cash flows for the three years ended December 31, 1997.......................... 25
Notes to consolidated financial statements................................................................. 26
Report of Independent Accountants--Price Waterhouse LLP.................................................... 49
Financial Statement Schedule II--Valuation and Qualifying Accounts for the three years ended December 31,
1997..................................................................................................... 50
</TABLE>
All other schedules are omitted since the required information is not present,
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the financial statements and
notes thereto.
21
<PAGE>
BRC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues
Products...................................................... $ 16,437,000 $ 12,111,000 $ 13,486,000
Services...................................................... 91,050,000 88,137,000 90,081,000
-------------- -------------- --------------
107,487,000 100,248,000 103,567,000
Costs and expenses
Cost of products.............................................. 12,356,000 8,905,000 10,082,000
Cost of services.............................................. 65,472,000 65,529,000 65,447,000
Selling, general and administrative........................... 21,363,000 16,245,000 13,979,000
Unusual charges (Note 20)..................................... 5,779,000 15,266,000 --
-------------- -------------- --------------
104,970,000 105,945,000 89,508,000
-------------- -------------- --------------
Operating profit (loss)......................................... 2,517,000 (5,697,000) 14,059,000
Other income (Note 21).......................................... -- -- 1,283,000
Interest income................................................. 4,823,000 3,807,000 3,480,000
Interest expense (including $33,000 in 1995 to a related
party)........................................................ (296,000) (285,000) (428,000)
-------------- -------------- --------------
Income (loss) from continuing operations before income taxes.... 7,044,000 (2,175,000) 18,394,000
Income taxes (Note 18).......................................... (4,478,000) (3,437,000) (7,362,000)
-------------- -------------- --------------
Income (loss) from continuing operations........................ 2,566,000 (5,612,000) 11,032,000
Discontinued operations, net (Note 11):
Income (loss) from operations (net of income taxes (benefit)
of $(431,000) in 1997, $2,831,000 in 1996, and $(224,000) in
1995........................................................ (655,000) 4,246,000 (337,000)
Gain on sale (net of income taxes of $12,483,000)............. 18,339,000 -- --
-------------- -------------- --------------
Net income (loss)............................................... $ 20,250,000 $ (1,366,000) $ 10,695,000
-------------- -------------- --------------
-------------- -------------- --------------
Earnings per share (Note 19):
Basic:
Income (loss) from continuing operations.................... $ .37 $ (.85) $ 1.74
Income (loss) from discontinued operations.................. (.09) .64 (.05)
Gain on sale of discontinued operations..................... 2.62 -- --
-------------- -------------- --------------
$ 2.90 $ (.21) $ 1.69
-------------- -------------- --------------
-------------- -------------- --------------
Diluted:
Income (loss) from continuing operations.................... $ .36 $ (.85) $ 1.68
Income (loss) from discontinued operations.................. (.09) .64 (.05)
Gain on sale of discontinued operations..................... 2.58 -- --
-------------- -------------- --------------
$ 2.85 $ (.21) $ 1.63
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE>
BRC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents...................................................... $ 6,464,000 $ 7,089,000
Short-term investments (Note 2)................................................ 25,084,000 33,440,000
Accounts receivable, net of allowance for doubtful accounts of $1,938,000 in
1997 and $539,000 in 1996.................................................... 21,094,000 21,417,000
Current portion of installment and notes receivable (Note 5)................... 5,539,000 7,311,000
Inventories (Note 3)........................................................... 1,585,000 1,462,000
Deferred tax asset (Note 18)................................................... 4,623,000 3,099,000
Other current assets........................................................... 3,277,000 5,573,000
-------------- --------------
Total current assets......................................................... 67,666,000 79,391,000
Property, plant and equipment, at cost (Note 4).................................. 39,268,000 40,033,000
Less accumulated depreciation.................................................... (28,084,000) (29,017,000)
-------------- --------------
11,184,000 11,016,000
Long-term investments (Note 2)................................................... 77,833,000 24,211,000
Long-term installment and notes receivable (Note 5).............................. 19,398,000 11,593,000
Purchased software and databases, net (Note 6)................................... 151,000 2,238,000
Goodwill and related intangibles, net (Note 7)................................... 22,867,000 26,833,000
Other assets, net (Note 8)....................................................... 3,011,000 1,817,000
Net assets of discontinued operation (Note 11)................................... -- 18,141,000
-------------- --------------
$ 202,110,000 $ 175,240,000
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable............................................................... $ 2,671,000 $ 2,522,000
Accrued liabilities (Note 9)................................................... 18,692,000 15,983,000
Income taxes payable........................................................... 11,148,000 --
Current portion of notes and capital leases (Note 10).......................... 304,000 525,000
-------------- --------------
Total current liabilities.................................................... 32,815,000 19,030,000
Long-term notes and capital leases (Note 10)..................................... 144,000 14,000
Deferred tax liability (Note 18)................................................. 1,723,000 2,000,000
Commitments and contingencies (Note 12).......................................... -- --
Shareholders' equity (Note 16)
Preferred stock, $10.00 par value; 2,000,000 shares authorized, none issued.... -- --
Common stock, $.10 par value; 20,000,000 shares authorized,
6,946,617 and 7,157,224 shares issued and outstanding in 1997
and 1996, respectively....................................................... 719,000 716,000
Additional paid-in capital..................................................... 80,414,000 79,375,000
Retained earnings.............................................................. 94,397,000 74,105,000
Treasury stock, at cost: 240,508 shares........................................ (8,102,000) --
-------------- --------------
Total shareholders' equity................................................... 167,428,000 154,196,000
-------------- --------------
$ 202,110,000 $ 175,240,000
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
BRC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK $.10 PAID-IN RETAINED
PAR VALUE CAPITAL EARNINGS TREASURY STOCK
---------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995............................. $ 618,000 $ 52,612,000 $ 64,776,000 $ (2,880,000)
Net income........................................... -- -- 10,695,000 --
Exercise of stock options............................ 17,000 1,960,000 -- 3,858,000
Stock option tax benefits............................ -- 1,807,000 -- --
Convertible exchangeable notes converted............. 10,000 1,323,000 -- --
Purchase of common stock for treasury (Note 16)...... -- -- -- (978,000)
---------- ------------- ------------- --------------
Balance at December 31, 1995........................... 645,000 57,702,000 75,471,000 --
Net loss............................................. -- -- (1,366,000) --
Exercise of stock options............................ 28,000 7,326,000 -- --
Stock option tax benefits............................ -- 1,622,000 -- --
Stock issued for acquisition (Note 13)............... 43,000 12,725,000 -- --
---------- ------------- ------------- --------------
Balance at December 31, 1996........................... 716,000 79,375,000 74,105,000 --
Net income........................................... -- -- 20,250,000 --
Purchase of common stock for treasury (Note 16)...... -- -- -- (10,225,000)
Exercise of stock options............................ 3,000 845,000 (154,000) 2,123,000
Stock option tax benefits............................ -- 194,000 196,000 --
---------- ------------- ------------- --------------
Balance at December 31, 1997........................... $ 719,000 $ 80,414,000 $ 94,397,000 $ (8,102,000)
---------- ------------- ------------- --------------
---------- ------------- ------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE>
BRC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ 20,250,000 $ (1,366,000) $ 10,695,000
Adjustments to reconcile net income (loss) to net cash provided
by continuing operations:
(Income) loss from discontinued operations..................... 655,000 (4,246,000) 337,000
Gain from sale of discontinued operations...................... (18,339,000) -- --
Depreciation and amortization.................................. 9,714,000 9,575,000 8,983,000
(Gain) loss on sale of assets.................................. (332,000) 168,000 (468,000)
Unusual charges................................................ 5,779,000 15,266,000 --
Deferred income tax.............................................. (1,800,000) (1,498,000) --
Changes in assets and liabilities:
Accounts receivable............................................ 3,301,000 (4,730,000) (1,128,000)
Inventories.................................................... (123,000) (71,000) 78,000
Other assets................................................... 2,483,000 (2,597,000) 1,796,000
Accounts payable............................................... (546,000) 81,000 (224,000)
Other liabilities.............................................. (606,000) 1,886,000 (3,779,000)
------------- ------------- -------------
Net cash provided by continuing operations..................... 20,436,000 12,468,000 16,290,000
Net cash provided by (used in) discontinued operations........... 6,342,000 9,643,000 (3,810,000)
------------- ------------- -------------
Net cash provided by operating activities........................ 26,778,000 22,111,000 12,480,000
------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures............................................. (3,346,000) (3,901,000) (6,982,000)
Capital expenditures of discontinued operations.................. (643,000) (2,725,000) (2,630,000)
Purchase of investments.......................................... (80,704,000) (51,837,000) (37,782,000)
Redemption of investments........................................ 34,552,000 31,023,000 23,364,000
Proceeds from sale of business units............................. 33,871,000 372,000 200,000
Net assets of acquired businesses................................ (4,802,000) 774,000 --
Additions to installment receivables............................. (5,993,000) (8,641,000) (7,389,000)
Proceeds from installment receivables............................ 7,525,000 3,394,000 3,554,000
------------- ------------- -------------
Net cash used in investing activities.............................. (19,540,000) (31,541,000) (27,665,000)
------------- ------------- -------------
Cash flows from financing activities:
Principal payments on notes and capital leases................... (456,000) (879,000) (1,559,000)
Issuance of common stock......................................... 2,818,000 7,354,000 5,835,000
Purchases of treasury stock...................................... (10,225,000) -- (978,000)
------------- ------------- -------------
Net cash provided by (used in) financing activities................ (7,863,000) 6,475,000 3,298,000
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents................... (625,000) (2,955,000) (11,887,000)
Cash and cash equivalents at beginning of year..................... 7,089,000 10,044,000 21,931,000
------------- ------------- -------------
Cash and cash equivalents at end of year........................... $ 6,464,000 $ 7,089,000 $ 10,044,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Supplemental disclosures--Cash payments for income taxes in 1997, 1996 and 1995
were $3,383,000, $7,961,000 and $6,900,000, respectively. Cash payments for
interest in 1997, 1996 and 1995 were $296,000, $285,000 and $428,000,
respectively. See additional noncash activities in Note 13.
See Notes to Consolidated Financial Statements.
25
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The accompanying financial statements include
the consolidated accounts of BRC Holdings, Inc. ("BRC"), hereafter referred to
as the "Company". BRC operates primarily through its wholly-owned subsidiaries,
Business Records Corporation, BRC Health Care, and The Pace Group. All
significant intercompany transactions and balances have been eliminated.
As discussed in Note 11 to the Consolidated Financial Statements, the
Company divested of its major line of business related to election products and
services. Accordingly, for financial reporting purposes, this line of business
is reflected as a discontinued operation through the date of disposal in the
Consolidated Financial Statements in accordance with Accounting Principles Board
Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of
Disposals of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions".
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS--For purposes of the statements of cash flows,
cash and cash equivalents include short-term liquid investments purchased with
original maturities of three months or less at date of purchase.
MARKETABLE SECURITIES--Pursuant to Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", the Company's short and long-term marketable debt securities are
classified as held to maturity and are carried at amortized portfolio cost.
INVENTORIES--Inventories are carried at the lower of cost (first-in,
first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT--Depreciation and amortization of property,
plant and equipment, owned or leased, for financial statement purposes are
recognized using the straight-line method over estimated useful lives ranging
from 5 to 25 years for buildings and leasehold improvements, 3 to 15 years for
machinery and equipment, 3 to 4 years for microcomputer equipment and from 3 to
5 years for mainframe computer equipment.
PURCHASED SOFTWARE AND DATABASES--Purchased software and databases reflect
the cost of acquired software, software licenses and databases. Purchased
software is amortized using the straight-line method over estimated useful lives
ranging from 5 to 7 years. Capitalized costs of databases are amortized using
the straight-line method over their estimated lives of 20 years.
GOODWILL AND RELATED INTANGIBLES--Goodwill and related intangibles reflect
the acquired cost of goodwill, customer lists and other items typically
resulting from acquisitions accounted for using the purchase method. These
intangible assets are amortized using the straight-line method over the
estimated period to be benefited by the acquisition of related intangibles
ranging from 5 to 25 years. The Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). In accordance
with SFAS 121, the carrying value of long-lived assets, including goodwill, is
evaluated whenever changes in circumstances indicate the carrying amount of such
assets may not be recoverable. In performing such review for
26
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recoverability, the Company compares the expected future cash flows to the
carrying value of long-lived assets and identifiable intangibles. If the
anticipated undiscounted future cash flows are less than the carrying amount of
such assets, the Company recognizes an impairment loss for the difference
between the carrying amount of the assets and their estimated fair value. The
fair value of an intangible asset is determined through the use of a discounted
cash flow analysis. In 1997 and 1996, the Company recognized such impairments
and recorded charges against earnings of $4,984,000 and $15,266,000,
respectively, primarily related to goodwill and other intangible assets
associated with certain healthcare business units of the Company. See Note 20.
REVENUE RECOGNITION--It is the Company's policy to recognize revenues when
its products are shipped or services are performed. In the event that a
particular contract provides for a right of return, the Company does not
recognize revenue until such right lapses. Certain long-term contracts are
recognized on a percentage-of-completion basis. Under such contracts, earned
revenue is based on the percentage that incurred costs to date bear to total
estimated costs after giving effect to the most recent estimates of total costs.
Losses expected to be incurred on contracts in process are recognized at the
time such losses become both probable and estimable. Percentage-of-completion
contracts have not constituted a material portion of the Company's revenues for
the periods presented.
In October 1997, Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), was issued and addresses software revenue recognition matters
primarily from a conceptual level and does not include specific implementation
guidance. SOP 97-2 supersedes SOP 91-1 and is effective for transactions entered
into for fiscal years beginning after December 15, 1997. Based on its reading
and interpretation of SOP 97-2, the Company believes it is currently in
compliance with the final standard. However, detailed implementation guidelines
for this standard have not yet been issued. Once issued, such detailed
implementation guidance could lead to unanticipated changes in the Company's
current revenue accounting practices, and such changes could be material to the
Company's revenues and earnings.
DEFERRED REVENUES--Advance billings for services are deferred and recorded
as revenue in the period in which the related services are rendered.
INCOME TAXES--The Company presents income taxes pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 uses an asset and liability approach to account for income
taxes, wherein deferred taxes are provided for book and tax basis differences
for assets and liabilities. In the event differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities result
in deferred tax assets, an evaluation of the probability of being able to
realize the future benefits indicated by such assets is required. A valuation
allowance is provided for a portion or all of the deferred tax assets when there
is sufficient uncertainty regarding the Company's ability to recognize the
benefits of the assets in future years.
ACCOUNTING FOR STOCK-BASED COMPENSATION--In October 1995, Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") was issued. This statement requires the fair value of
stock options and other stock-based compensation issued to employees to either
be included as compensation expense in the income statement or the pro-forma
effect on net income and earnings per share of such compensation expense to be
disclosed in the footnotes to the Company's financial statements commencing with
the Company's 1996 fiscal year. The Company adopted SFAS 123 on a disclosure
basis only. As such, implementation of SFAS 123 has not impacted the Company's
consolidated balance sheets or statements of income. See Note 15.
27
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EARNINGS PER SHARE--In February, 1997, Statement of Financial Accounting
Standards No. 128 "Earnings per Share" ("SFAS 128") was issued. This statement
requires the presentation of two new earnings per share ("EPS") amounts, basic
and diluted EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The statement requires retroactive
adoption of the standard effective December 31, 1997. Accordingly, all EPS data
presented has been restated. See Note 19 for the additional disclosure required
pursuant to SFAS 128.
2. INVESTMENTS
Marketable debt securities are classified as held-to-maturity and are
carried at amortized portfolio cost. The cost of these securities is adjusted
for amortization of premiums and accretion of discounts over the estimated life
of the underlying security. Such amortization and accretion are included in
interest income. The Company invests primarily in government fixed income
securities. Realized gains and losses on the sale of investments are determined
on a specific identification basis and are included in the Consolidated
Statements of Income.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ------------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
State and municipal bonds.................... $ 48,835 $ 232 $ 27 $ 49,040
U.S. Government Treasury Notes............... 48,558 86 -- 48,644
Other investments............................ 5,524 6 9 5,521
---------- ----- --- ----------
$ 102,917 $ 324 $ 36 $ 103,205
---------- ----- --- ----------
---------- ----- --- ----------
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ------------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
State and municipal bonds.................... $ 34,580 $ 159 $ 49 $ 34,690
U.S. Government Treasury Notes............... 20,235 30 2 20,263
Other investments............................ 2,836 1 14 2,823
---------- ----- --- ----------
$ 57,651 $ 190 $ 65 $ 57,776
---------- ----- --- ----------
---------- ----- --- ----------
</TABLE>
28
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Debt securities comprise $98,790 of the $102,917 investment balance at
December 31, 1997. The contractual maturities of debt securities at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Due within one year............................................ $ 25,084 $ 25,132
Due after one year through five years.......................... 73,531 73,769
Due after five years........................................... 175 178
------------- -------------
$ 98,790 $ 99,079
------------- -------------
------------- -------------
</TABLE>
3. INVENTORIES
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Finished goods................................................. $ 147,000 $ 243,000
Raw materials and supplies..................................... 1,438,000 1,219,000
------------- -------------
$ 1,585,000 $ 1,462,000
------------- -------------
------------- -------------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Land........................................................... $ 344,000 $ 294,000
Building and leasehold improvements............................ 6,103,000 5,437,000
Machinery and equipment........................................ 32,821,000 34,302,000
------------- -------------
$ 39,268,000 $ 40,033,000
------------- -------------
------------- -------------
</TABLE>
For 1997, 1996 and 1995, the Company recorded depreciation expense of
$5,801,000, $6,211,000, and $5,853,000, respectively.
5. LONG-TERM INSTALLMENT AND NOTES RECEIVABLE
Long-term installment and notes receivable include notes which relate to the
sale of certain assets, products and services in the normal course of business
and notes executed in connection with the disposal of certain business units.
Installment receivables primarily arose in connection with the Company's
previous sale of election products and services. See Note 11. These receivables
range in length from 1 to 8 years and bear interest at rates ranging from 4 to
12.5 percent. The carrying value of these receivables approximates the market
value at December 31, 1997.
Notes receivable include employee receivables of $1,138,000 at December 31,
1996 associated primarily with loans for relocation.
29
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PURCHASED SOFTWARE AND DATABASES
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Software, net of accumulated amortization of $2,540,000 in 1997
and $5,271,000 in 1996....................................... $ 3,000 $ 610,000
Software licenses, net of accumulated amortization of $701,000
in 1997 and $588,000 in 1996................................. 148,000 260,000
Databases, net of accumulated amortization of $2,685,000 in
1996......................................................... -- 1,368,000
------------- -------------
$ 151,000 $ 2,238,000
------------- -------------
------------- -------------
</TABLE>
7. GOODWILL AND RELATED INTANGIBLES
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Goodwill, net of accumulated amortization of $2,843,000 in 1997
and $3,828,000 in 1996....................................... $ 18,984,000 $ 21,160,000
Customer lists, net of accumulated amortization of $2,175,000
in 1997 and $2,661,000 in 1996............................... 2,862,000 4,942,000
Other items, net of accumulated amortization of $2,379,000 in
1997 and $1,006,000 in 1996.................................. 1,021,000 731,000
------------- -------------
$ 22,867,000 $ 26,833,000
------------- -------------
------------- -------------
</TABLE>
8. OTHER ASSETS
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Noncompetition agreements, net of accumulated amortization of
$2,410,000 in 1997 and $1,990,000 in 1996.................... $ 1,155,000 $ 1,568,000
Other, net of accumulated amortization of $277,000 in 1997 and
$285,000 in 1996............................................. 1,856,000 249,000
------------- -------------
$ 3,011,000 $ 1,817,000
------------- -------------
------------- -------------
</TABLE>
Noncompetition agreements are amortized using the straight-line method over
the term of the underlying agreements which range from 1 to 5 years.
9. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Deferred revenues.............................................. $ 5,888,000 $ 7,297,000
Salaries and benefits.......................................... 5,161,000 4,249,000
Other accrued liabilities...................................... 7,643,000 4,437,000
------------- -------------
$ 18,692,000 $ 15,983,000
------------- -------------
------------- -------------
</TABLE>
30
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. NOTES AND CAPITAL LEASES
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
12% lease payable to a vendor related to acquisition of computer
equipment, maturing through 1999.................................... $ 353,000 $ --
7% lease payable to a vendor providing certain software licenses,
maturing through 1998............................................... 48,000 309,000
7% lease payable to a customer related to acquisition of computer
equipment and related contract concession, maturing through 1997.... -- 90,000
Miscellaneous installment notes and capital leases related to
equipment and furniture with rates of 5% to 13%, maturing through
1999................................................................ 47,000 140,000
---------- ----------
Total notes and capital leases........................................ 448,000 539,000
Less current portion of notes and capital leases...................... 304,000 525,000
---------- ----------
Long-term notes and capital leases.................................... $ 144,000 $ 14,000
---------- ----------
---------- ----------
</TABLE>
As of December 31, 1997, payments due under notes and capital leases are as
follows:
<TABLE>
<S> <C>
Year ending December 31:
1998.......................................................... $ 323,000
1999.......................................................... 167,000
---------
490,000
Less interest................................................. 42,000
---------
Principal amount of net payments............................ $ 448,000
---------
---------
</TABLE>
Assets and liabilities resulting from notes and capital leases are included
in the balance sheet at December 31, 1997 as follows:
<TABLE>
<S> <C>
Assets
Property, plant and equipment................................. $2,620,000
Purchased software and databases.............................. 265,000
Goodwill and related intangibles.............................. 1,467,000
---------
4,352,000
Lease accumulated depreciation and amortization............... 3,568,000
---------
$ 784,000
---------
---------
Liabilities:
Current portion of notes and capital leases................... $ 304,000
Long-term notes and capital leases............................ 144,000
---------
$ 448,000
---------
---------
</TABLE>
31
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. DISCONTINUED OPERATIONS AND DIVESTITURES
On November 20, 1997, the Company and its wholly-owned subsidiary Business
Records Corporation consummated the divestiture of its business of providing
goods and services utilized by public authorities in the conduct of elections.
The asset purchase agreements executed in connection with this divestiture
provided for the sale of the assets and operations of the election business to
two companies: American Information Systems, Inc. ("AIS"), now known as Election
Systems and Software, Inc., and the Sequoia Pacific Systems division of the
Smurfit Packaging Corporation ("Sequoia"). Pursuant to the Asset Purchase
Agreement executed with AIS, BRC received consideration consisting of $27.8
million in cash and a $14.1 million promissory note. The note bears interest
based on a floating rate equal to the prime lending rate for periods prior to
January 1, 2001 and the prime lending rate plus 4% for periods thereafter, and
such interest is payable quarterly. The principal amount is due upon maturity of
the note on January 1, 2003. Under the Asset Purchase Agreement executed with
Sequoia, BRC received a cash payment of $5.4 million. BRC retained notes
receivable related to the election business of $12.2 million which are included
in the note receivable balances of continuing operations.
Simultaneous with recording the $14.1 million promissory note, the Company
recorded a $4.9 million discount on the note. The discount represents a discount
applied to the promissory note to reflect liquidity and credit risks inherent in
the note and to more accurately reflect its estimated fair value. The discount
reflected management's best estimate based on market information available at
the time.
For accounting purposes, the effective date of the divestiture was October
31, 1997. Accordingly, the operations of the election business were treated as
discontinued operations on the Consolidated Statements of Income through the
effective date of disposal. Revenues from discontinued operations for the years
ended December 31, 1997, 1996 and 1995 were $23.8, $47.5 and $31.1 million,
respectively. The Company recorded a pre-tax gain on sale of the election
business of $30,822,000.
In connection with the divestiture, the Company agreed to operate the
Berkeley, California and Rockford, Illinois facilities through transition
periods ranging from four months to two years beginning November 20, 1997. Under
its agreements, BRC is to be reimbursed the costs it incurs during these
transition periods. Accordingly, the Company has continued to reflect the
activity of these operations as a discontinued operation during the period ended
December 31, 1997. The Company had no material net assets of discontinued
operations as of December 31, 1997. As of March 20, 1998, the Company was
operating both facilities.
As contingent compensation for the sale of the business, and as a part of
the foregoing transactions, the Company may receive a commission of up to $2.0
million associated with the sale of computerized vote tabulation equipment to a
specific customer account by April 30, 1999. In addition, the Company has
retained the right to act as a sales representative with respect to sales of
certain election equipment to jurisdictions within the continent of Africa for a
period not to exceed seventy-five months from December 31, 1997. Given the
uncertainty as to the outcome of activities related to these retained rights, it
cannot be ascertained whether the Company will receive any future amounts
related thereto.
32
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The net assets of discontinued operations as of December 31, 1996 are
summarized as follows (000's):
<TABLE>
<S> <C>
Current assets..................................................... $ 17,029
Maintenance and equipment, net..................................... 4,538
Other assets....................................................... 2,187
Current liabilities................................................ (4,983)
Other liabilities.................................................. (630)
---------
Net assets of discontinued operations.............................. $ 18,141
---------
---------
</TABLE>
On July 31, 1997, the Company divested of its title services business unit
for a purchase price of $6.0 million to Title Records Corporation ("TRC"), a
subsidiary of Government Records Services, Inc. TRC issued to the Company a $6.0
million promissory note bearing interest at 9% per annum and maturing in
February, 2001. Due to the note receivable being collectible over an extended
period of time and repayment of the note being highly dependent upon future
successful operations of the buyers, management is unable to estimate the degree
of collectibility. Accordingly, the Company will record the gain on divestiture
of $4.2 million under the installment method of accounting. This business unit
had revenues of $5.1 million for the twelve months ended December 31, 1996, and
$2.8 million for the first seven months of 1997.
12. COMMITMENTS AND CONTINGENCIES
As of March 1, 1998, the Company had invested a total of $5,000,000 in
MatriDigm Corporation ("MatriDigm"), a privately-held corporation headquartered
in San Jose, California. MatriDigm has developed and is marketing an automated
technology solution to the Year 2000 computer date problem affecting computer
systems. Of this amount, $3,500,000 represents equity holdings and $1,500,000 is
represented by a convertible promissory note issued by MatriDigm. See Note 14
for a discussion of the Company's investments in MatriDigm.
The Company's initial investment in MatriDigm arose in connection with the
execution of a consulting agreement and stock purchase agreement with MatriDigm
on October 23, 1996. In that agreement, the Company agreed to provide the
assistance of its Chairman and Chief Executive Officer, and certain other
management services, to assist MatriDigm in the development and growth of its
business operations. In consideration for these efforts, the agreement provides
that the Company will receive a percentage of the cumulative pre-tax operating
income of MatriDigm. Additionally, in connection with the associated stock
purchase agreement, the Company invested $1,500,000 for the initial purchase of
common stock in MatriDigm. The consulting agreement terminates in December,
1999. In the event that MatriDigm terminates the consulting agreement prior to
July 1, 1999, MatriDigm may elect to repurchase a portion of the shares
initially issued pursuant to the stock purchase agreement. The percentage of the
shares which could be repurchased in such an event, declines through the date of
July 1, 1999. As of March 1, 1998, MatriDigm could repurchase shares
representing 1.5% of its current equity in the event of termination. As of March
1, 1998, the Company has earned no amounts associated with the share of
MatriDigm's cumulative pre-tax operating income as set forth in the consulting
agreement. The Company's investment in MatriDigm is being accounted for under
the cost method. See Note 14.
Minimum future rental payments for leased office space and property, plant
and equipment, including those of discontinued operations, acquired under
operating leases with initial or remaining noncancellable
33
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
lease terms in excess of one year are: 1998--$2,895,000; 1999--$2,439,000;
2000--$1,233,000; 2001-- $749,000; 2002--$544,000; later years--$324,000;
total--$8,184,000.
Total rent expense for operating leases was $3,577,000 in 1997, $3,264,000
in 1996 and $2,998,000 in 1995. Rent expense associated with discontinued
operations sold on November 20, 1997 was $613,000, $644,000, $460,000 in 1997,
1996 and 1995, respectively.
In November 1996, the Company executed several agreements with The Health
Information Network Connection ("THINC"), a New York limited liability
corporation. Pursuant to the terms of a subscription agreement, the Company
agreed to purchase a 20% interest in THINC for $750,000, to be invested in
varying amounts over a twenty-one month period through August 1998. In addition,
the Company has guaranteed a THINC software license fee obligation up to
$400,000 plus accrued interest. The Company's investment in THINC is accounted
for under the equity method. However, due to the results from operations and
uncertain future financial viability of THINC, as of December 31, 1997, the
Company recorded an unusual charge against earnings of $795,000 related to its
remaining unamortized investment in this joint venture as well as its contingent
guarantee of THINC's license fee obligation. See Note 20.
The Company is party to various lawsuits arising in the ordinary course of
its business and does not believe that the outcome of these lawsuits will have a
material effect on the Company's financial position or results of operations.
13. ACQUISITIONS
On July 31, 1997, the Company acquired the assets and operations of
Management Consulting Services, Inc. ("MCSI"), a Pittsburgh, Pennsylvania-based
provider of systems consulting and integration services, for $3.2 million. In
addition, on May 28, 1997, the Company acquired the assets and operations of
Code Rite, Inc., now known as Coding Systems, Inc. ("CSI"), a Ft. Worth,
Texas-based provider of healthcare coding and transcription services for, $1.5
million. In connection with these purchases, the Company recorded total goodwill
of $3.0 million which is being amortized over 15 years. Pro forma historical
results are not presented as these acquisitions are not considered material to
the Company and would not have had a significant effect on historical results.
On September 5, 1996, the Company consummated the merger of The Pace Group,
Inc. ("The Pace Group"), with a wholly-owned subsidiary of the Company. Under
the terms of the agreement, the Company issued 432,835 shares of its common
stock in a tax-free exchange for all of the record and beneficial interests held
by The Pace Group security holders. In connection with this noncash transaction,
which was accounted for as a purchase, assets acquired, liabilities assumed and
purchase price were approximately $4,100,000, $1,153,000 and $12,769,000,
respectively. As a result, the Company recorded goodwill of $9,822,000 equal to
the excess of the purchase price over the fair value of the net assets of The
Pace Group. The goodwill is being amortized using the straight-line method over
a period of 15 years. The Pace Group, headquartered in Dallas, Texas, provides
consulting, development and management services to purchasers and providers of
healthcare services.
The following summarized unaudited pro-forma consolidated results of
continuing operations for the years ended December 31, 1996 and 1995 are
presented assuming the acquisition of The Pace Group occurred as of January 1,
1995. These pro forma results have been prepared for comparative purposes only
34
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and do not propose to be indicative of the results of operations which actually
would have resulted had the acquisition been in effect at the dates indicated,
or which may occur in the future.
<TABLE>
<CAPTION>
1996 1995
------------ --------------
(000'S, EXCEPT PER SHARE
DATA)
(PRO FORMA)
<S> <C> <C>
Revenues....................................................... $ 106,605 $ 110,219
Net (loss) income from continuing operations................... $ (5,266) $ 11,434
Net (loss) income from continuing operations per common
share........................................................ $ (.79) $ 1.75
</TABLE>
On August 17, 1995, the Company consummated the merger of Clinical Resource
Systems, Inc. ("CRS"), with a wholly-owned subsidiary of the Company. Under the
terms of the agreement, the Company issued 119,351 shares of its common stock in
exchange for all of the record and beneficial interest held by CRS security
holders. Additionally, outstanding options to acquire CRS common stock were
converted to options to acquire 14,381 shares of the Company's common stock.
CRS, headquartered in Austin, Texas, provides specialized software to hospital
emergency rooms.
The Company treated the CRS merger as a tax-free reorganization. This
transaction was accounted for as a pooling of interests. Accordingly, the
Company's financial statements have been restated to include the results of CRS
for all periods presented.
Combined and separate results of BRC and CRS for the year ended December 31,
1995 were as follows:
<TABLE>
<S> <C>
Revenue:
BRC........................................................................... $102,486,000
CRS........................................................................... 1,081,000
------------
Total....................................................................... $103,567,000
------------
------------
Income (loss) from continuing operations:
BRC........................................................................... $ 11,430,000
CRS........................................................................... (398,000)
------------
Total....................................................................... $ 11,032,000
------------
------------
</TABLE>
The combined financial results presented above include adjustments and
reclassifications made to conform the accounting policies of the two companies.
There were no material income adjustments or intercompany transactions between
the two companies for the period presented.
On November 1, 1995, the Company acquired all of the assets and assumed
certain liabilities of Megalink, Inc. ("Megalink"), a Florida corporation.
Megalink develops and markets voter registration software for use in conducting
public elections. Megalink's primary operations are located in West Palm Beach,
Florida. In addition to other terms and conditions, the Asset Purchase Agreement
provided that the Company would pay $2,000,000 in cash in consideration for the
net assets of Megalink. Megalink operations were disposed of in connection with
the divestiture of the election business.
On September 13, 1995, the Company acquired the assets of Computer Election
Systems, Inc. ("CES"), a Florida-based provider of specialized punch card
ballots and certain of the government records management accounts of Government
Records Services, Inc. ("GRS"), located in the southeastern United
35
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
States. Both companies were under common ownership. The Company acquired these
assets in exchange for the sale of certain of its Texas government records
management accounts and the receipt of notes payable in the aggregate amount of
$1,730,000 issued by GRS and secured by the underlying computer equipment sold
to GRS. The operation related to providing specialized punch card ballots was
disposed of in connection with the divestiture of the election business.
14. OTHER RELATED PARTY TRANSACTIONS
The Company has a minority investment in, and has certain consulting and
sales representative agreements with MatriDigm. MatriDigm is a privately-held
company located in San Jose, California, which specializes in the development
and use of computer technologies designed to correct the "Year 2000" date
problem which may cause many computer systems to incorrectly identify two digit
numbers representing years occurring after 1999 (i.e., "00", "01", etc.) as
years occurring during the early part of the twentieth century (1900, 1901,
etc.). Pursuant to an agreement between the Company and MatriDigm, a
director/officer serves as Chairman of the Board of MatriDigm. Although this
director/officer receives no compensation from MatriDigm for his services, an
investment trust whose beneficiaries include members of this director/officer's
immediate family owns less than ten percent of the outstanding equity securities
of MatriDigm and may be deemed to benefit indirectly from business relationships
with the Company. As of March 1, 1998, the Company owns 2,000,000 common shares
and 1,000,000 preferred shares. The Company paid $3,500,000 for such shares and
they bear certain restrictions, including repurchase rights with respect to a
portion of the common shares. See Note 12.
On December 5, 1997, MatriDigm issued to the Company a $1.5 million
convertible promissory note and agreement. The note bears interest at 6% per
annum, payable quarterly, until the note is converted. The note is convertible,
in part or full, into common stock of MatriDigm at the Company's option and
terminates upon the closing of a registered public offering of MatriDigm's
securities, unless exercised simultaneously with that event. The principal
amount of the note outstanding subsequent to the termination of the conversion
option period is due and payable in six equal monthly installments beginning
January 1, 1999. The rate of conversion of the promissory note is dependent on
certain performance requirements by MatriDigm during the first three months of
1998.
Depending on MatriDigm's achievement of the performance requirements
associated with the convertible promissory note and the resulting effect on the
rate of conversion, assuming conversion of the promissory note, the Company's
total equity ownership in MatriDigm would constitute 9% to 11% of the total
outstanding equity of that firm.
The Company, pursuant to a consulting agreement, receives 5% of the
cumulative pre-tax operating profits of MatriDigm in exchange for the services
of the director/officer and certain other assistance by the Company. The Company
received no payments during 1997 or 1996 with regard to this obligation.
Additionally, through a sales representative agreement, the Company serves as a
commissioned distributor of MatriDigm services. No commissions were received by
the Company during 1997 or 1996 with respect to MatriDigm's services.
36
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. INCENTIVE COMPENSATION PLANS
The Company provides options to purchase its common stock to officers,
directors and employees of the Company through several stock option plans.
Although it is not required to do so under each of the plans, the Company's
practice is to grant options to purchase its common stock at prices equal to the
fair market value of the underlying shares of such common stock on the date of
grant. The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations, to
account for its stock option plans. Accordingly, no compensation expense has
been recognized in connection with the grants of options during the periods
presented. However, the pro-forma net income and earnings per share from
continuing operations presented below reflects the pro-forma results of the
Company as if the fair value based accounting method prescribed in SFAS 123 had
been used to account for stock-based compensation costs, net of taxes, in the
Company's Statements of Income.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER
31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(000'S, EXCEPT PER SHARE DATA)
(PRO FORMA)
<S> <C> <C> <C>
Net income (loss) from continuing operations............................ $ 2,566 $ (5,612) $ 11,032
SFAS 123 compensation cost, net of taxes................................ (1,955) (1,757) (842)
--------- --------- ---------
Pro forma net income (loss) from continuing operations.................. $ 611 $ (7,369) $ 10,190
--------- --------- ---------
--------- --------- ---------
Pro forma basic earnings (loss) per share from continuing operations.... $ .09 $ (1.11) $ 1.56
--------- --------- ---------
--------- --------- ---------
</TABLE>
The results of discontinued operations were not affected by the SFAS 123
disclosure requirements as all stock option plans will continue to be the
responsibility of the Company.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the years ended December 31, 1997, 1996 and
1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Dividend yield.............................................. -- -- --
Expected volatility......................................... 23.9% 17.4% 18.1%
Risk-free rate of return.................................... 6.0% 5.9% 6.0%
Expected life............................................... 3.6 years 3.6 years 3.6 years
</TABLE>
As set forth in the following discussion concerning the Company's equity
participation plans, the Company may issue purchase plan and bonus plan shares
to officers and employees. However, since no such shares have been issued
pursuant to such plans since August of 1989, these plans have had no effect on
the foregoing computations.
STOCK OPTION PLAN FOR NEW EMPLOYEES AND EMPLOYEES OF ACQUIRED COMPANIES
The Company's nonqualified performance stock option plan for new employees
and employees of acquired companies was adopted in August 1997. It provides for
the granting of nonqualified options as incentives to certain prospective
employees, advisers and consultants of the Company to encourage retention of
employees of acquired companies and the commitment of new employees to achieve
the
37
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company's future performance objectives. The aggregate number of shares of
common stock at $.10 par value issued under this plan shall not exceed 500,000.
The shares are granted by the Stock Option Committee (the "Committee") which
determines the eligible persons, the number of shares, the term of vesting, the
option price and such conditions as to the manner of exercise of such options as
it may deem necessary. Generally, the options are exercisable at such times and
in such installments as the Committee shall provide in the terms of each
individual Stock Option Agreement. At the discretion of the Company, either
common stock or cash may be paid by the option holder upon exercise of the
option. Options that have expired or been canceled are available for future
grants under the plan.
The following table summarizes activity for the year ended December 31,
1997:
<TABLE>
<CAPTION>
1997
------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE
(000'S) PRICE
----------- -----------
<S> <C> <C>
Options outstanding at January 1..................................................... -- $ --
Granted.............................................................................. 38 34.91
Exercised............................................................................ -- --
Canceled............................................................................. (2) 32.50
---
Options outstanding at December 31................................................... 36 $ 35.08
---
---
Options exercisable at December 31................................................... -- $ --
---
---
Weighted-average fair value of options granted....................................... $ 9.69
</TABLE>
Exercise prices range from $32.50 to $37.00 with a weighted-average
remaining contractual life for outstanding options at December 31, 1997 of 9.75
years.
1993 STOCK OPTION PLAN
The Company's 1993 stock option plan, adopted in April 1993, and further
modified by shareholders at their annual meeting on May 17, 1995, provides for
the grant of options to key employees, who are selected by the Committee to
purchase up to 2,100,000 shares of common stock. The Committee determines the
number of shares to be granted to such individuals, the term of vesting and such
conditions as to the manner of exercise of such options as it may deem
necessary. Generally, the options are exercisable in periodic cumulative
installments. At the discretion of the Company, either common stock or cash may
be paid by the option holder upon exercise of the option. Options that have
expired or that have been canceled are available for future grants under the
plan.
38
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following tables summarize activity for the years ended December 31,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1............. 1,418 $ 32.02 1,247 $ 30.81 1,136 $ 26.69
Granted...................................... 126 36.42 430 34.20 514 37.79
Exercised.................................... (90) 29.97 (206) 28.08 (172) 22.84
Canceled..................................... (191) 36.75 (53) 36.51 (231) 32.21
----- ----- -----
Options outstanding at December 31........... 1,263 $ 31.89 1,418 $ 32.02 1,247 $ 30.81
----- ----- -----
----- ----- -----
Options exercisable at December 31........... 730 $ 29.42 617 $ 27.29 599 $ 25.08
----- ----- -----
----- ----- -----
Weighted-average fair value of options
granted.................................... $ 10.00 $ 7.89 $ 8.58
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------------
AVERAGE NUMBER
NUMBER REMAINING WEIGHTED EXERCISABLE WEIGHTED
RANGE OF OUTSTANDING AT CONTRACTUAL AVERAGE AT DECEMBER AVERAGE
EXERCISE PRICES DECEMBER 31, 1997 LIFE EXERCISE PRICE 31, 1997 EXERCISE PRICE
- --------------- ----------------- ----------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
(000'S) (000'S)
$ 22.50-$29.00 361 5.43 $22.77 361 $22.77
$ 31.75-$41.00 902 8.12 35.54 369 35.92
- --------------- ----- ---
$ 22.50-$41.00 1,263 7.35years $31.89 730 $29.42
- --------------- ----- ---
- --------------- ----- ---
</TABLE>
EQUITY PARTICIPATION PLANS
Effective January 1989, the Company adopted equity participation plans (the
"Equity Plans") pursuant to which key management employees of the Company (who
were selected by the board of directors) were granted rights and options to
acquire shares of common stock. The Equity Plans consist of three parts: (i) a
Company purchase plan, (ii) a bonus stock plan and (iii) a stock option plan.
Under the Company purchase plan, participants can be granted rights to purchase
up to an aggregate of 500,000 shares of common stock made available from the
Company's treasury or other authorized but unissued common stock at a purchase
price of $10.00 per share.
Under the related bonus stock plan, for each share of common stock purchased
by a participant under the Company purchase plan, the Company may grant to such
participant the right to purchase an additional one-half share of common stock
at a purchase price of $.10 per share up to a maximum of 250,000 shares in the
aggregate for all participants. The shares issued under the bonus stock plan are
typically subject to vesting and forfeiture provisions based on a participant's
continued employment with the Company. No shares have been issued under the
purchase plan or bonus stock plan since August 1989.
Under the stock option plan, the Company authorized the granting of up to
1,200,000 nonqualified options exercisable at the market price at the date of
grant. The Committee determines the number of shares to be granted to such
individuals, the term of vesting and such conditions as to the manner of
exercise of such options as it may deem necessary. Generally, the options are
exercisable in periodic
39
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
cumulative installments. At the discretion of the Company, either common stock
or cash may be paid by the option holder upon exercise of the option. Options
that have expired or been canceled are available for future grants under the
plan.
The following tables summarize activity for the years ended December 31,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1............. 80 $ 34.54 83 $ 34.48 25 $ 32.58
Granted...................................... -- -- -- -- 70 34.75
Exercised.................................... (2) 32.45 (2) 33.25 (1) 20.64
Canceled..................................... (1) 32.69 (1) 32.54 (11) 32.98
--- --- ---
Options outstanding at December 31........... 77 $ 34.61 80 $ 34.54 83 $ 34.48
--- --- ---
--- --- ---
Options exercisable at December 31........... 54 $ 34.55 30 $ 34.37 4 $ 33.02
--- --- ---
--- --- ---
Weighted-average fair value of options
granted.................................... $ -- $ -- $ 9.51
</TABLE>
Exercise prices ranged from $32.25 to $34.75 with a weighted-average
remaining contractual life for outstanding options at December 31, 1997 of 7.15
years.
1977 STOCK OPTION PLAN
The Company's stock option plan adopted in February 1977 and modified in
January 1991 provides for the granting of nonqualified options to certain of its
key employees to purchase up to 400,000 shares of common stock at prices which
represent fair market value at date of grant. The Committee determines the
number of shares to be granted to such individuals, the term of vesting and such
conditions as to the manner of exercise of such options as it may deem
necessary. Generally, the options are exercisable in periodic cumulative
installments. At the discretion of the Company, either common stock or cash may
be paid by the option holder upon exercise of the option. Options that have
expired or been canceled are available for future grants under the plan.
The following tables summarize activity for the years ended December 31,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1............. 16 $ 33.20 80 $ 23.92 131 $ 20.40
Granted...................................... 2 32.50 -- -- 14 34.75
Exercised.................................... (2) 21.23 (63) 21.36 (65) 19.06
Canceled..................................... (10) 34.75 (1) 33.73 -- --
--- --- ---
Options outstanding at December 31........... 6 $ 23.73 16 $ 33.20 80 $ 23.92
--- --- ---
--- --- ---
Options exercisable at December 31........... 4 $ 34.14 7 $ 31.11 63 $ 21.01
--- --- ---
--- --- ---
Weighted-average fair value of options
granted.................................... $ 9.24 $ -- $ 9.51
</TABLE>
40
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Exercise prices range from $32.50 to $34.75 with a weighted-average
remaining contractual life for outstanding options at December 31, 1997 of 7.71
years.
1990 DIRECTOR STOCK OPTION PLAN
The Company's director stock option plan, adopted in March 1990, provides
for the granting of nonqualified options to certain nonemployee members of the
board of directors of the Company to purchase up to a total of 100,000 shares of
common stock at market price at the date of grant. The options are exercisable
in 33-1/3% cumulative annual installments beginning one year from the date of
grant and are subject to certain forfeiture provisions if the director ceases to
serve as a director of the Company during the term of the options.
These options expire five years from the date granted. No transactions were
made in connection with the 1990 Director Stock Option Plan in 1997 and 1996.
The following table summarizes activity for the year ended December 31,
1995:
<TABLE>
<CAPTION>
1995
------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE
(000'S) PRICE
----------- -----------
<S> <C> <C>
Options outstanding at January 1..................................................... 50 $ 12.25
Granted.............................................................................. -- --
Exercised............................................................................ (50) 12.25
Canceled............................................................................. -- --
---
Options outstanding at December 31................................................... -- $ --
---
---
Options exercisable at December 31................................................... -- $ --
---
---
</TABLE>
No shares were granted in 1997, 1996 or 1995, or were outstanding at
December 31, 1997 and 1996, under this plan, therefore weighted-average
grant-date fair values as well as other related computations are not presented.
1995 DIRECTORS STOCK OPTION PLAN
On August 1, 1995, the Board of Directors adopted, and the shareholders
subsequently approved, the Company's 1995 Option Plan for Non-Employee Directors
("1995 Directors Plan") which provides for the granting of stock options to
qualified individuals to purchase up to an aggregate of 120,000 shares of common
stock. The 1995 Directors Plan provides that non-employee directors will be
granted 10,000 shares of common stock on August 1st of each year up to a maximum
of 30,000 shares for each non-employee director. Options become exercisable in
equal 20% cumulative annual installments commencing with the first anniversary
of the date of grant and remain exercisable for a period of up to ten years from
the date of grant and are subject to certain cancellation provisions if the
individual ceases to serve as a director of the Company during the term of the
options.
41
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes activity for the years ended December 31,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1............. 80 $ 36.00 40 $ 37.50 -- $ --
Granted...................................... 40 35.75 40 34.50 40 37.50
Exercised.................................... -- -- -- -- -- --
Canceled..................................... -- -- -- -- -- --
--- --- ---
Options outstanding at December 31........... 120 $ 35.92 80 $ 36.00 40 $ 37.50
--- --- ---
--- --- ---
Options exercisable at December 31........... 24 $ 36.50 8 $ 37.50 -- $ --
--- --- ---
--- --- ---
Weighted-average fair value of options
granted.................................... $ 9.84 $ 8.51 $ 8.72
</TABLE>
Exercise prices ranged from $34.50 to $37.50 with a weighted-average
remaining contractual life for outstanding options at December 31, 1997 of 8.72
years.
CLINICAL RESOURCE SYSTEMS, INC. STOCK OPTION PLAN
In connection with the merger of a wholly-owned subsidiary of the Company
with CRS on August 17, 1995, the Company assumed responsibility for existing
employee stock options of CRS. See Note 13. Such employee stock options were
converted into options to purchase common shares of the Company using the
conversion ratio defined in the merger agreement. No further options are
available for grant in connection with the former stock option plans of CRS.
The following tables summarize activity for the years ended December 31,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1............. 4 $ 46.56 11 $ 37.41 -- $ --
Granted...................................... -- -- -- -- 11 37.41
Exercised.................................... (1) 29.71 (6) 29.71 -- --
Canceled..................................... (3) 55.33 (1) 43.53 -- --
--- --- ---
Options outstanding at December 31........... -- $ -- 4 $ 46.56 11 $ 37.41
--- --- ---
--- --- ---
Options exercisable at December 31........... -- $ -- 2 $ 35.88 9 $ 31.20
--- --- ---
--- --- ---
</TABLE>
Weighted-average grant-date fair value is not provided since the shares were
granted in connection with the purchase of CRS. The CRS purchase was accounted
for as a pooling of interest. Accordingly, a new measurement date was not
created as a result of the merger.
42
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SHAREHOLDERS' EQUITY
As of December 31, 1997 and 1996, the Company had 2,000,000 shares of
authorized preferred stock, par value $10.00 per share. The preferred stock, if
issued, will have such rights and preferences as may be designated by the
Company's Board of Directors. Of the 2,000,000 authorized shares of preferred
stock, 100,000 shares have been designated as Series A Junior Participating
Preferred Stock and 714,285 shares have been designated as 7% Series B
Cumulative Exchangeable Preferred Stock. No shares of preferred stock have been
issued.
During 1997, the Company repurchased 255,000 shares of its common stock, in
open market transactions, at an average price of $33.53 per share, and 50,000
shares of its common stock in a privately negotiated purchase at $33.50 per
share. During 1997, common stock was issued from treasury upon exercise of
64,496 employee stock options. In connection with these exercise transactions,
the difference between the aggregate option exercise proceeds and the Company's
basis in the treasury stock of $154,000 was charged to retained earnings. At
December 31, 1997, the Company reflected treasury stock of $8,102,000. During
1996, the Company reacquired a total of 1,761 shares of common stock pursuant to
a share escrow arrangement entered into in conjunction with the CRS merger.
These shares were re-issued pursuant to stock option exercises during 1996.
Consequently, none were held as treasury stock at December 31, 1996. During
1995, the Company repurchased a total of 25,834 shares of common stock for
$978,000. These shares were re-issued pursuant to stock option exercises during
1995. Consequently, no shares were held as treasury stock at December 31, 1995.
In 1995, 95,238 shares were issued to a related party upon the conversion of
the Company's 10% convertible exchangeable note balance outstanding of $1.3
million.
17. EMPLOYEE BENEFIT PLANS
Substantially all employees of the Company and its subsidiaries are eligible
to participate in defined contribution plans. The costs associated with Company
contributions and administrative expenses were $540,000 in 1997, $596,000 in
1996 and $660,000 in 1995.
43
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. INCOME TAXES
The components of the provision (benefit) for federal and state income taxes
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal income tax....................................... $ 14,698,000 $ 5,132,000 $ 3,519,000
State income tax......................................... 2,585,000 1,000,000 740,000
------------- ------------- -------------
Total current provision.................................. 17,283,000 6,132,000 4,259,000
Deferred:
Federal income tax....................................... (1,000,000) (960,000) 1,155,000
State income tax......................................... (143,000) (526,000) (83,000)
------------- ------------- -------------
Total deferred........................................... (1,143,000) (1,486,000) 1,072,000
------------- ------------- -------------
Total income tax provision............................... $ 16,140,000 $ 4,646,000 $ 5,331,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The income tax provision (benefit) is included in the financial statements
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Continuing operations..................................... $ 4,478,000 $ 3,437,000 $ 7,362,000
Discontinued operations................................... (431,000) 2,831,000 (224,000)
Gain on sale of discontinued operations................... 12,483,000 -- --
------------- ------------- -------------
16,530,000 6,268,000 7,138,000
Direct credits to equity--
Compensation expense for tax purposes in excess of
amounts recognized for financial reporting purposes... (390,000) (1,622,000) (1,807,000)
------------- ------------- -------------
Total..................................................... $ 16,140,000 $ 4,646,000 $ 5,331,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The following summarizes the difference between the federal statutory income
tax rate and the effective income tax rate for discontinued and continuing
operations:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax rate................................................... 35% 35% 35%
State income tax, net of federal benefit.................................. 4% 16% 4%
Amortization of intangibles............................................... -- 9% 3%
Write-off of non-deductible goodwill...................................... 7% 75% --
Tax exempt interest income and other...................................... (1%) (7%) (2%)
--- --------- ---
Effective income tax rate................................................. 45% 128% 40%
--- --------- ---
--- --------- ---
</TABLE>
44
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liability at December 31,
are presented below:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Net current deferred tax asset:
Deferred revenue........................................................ $ 768,000 $ 728,000
Inventories............................................................. 54,000 12,000
Accrued compensation.................................................... 439,000 563,000
Bad debt reserves....................................................... 775,000 277,000
Net operating loss carryforwards........................................ -- 757,000
Other accrued expenses.................................................. 1,250,000 50,000
Assets of discontinued operations....................................... -- 1,101,000
Other liabilities....................................................... 1,337,000 712,000
------------- -------------
Total net current deferred tax asset...................................... $ 4,623,000 $ 4,200,000
------------- -------------
------------- -------------
Net long-term deferred tax liability:
Net operating loss carryforwards........................................ $ 688,000 $ --
Installment sales....................................................... (862,000) --
Liabilities of discontinued operations.................................. -- (186,000)
Intangibles, net........................................................ (1,941,000) (2,408,000)
Fixed assets and other, net............................................. 392,000 408,000
------------- -------------
Total net long-term deferred tax liability................................ $ (1,723,000) $ (2,186,000)
------------- -------------
------------- -------------
</TABLE>
19. EARNINGS PER SHARE ("EPS")
The Company adopted SFAS 128 which establishes standards for computing and
presenting EPS. This statement requires dual presentation of basic and diluted
EPS on the face of the income statement for entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. Basic EPS excludes the effect of potentially dilutive securities
while diluted EPS reflects the potential dilution that would occur if securities
or other contracts to issue common stock were exercised, converted into or
resulted in the issuance of common stock. The following sets forth the
weighted-average number of shares outstanding computation for the years ended
December 31:
BASIC EPS
Basic EPS data was calculated using the number of weighted-average shares
outstanding of 6,983,161 for 1997, 6,645,194 for 1996 and 6,351,914 for 1995.
Basic EPS is calculated by dividing net income figures by the weighted-average
number of shares outstanding.
45
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DILUTED EPS
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Weighted-average shares.......................................... 6,983,161 6,645,194 6,351,914
Incremental shares from assumed conversions:
Stock options.................................................. 135,037 168,185 189,341
Convertible note............................................... -- -- 23,810
---------- ---------- ----------
Adjusted weighted-average shares................................. 7,118,198 6,813,379 6,565,065
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
For 1995, net income from continuing operations was increased by $20,000 to
add back the interest expense, net of tax, associated with the convertible note.
The note was converted during 1995, therefore, no adjustment to net income was
necessary for 1997 and 1996. Diluted EPS is calculated by dividing adjusted net
income by the adjusted weighted-average number of shares outstanding.
20. UNUSUAL CHARGES
During the fourth quarter of 1997, the Company recognized a $5,779,000
pre-tax charge to earnings, of which $4,984,000 was associated with the
write-off of goodwill and other intangible assets of the Company's payor
services healthcare business unit. The charge was determined in accordance with
SFAS 121. In determining the amount of the impairment charge, the Company
compared expected undiscounted future cash flows of the business unit with the
carrying value of the related goodwill and other identifiable intangible assets.
Expected undiscounted future cash flows were not sufficient to recover the
carrying value of such assets, and as such, the Company recognized an impairment
loss equal to the difference between the carrying amount and their estimated
fair value. The Company relied upon a discounted cash flow analysis to determine
the fair value of such assets. In connection with the aforementioned unusual
charge, at December 31, 1997, the Company's unamortized investment in, and
obligations associated with, its THINC joint venture of $795,000 were taken as a
pre-tax charge against earnings. The charge was necessitated by poor financial
results from the Company's THINC joint-venture and insufficient continuing cash
flows from other operations within the business unit. See Note 12.
In the third quarter of 1996, the Company recognized a $15,266,000 pre-tax
charge to earnings primarily associated with the write-off of goodwill and other
intangible assets of its "HealthSource" technology outsourcing business unit of
its Health Care division. The charge was determined in accordance with SFAS 121.
The charge was a result of the cancellation of certain customer contracts with
the Sisters of Providence Health System. Total revenues derived from these
contracts were approximately $11.9 million for the year ended December 31, 1996.
21. OTHER INCOME
During the second quarter of 1995, the Company settled a lawsuit for which
it had previously established a reserve approximating the original judgment
awarded and associated legal expenses. As a result of the settlement, the
Company recorded $823,000 as other income during the second quarter of 1995. In
addition, during the fourth quarter of 1995, the statute of limitations expired
on a dispute in which the Company had previously established a reserve. An
amount equal to approximately $460,000 associated with this case was recorded as
other income.
46
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. SUBSEQUENT EVENTS
In February, 1998, the Company's wholly-owned subsidiary, The Pace Group,
acquired the business and assets of MIDS, Inc. ("MIDS") for $7.6 million. MIDS
is a Tucson, Arizona-based provider of specialized case management and quality
measurement software and related services for the healthcare industry. MIDS had
revenues of $5.4 million in 1997. The purchase price consisted of $3.8 million
in cash and $3.8 million in BRC common stock.
On March 3, 1998, the Board of Directors of the Company voted to issue a
100% common stock dividend to shareholders of record on March 20, 1998. The
distribution date for the common stock dividend was set by the Board of
Directors as of April 6, 1998. The effect of the dividend has not been reflected
in the accompanying financial statements. The effect will be reflected in
financial statements issued subsequent to the distribution date.
23. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 are as follows (in
thousands, except share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED (1997)
---------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue.............................................................. $ 25,379 $ 27,755 $ 26,321 $ 28,032
Gross profit......................................................... 7,360 9,137 7,336 5,826
Income (loss) from continuing operations............................. 1,866 2,766 2,323 (4,389)
Discontinued operations, net:
Income (loss) from operations...................................... (787) 6 241 (115)
Gain on sale....................................................... -- -- -- 18,339
----------- --------- ---------- ---------
Net income........................................................... $ 1,079 $ 2,772 $ 2,564 $ 13,835
----------- --------- ---------- ---------
----------- --------- ---------- ---------
Basic earnings (loss) per share:
Continuing operations.............................................. $ .26 $ .40 $ .34 $ (.63)
Discontinued operations............................................ (.11) -- .03 (.02)
Gain on sale....................................................... -- -- -- 2.65
----------- --------- ---------- ---------
Total............................................................ $ .15 $ .40 $ .37 $ 2.00
----------- --------- ---------- ---------
----------- --------- ---------- ---------
Diluted earnings (loss) per share:
Continuing operations.............................................. $ .26 $ .39 $ .33 $ (.62)
Discontinued operations............................................ (.11) -- .03 (.02)
Gain on sale....................................................... -- -- -- 2.59
----------- --------- ---------- ---------
Total............................................................ $ .15 $ .39 $ .36 $ 1.95
----------- --------- ---------- ---------
----------- --------- ---------- ---------
</TABLE>
Unusual charges totaling $5,779,000 are reflected in the fourth quarter 1997
results. See Note 20.
47
<PAGE>
BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED (1996)
---------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue.............................................................. $ 24,385 $ 24,596 $ 26,266 $ 25,001
Gross profit......................................................... 6,464 6,713 7,807 4,830
Income (loss) from continuing operations............................. 2,200 1,885 (11,236) 1,539
Discontinued operations, net:
Income (loss) from operations...................................... 908 2,108 119 1,111
----------- --------- ---------- ---------
Net income (loss).................................................... $ 3,108 $ 3,993 $ (11,117) $ 2,650
----------- --------- ---------- ---------
----------- --------- ---------- ---------
Basic earnings (loss) per share:
Continuing operations.............................................. $ .34 $ .29 $ (1.70) $ .22
Discontinued operations............................................ .14 .33 .02 .16
----------- --------- ---------- ---------
Total............................................................ $ .48 $ .62 $ (1.68) $ .38
----------- --------- ---------- ---------
----------- --------- ---------- ---------
Diluted earnings (loss) per share:
Continuing operations.............................................. $ .33 $ .28 $ (1.70) $ .21
Discontinued operations............................................ .14 .32 .02 .15
----------- --------- ---------- ---------
Total............................................................ $ .47 $ .60 $ (1.68) $ .36
----------- --------- ---------- ---------
----------- --------- ---------- ---------
</TABLE>
An unusual charge of $15,266,000 is reflected in the third quarter 1996
results. See Note 20.
Revenues and gross profit for all quarters presented for 1997 and 1996
exclude discontinued operations activity.
48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
BRC Holdings, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) present fairly, in all material respects, the
financial position of BRC Holdings, Inc. and its subsidiaries at December 31,
1997 and 1996, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
March 16, 1998
49
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(A) DEDUCTIONS END OF PERIOD
- --------------------------------------------- ---------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
1997:
Reserve for bad debts--accounts and notes
receivables.............................. $ 689,000 $ 1,638,000 $ 8,632,000 -- $ 10,959,000
Inventory reserves......................... 77,000 57,000 -- -- 134,000
---------- ------------ ------------ ----- -------------
Total.................................... $ 766,000 $ 1,695,000 $ 8,632,000 -- $ 11,093,000
---------- ------------ ------------ ----- -------------
---------- ------------ ------------ ----- -------------
1996:
Reserve for bad debts--accounts and notes
receivables.............................. $ 810,000 $ (40,000) $ (81,000) -- $ 689,000
Inventory reserves......................... 57,000 20,000 -- -- 77,000
---------- ------------ ------------ ----- -------------
Total.................................... $ 867,000 $ (20,000) $ (81,000) -- $ 766,000
---------- ------------ ------------ ----- -------------
---------- ------------ ------------ ----- -------------
1995:
Reserve for bad debts--accounts and notes
receivables.............................. $ 417,000 $ 761,000 $ (368,000) -- $ 810,000
Inventory reserves......................... 134,000 (55,000) (22,000) -- 57,000
---------- ------------ ------------ ----- -------------
Total.................................... $ 551,000 $ 706,000 $ (390,000) -- $ 867,000
---------- ------------ ------------ ----- -------------
---------- ------------ ------------ ----- -------------
</TABLE>
The valuation and qualifying accounts information above has been reflected
net of discontinued operations. See Note 11 to the Consolidated Financial
Statements.
(a) Such amounts relate to the utilization of the valuation and qualifying
accounts to specific items for which they were established in the accounts
receivables and inventory reserve accounts. In 1997, notes receivable were
recorded in connection with divestitures of the election and title
businesses and reserves totalling $8.9 million were established. These
reserves are included in the 1997 amount reflected above and are offset by a
number of immaterial recoveries. See Note 11.
Note: Certain prior year amounts have been reclassified to conform to current
year presentation.
50
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <C> <S>
(3) Articles of Incorporation and By-Laws:
a. By-Laws, as amended, of Cronus Industries, Inc. (filed as Exhibit 3.2 to the
Company's Registration Statement No. 2-94283 on Form S-2 and incorporated
herein by reference).
b. Restated Certificate of Incorporation, as amended, of SWECO, Inc. (filed as
Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference).
c. Certificate of Amendment to the Restated Certificate of Incorporation of
Cronus Industries, Inc. (filed as Exhibit 3(c) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, and incorporated
herein by reference).
d. Certificate of Amendment of Certificate of Incorporation of Cronus
Industries, Inc. (filed as Exhibit 3(d) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, and incorporated herein by
reference).
*e. Certificate of Amendment to the Restated Certificate of Incorporation of
Cronus Industries, Inc.
*f. Certificate of Correction of the Certificate of Amendment to the Restated
Certificate of Incorporation of Cronus Industries, Inc.
*g. Certificate of Designation of Series A Junior Participating Preferred Stock
of the Company.
*h. Certificate of Designation, Preferences, Rights and Limitations of 7% Series
B Cumulative Convertible Exchangeable Preferred Stock of the Company.
i. Certificate of Amendment to the Restated Certificate of Incorporation of
Cronus Industries, Inc. (Filed as Exhibit 3(i) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, and incorporated
herein by reference).
j. Certificate of Amendment to the Restated Certificate of Incorporation of
Business Records Corporation Holding Company (filed as Exhibit 3(j) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996,
and incorporated herein by reference.
(10) Material Contracts:
a. The Company's Stock Option Plan:
1. Amended and Restated Business Records Corporation Stock Option Plan
(filed as Exhibit 4.1 to the Company's Registration Statement No. 33-40503
on Form S-8 and incorporated herein by reference).
2. Form of Nonqualified Stock Option Agreement (filed as Exhibit 4.2 to the
Company's Registration Statement No. 33-40503 on Form S-8 and
incorporated herein by reference).
b. Amended and Restated Equity Participation Plans dated July 9, 1990 (filed as
Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference).
c. The Company's Management Equity Participation Stock Option Plan:
1. Business Records Corporation Holding Company Management Equity
Participation Stock Option Plan (filed as Exhibit 4.1 to the Company's
Registration Statement No. 33-47368 on Form S-8 and incorporated herein
by reference).
</TABLE>
51
<PAGE>
<TABLE>
<C> <C> <S>
2. Form of Stock Option Agreement (filed as Exhibit 4.2 to the Company's
Registration Statement No. 33-47368 on Form S-8 and incorporated herein
by reference).
d. The Company's 1990 Director Stock Option Plan:
1. Business Records Corporation Holding Company Nonqualified Director Stock
Option Plan (filed as Exhibit 4.1 to the Company's Registration
Statement No. 33-47369 on Form S-8 and incorporated herein by
reference).
2. Form of Nonqualified Stock Option Agreement (filed as Exhibit 4.2 to the
Company's Registration Statement No. 33-47369 on Form S-8 and
incorporated herein by reference).
e. The Company's Nonqualified Performance Stock Option Plan for Key Employees:
1. Nonqualified Performance Stock Option Plan for Key Employees of Business
Records Corporation Holding Company (filed as Exhibit 4.1 to the
Company's Registration Statement No. 33-65410 on Form S-8 and
incorporated herein by reference).
2. Form of Nonqualified Stock Option Agreement (filed as Exhibit 4.1 to the
Company's Registration Statement No. 33-65410 on Form S-8 and
incorporated herein by reference).
f. The Company's Nonqualified Performance Stock Option Plan for New Employees
and Employees of Acquired Companies:
1. Nonqualified Performance Stock Option Plan for New Employees and
Employees of Acquired Companies (filed as Exhibit 4.1 to the Company's
Registration Statement No. 333-44111 on form S-8 and incorporated herein
by reference).
g. Asset Purchase Agreement, dated November 18, 1997 between American
Information Systems, Inc. and the Company (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated December 3, 1997, and
incorporated herein by reference).
h. Asset Purchase Agreement, dated November 18, 1997 between the Sequoia
Pacific Systems division of the Smurfit Packaging Corporation and the
Company (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K
dated December 3, 1997, and incorporated herein by reference).
*(21) Subsidiaries of the Registrant.
*(23) Consent of Certified Public Accountants.
*a. Consent of Price Waterhouse LLP
*(27)A Financial Data Schedule for the Year Ended December 31, 1997. (Pursuant to Item
601(c)(iv) of Regulation S-X, the Financial Data Schedule is not deemed to be "filed"
for purposes of Section 11 of the Securities Act of 1933, as amended, or Section 18 of
the Securities Exchange Act of 1934, as amended).
*(27)B Restated Financial Data Schedule for the periods ending December 31, 1996, December 31,
1995, March 31, 1996, June 30, 1996 and September 30, 1996.
*(27)C Restated Financial Data Schedule for the periods ending March 31, 1997, June 30, 1997
and September 30, 1997.
</TABLE>
- ------------------------
* Filed herewith
52
<PAGE>
Exhibit 3e
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "CRONUS INDUSTRIES, INC.", FILED IN THIS OFFICE ON THE SIXTEENTH
DAY OF MAY, A.D. 1983, AT 9 O'CLOCK A.M.
/s/
-----------------------------------------
WILLIAM T. QUILLEN, SECRETARY OF STATE
[SEAL]
0828493 8100 AUTHENTICATION: 7067608
DATE:
944048595 03-24-94
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
CRONUS INDUSTRIES, INC.
Cronus Industries, Inc., A corporation duly organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, acting at a
regular meeting duly called and held on February 1, 1983, adopted resolutions
(i) setting forth the proposed amendment to Article Fourth of the Certificate
of Incorporation, (ii) declaring the advisability of such amendment, and
(iii) directing that such amendment be submitted for consideration by the
stockholders at the Annual Meeting of Stockholders of the Corporation to be
held April 28, 1983.
SECOND: That thereafter, pursuant to resolutions of the
Corporation's Board of Directors, the Annual Meeting of Stockholders of the
Corporation was duly called and held on April 28, 1983, at which meeting
holders of a majority of the outstanding shares of capital stock of the
Corporation entitled to vote on the proposed amendment voted in favor of the
following amendment to the Certificate of Incorporation of the Corporation:
Article Fourth is amended to read hereafter as follows:
"FOURTH. This corporation is authorized to issue twelve million
(12,000,000) shares of capital stock. Ten million (10,000,000) of the
authorized shares shall be common stock, $0.10 par value each, and two
million (2,000,000) of the Authorized shall be preferred stock, $10.00 par
value each.
"Each holder of both classes of capital stock shall at every
meeting of stockholders be entitled to one vote in person or by proxy for
each share of the capital stock held by the shareholder.
"Shares of preferred stock may be issued from time to time in one
or more series, each such series to have such distinctive designation or
title as may be fixed by the Board of Directors prior to the issuance of any
shares thereof. Subject to the preceding paragraph, each such series shall
have such voting powers and such preferences and relative, participating,
optional or other special rights, with such qualifications, limitations, or
restrictions of such preferences and/or rights as shall be stated in the
resolution or resolutions providing for the issue of such series of preferred
stock, as may be adopted from time to time by the Board of Directors prior to
the issuance of any shares thereof, in accordance with the laws of the State
of Delaware. Each share of any series of preferred stock shall be identical
with all other shares of such series, except as to the date from which
accumulated preferred dividends, if any, shall be cumulative.
<PAGE>
"No stockholder of this corporation shall by reason of his holding
shares of any class have any pre-emptive or preferential right to purchase
or subscribe to any shares of any class of the corporation, now or
hereafter to be authorized. or any notes, debentures, bonds, or other
securities convertible into or carrying warrants or options to purchase
shares of any class, now or thereafter to be authorized, whether or not the
issuance of any such shares or such notes, debentures, bonds, or other
securities would adversely affect the dividend or voting rights of such
stockholder, other than such rights, if any, as the Board of Directors, in
its discretion, may fix; and the Board of Directors may issue shares of any
class of this corporation, or any notes, debentures, bonds, or other
securities convertible into or carrying options or warrants to purchase
shares of any class, without offering any such shares of any class, either
in whole or in part, to the existing stockholders of any class."
THIRD: That such amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of the Corporation will not be reduced by
reason of such amendment.
IN WITNESS WHEREOF, Cronus Industries, Inc. has caused its
corporate seal be hereunto affixed and this Certificate to be signed by C.
A. Rundell, Jr., its President, and attested by John K. Sterling, its
Secretary, this 11TH day of May, 1983.
ATTEST: CRONUS INDUSTRIES, INC.
/s/ /s/
- --------------------------- -----------------------------
John K. Sterling, Secretary C. A. Rundell, Jr., President
<PAGE>
Exhibit 3f
FILED
Aug 17 1987
CERTIFICATE OF CORRECTION OF
THE CERTIFICATE OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF CRONUS INDUSTRIES, INC.
Cronus Industries, Inc., a corporation organized and existing under and by
virture of the General Corporation Law of the State of Delaware (the
"Corporation") does hereby certify:
FIRST: That on May 8, 1987, C. A. Rundell, Jr., the Chairman of the Board
and Chief Executive Officer of the Corporation, executed a Certificate of
Amendment to the Restated Certificate of Incorporation of Cronus Industries,
Inc., reflecting an Amendment to the Restated Certificate of Incorporation of
the Corporation adopted by the Board of Directors on February 25, 1987, and
adopted by the stockholders of the Corporation on April 23, 1987.
SECOND: That the Certificate of Amendment was improperly executed in that
it was not attested by the Secretary of the Corporation;
THIRD: That the Corporation desires to correct this inaccuracy as provided
below:
"IN WITNESS WHEREOF, Cronus Industries, Inc. has caused this
Certificate to be executed in accordance with Section 103 of the
General Corporation Law of the State of Delaware by C. A. Rundell,
Jr., its Chairman of the Board and Chief Executive Officer, this 8th
day of May, 1987.
CRONUS INDUSTRIES, INC.
By: /s/
____________________________
C. A. Rundell, Jr.
Chairman of the Board;
Chief Executive officer
ATTEST:
/s/
_______________________________
John K. Sterling
<PAGE>
IN WITNESS WHEREOF, Cronus Industries, Inc. has caused this Certificate of
Correction to be executed in accordance with Section 103(f) of the General
Corporation Law of the State of Delaware by C. A. Rundell, Jr., its Chairman of
the Board and Chief Executive Officer, this 31st day of July, 1987.
CRONUS INDUSTRIES, INC.
C. A. Rundall, Jr.
Chairman of the Board;
Chief Executive Officer
ATTEST:
/s/
________________________
John K. Sterling
9 3 2 3 r
96582.1
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "CRONUS INDUSTRIES, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SEVENTH DAY OF JANUARY, A.D. 1988, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
[SEAL]
0828493 8100 AUTHENTICATION: 8739626
DATE:
971374864 11-04-97
<PAGE>
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
Cronus Industries, Inc.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
------------------------------
Cronus Industries, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the following resolution was adopted by the Board of Directors
of the Corporation as required by Section 151 of the General Corporation Law
at a meeting duly called and held on January 22, 1988:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the
"Board") in accordance with the provisions of the Certificate of
Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $10 per share (the "Preferred Stock"), of the Corporation
and hereby states the designation and number of shares, and fixes the
relative rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as
"Series A Junior Participating Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting the Series A Preferred Stock
shall be 100,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; PROVIDED, that no decrease shall reduce
the number of shares of Series A
<PAGE>
Preferred Stock to a number less than the number of shares then outstanding
plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights, or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series A
Preferred Stock.
2. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the
holders of Common Stock, par value $0.10 per share (the "Common Stock"),
of the Corporation, and of any other junior stock, shall be entitled to
receive, when, as, and if declared by the Board of Directors out of funds
legally available for the purpose, subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or
a subdivision of the outstanding shares of Common Stock, (by
reclassification or otherwise), declared on the Common Stock. If the
Corporation at any time declares or pays any dividend on the Common Stock
payable in shares of Common Stock, or effects a subdivision or
combination or consolidation of the outstanding shares of Common stock
(by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately before such event
under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that
were outstanding immediately before such event.
(b) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (a) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock). The
Board of Directors may fix a record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be not
more than 60 days before the date fixed for the payment thereof.
-2-
<PAGE>
1. VOTING RIGHTS. The holders of shares of Series A Preferred Stock shall
have the following voting rights:
(a) Subject to the provisions for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
shareholders of the Corporation. If the Corporation at any time declares
or pays any dividend on the Common Stock payable in shares of Common
Stock, or effects a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately before such event shall be
adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately before such event.
(b) Except as otherwise provided herein, in any other Certificate
of Designation creating a series of Preferred Stock or any similar stock,
or by law, the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all matters
submitted to a vote of shareholders of the Corporation.
(c) Except as set forth herein, holders of Series A Preferred Stock
shall have no voting rights.
4. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section II are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution, or winding up) to the
Series A Preferred Stock;
-3-
<PAGE>
(ii) declare or pay dividends, or make any other distributions,
on any shares or stock ranking in parity (either as to dividends or
upon liquidation, dissolution, or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A Preferred
Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution, or winding up) to the Series A Preferred Stock,
provided that the Corporation may at any time redeem, purchase, or
otherwise acquire shares of any such junior stock in exchange for shares
of any stock of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation, or winding up) to the Series A Preferred
Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking in
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the annual dividend rates and
other relative rights and preferences of the series and classes, shall
determine in good faith will result in fair and equitable treatment among
the series of classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock
of the Corporation unless the Corporation could, under paragraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time
and in such manner.
5. REACQUIRED SHARES. Any shares of Series A Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred
Stock subject to the conditions and restrictions on issuance set forth
herein, in the Certificate of Incorporation, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or as
otherwise required by law.
-4-
<PAGE>
6. LIQUIDATION, DISSOLUTION OR WINDING UP. ??? liquidation, dissolution, or
winding up of the Corporation, no distribution shall be made (a) to the
holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution, or winding up) to the Series A Preferred Stock
unless, prior thereto, the holders of shares of Series A Preferred Stock
shall have received $100 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment, provided the the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares
of Common Stock, or (b) to the holders of shares of stock ranking in parity
(either as to dividends or upon liquidation, dissolution, or winding up) with
the Series A Preferred Stock, except distributions made ratably on the Series
A Preferred Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, distribution, or winding up. If the Corporation at any time
declares or pays any dividend on the Common Stock payable in shares of Common
Stock, or effects a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount
to which holders of shares of Series A Preferred Stock were entitled
immediately before such event under the proviso in clause (a) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately before such event.
7. CONSOLIDATION, MERGER, ETC. If the Corporation enters into any
consolidation, merger, combination, or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash, or any other property, then in any such case each share of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into
an amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount of stock, securities, cash, or
any other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is changed or exchanged. If the Corporation
at any time declares or pays any dividend on the Common Stock payable in
shares of Common Stock, or effects a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common
-5-
<PAGE>
Stock) into a greater or lesser number of shares of Common Stock, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock before such
event.
8. REDEMPTION. The shares of Series A Preferred Stock shall not be
redeemable.
9. RANK. The Series A Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of
any other class of the Corporation's Preferred Stock.
10. AMENDMENT. The Certificate of Incorporation of the Corporation shall not
be amended in any manner that would materially alter or change the powers,
preferences, or special rights of the Series A Preferred Stock to as to
affect them adversely without the affirmative vote of the holders of at least
a majority of the outstanding shares of Series A Preferred Stock, voting
together as a single series.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation by its Chairman of the Board and attested by its Secretary
this 25th day of January, 1988.
CRONUS INDUSTRIES, INC.
By: /s/ C.A. Rundell, Jr.
---------------------------------
C.A. Rundell, Jr.
Chairman of the Board
[SEAL]
Attest:
/s/ John K. Sterling
- ---------------------------------
John K. Sterling, Secretary
<PAGE>
Exhibit 3h
State of Delaware
OFFICE OF THE SECRETARY OF STATE
--------------------------------------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "CRONUS INDUSTRIES, INC.", FILED IN THIS OFFICE ON THE TWENTY-
SECOND DAY OF MARCH, A.D. 1988, AT 9 O'CLOCK A.M.
SEAL /s/ William T. Quillen
--------------------------------------------
William T. Quillen, Secretary of State
0828493 8100 AUTHENTICATION: 7067610
944048595 DATE: 03-24-94
-1-
<PAGE>
CERTIFICATE OF THE DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF 7% SERIES B CUMULATIVE
CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, $10.00 PAR VALUE
OF
CRONUS INDUSTRIES, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Cronus Industries, Inc., hereinafter called the "Company", a corporation
organized and existing under the General Corporation law of the State of
Delaware,
Does Hereby Certify:
That, pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of the Company and pursuant to the provisions of
Section 151 of the Delaware General Corporation Law said Board of Directors, by
a written consent dated as of March 15, 1988 executed by all of the directors,
duly adopted the following resolution:
"WHEREAS, the Company is issuing its 10% Convertible Exchangeable Notes due
1998 in the original principal amount of $10,000,000 (the "Notes");
"WHEREAS, the Series B Preferred Stock (defined below) will be issuable
upon conversion or exchange of the Notes; and
"WHEREAS, the issue price of the Series B Preferred Stock will be $14.00
(the "Issue Price"),
"RESOLVED, that pursuant to the authority expressly granted to and vested
in the Board of Directors of this Company in accordance with the provisions of
its Certificate of Incorporation, a series of Preferred Stock of the Company be,
and it hereby is, given the distinctive designation of "7% Series B Cumulative
Convertible Exchangeable Preferred Stock, $10.00 Par Value" (hereinafter
referred to as the "Series B Preferred Stock"), said series to consist of Seven
Hundred Fourteen Thousand Two Hundred and Eighty-Five (714,285) shares of the
par value of Ten Dollars ($10.00) per share, of which the voting powers,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, shall be as follows:
-2-
<PAGE>
1. CASH DIVIDENDS ON SERIES B PREFERRED STOCK. The holders of the Series B
Preferred Stock shall be entitled to receive, when and as declared by the Board
of Directors out of the funds of the Company - legally available therefor,
cumulative cash dividends at the annual rate of 7% of the Issue Price per share,
payable quarterly on the lst day of April, July, October and January of each
year (each such date being hereinafter called a 'dividend payment date") to
holders of record on that date, commencing to accrue on the date of original
issuance of any shares of the Series B Preferred Stock and commencing to be
payable on the first dividend payment date thereafter. If the dividend on the
Series B Preferred Stock for any dividend period shall not have been paid or set
apart in full for the Series B Preferred Stock, the aggregate deficiency shall
be cumulative. Accumulations of dividends on the Series B Preferred Stock shall
not bear interest.
2. CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK.
(a) The Holder of each share of Series B Preferred Stock shall have the
right, at his option, commencing on April 1, 1991 (unless earlier permitted
for the period set forth in paragraph 4(c) hereof) and in the manner
described below (or if the Series B Preferred Stock is called for redemption,
then to and including but not after the close of business on the date fixed
for redemption, unless the Company shall default in the payment due upon
redemption), to convert said share of Series B Preferred Stock into as many
fully paid and non-assessable shares of Common Stock of the Company as the
Issue Price for such share of Series B Preferred Stock to be converted is an
integral multiple of the Conversion Price (defined below) in effect at the
time of such conversion. The Conversion Price in effect at the date of
original issuance of the Series B Preferred Stock shall be equal to the
conversion price in effect under the Notes at the time the Notes are
converted and exchanged into Series B Preferred Stock, and will be subject to
adjustment from time to time in accordance with the provisions of paragraph
2(d) below (as the same may be adjusted, herein called the "Conversion
Price") Upon any adjustment of the conversion Price, there may likewise be an
adjustment made to the number of shares of Common Stock or other capital
stock of the Company into which the shares of Series B Preferred Stock are
convertible.
(b) To exercise the conversion privilege, the Holder shall surrender
the certificate or certificates representing the share or shares of Series B
Preferred Stock so to be converted, duly endorsed to the Company or in blank,
at the office or agency maintained by the Company in Dallas, Texas, and shall
give written notice to the Company at such office or agency that the Holder
elects to convert the same. The notice shall also state the name or names
(with address) in which the certificate or certificates for Common Stock are
to be issued. Unless the shares of common Stock issuable on conversion are to
be issued in the same name as the registration of the shares of Series B
Preferred Stock to be so converted, the certificates representing the shares
of Series B Preferred Stock to be so converted shall be accompanied by
instruments of transfer, in form satisfactory to the Company, duly executed
by the Holder or his duly authorized attorney. As promptly as practicable
after the surrender of the certificates representing the shares of Series B
Preferred Stock to be so converted and the receipt of the notice, the Company
shall deliver at such office or agency to the Holder, or on his written
order, a
-3-
<PAGE>
certificate or certificates for the number of full shares of Common Stock
deliverable upon said conversion, a check or cash in respect of any
fractional interest in a share of Common Stock arising upon such conversion,
and a new certificate or certificates representing the number of shares of
Series B Preferred Stock equal to the unconverted portion of the certificate
or certificates representing Series B Preferred Stock so surrendered. Each
conversion shall be deemed to have been effected on the date on which the
Series B Preferred Stock shall have been surrendered and such notice received
by the Company as aforesaid, and the person or persons in whose name or names
any certificate for Common Stock shall be issuable upon such conversion shall
be deemed to have become on said date the holder or holders of record of the
shares of Common Stock represented thereby, and the rights of the Holder with
respect to the shares of Series B Preferred Stock so surrendered for
conversion shall cease on such date. No adjustment shall be made for
dividends accrued on the shares of Series B Preferred Stock that shall be
converted or for dividends on any Common Stock that shall be delivered upon
the conversion of the Series B Preferred Stock.
(c) No fractional interest in a share of Common Stock shall be delivered
upon conversion of the Series B Preferred Stock. If more than one share of
Series B Preferred Stock shall be surrendered for conversion at one time by the
same Holder, the number of full shares of Common Stock which shall be issuable
upon conversion of such Series B Preferred Stock shall be computed on the basis
of the aggregate number of shares of Series B Preferred Stock so surrendered for
conversion. If any fractional interest of a share of Common Stock would be
deliverable upon the conversion of the Series B Preferred Stock, the Company
shall make an adjustment therefor in cash equal to the Issue Price for the
Series B Preferred Stock that would otherwise result in delivery of a fractional
share.
(d) The Conversion Price shall be subject to adjustment from time to time
upon the occurrence, after the date hereof, of the following events:
A. If the Company shall hereafter (i) pay a dividend in, or make a
distribution of, shares of Common Stock or of the Company's capital stock
convertible into Common Stock, on its outstanding Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
such shares or (iii) combine its outstanding shares of Common Stock into a
smaller number of such shares, the Conversion Price shall be adjusted so that
the Holder of each share of Series B Preferred Stock thereafter surrendered
for conversion shall be entitled to receive the same number of shares of
Common Stock and the number of shares of the Company's capital stock
convertible into Common Stock which he would have owned immediately following
the happening of any of the events described above had such share of Series B
Preferred Stock been converted immediately prior to the happening of such
event. An adjustment made pursuant to this subparagraph (A) shall, in the
case of a stock dividend or distribution, become effective immediately after
the record date therefor and, in the case of a subdivision or combination, be
made as of the effective date thereof. If, as a result of an adjustment made
pursuant to this subparagraph (A), the Holder of a share of Series B
Preferred Stock thereafter surrendered for conversion shall become entitled
to receive shares of two or more classes of capital stock of the Company, the
Board of Directors of the Company (whose
-4-
<PAGE>
determination shall be conclusive and shall be evidenced by a Board
resolution) shall determine the allocation of the adjusted Conversion Price
between or among shares of such classes of capital stock.
B. In case the Company shall issue rights, options or warrants to all holders
of its Common Stock entitling them (for a period expiring within 45 days after
the record date mentioned below) to subscribe for or purchase shares of Common
Stock at a price per share less than the Current Market Price per share of
Common Stock at the record date mentioned below, the Conversion Price shall be
adjusted so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior thereto by a fraction, of which the
enumerator shall be the number of shares of Common Stock outstanding on the
record date mentioned below plus the number of additional shares of Common Stock
that the aggregate offering price of the total number of shares of Common Stock
offered for subscription or purchase would purchase at the Current Market Price,
and of which the denominator shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock
offered for subscription or purchase. Such adjustment shall be made whenever any
such rights, options or warrants are issued, and shall become effective as of
the record date for the determination of stockholders entitled to receive such
rights, options or warrants. In determining whether any rights, options or
warrants entitle the holders to subscribe for or purchase shares of Common Stock
at less than the Current Market Price, there shall be taken into account any
consideration received by the Company for such rights, options or warrants, the
value of such consideration, if other than cash, to be determined by the Board
of Directors of the Company, whose determination shall be conclusive and
evidenced by a Board resolution. If all or any portion of any class or issue of
such rights, options or warrants shall expire unexercised, the Conversion Price
shall be adjusted by an amount equal to the difference between the adjustment
originally made to the Conversion Price in respect of the issuance of such class
or issue of rights, options. or warrants and the adjustment that would have been
made as of the record date for such issuance if such class or issue of rights,
options or warrants had consisted solely of the rights, options or warrants of
such class or issue actually exercised prior to their expiration.
C. In case the Company shall distribute to all holders of its Common
Stock shares of its capital stock (other than Common Stock or shares of capital
stock convertible into Common Stock), evidences of its indebtedness or assets
(excluding cash dividends or other distributions payable from consolidated
retained or consolidated current earnings of the Company), or rights or warrants
(excluding those referred to in subparagraph (B) above and subparagraph (I)
below) to subscribe or purchase such shares, evidences of indebtedness or
assets, then in each such case the Conversion Price shall be adjusted so that
the same shall equal the price determined by multiplying the Conversion Price in
effect immediately prior thereto by a fraction, of which the numerator shall be
the Current Market Price per share of Common Stock on the record date mentioned
below, less the fair market value (as determined by the Board of Directors of
the Company whose determination shall be conclusive and evidenced by Board
resolution) of the capital stock, assets or evidences of indebtedness or of such
rights, options or warrants so distributed to all such holders applicable to one
share of Common Stock, and of
-5-
<PAGE>
which the denominator shall be the Current Market Price per share of Common
Stock. Such adjustment shall be made whenever any such distribution is made,
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.
D. In the event of any capital reorganization or any reclassification of
the Common Stock (except as provided in subparagraphs (A) through (C) above or
subparagraph (H) below), the Holder of each share of Series B Preferred Stock
upon conversion thereof shall be entitled to receive, in lieu of the Common
Stock to which he would have become entitled upon exercise immediately prior to
such reorganization or reclassification, the shares (of any class or classes) or
other securities or property of the Company that he would have been entitled to
receive at the same aggregate Conversion Price upon such reorganization or
reclassification if such share of Series B Preferred Stock had been converted
immediately prior thereto; and in any such case, appropriate provision (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive and shall be evidenced by a Board resolution) shall be made for
the application of this paragraph 2(d) with respect to the rights and interests
thereafter of the Holder of a share of Series B Preferred Stock (including but
not limited to the allocation of the adjusted Conversion Price between or among
shares of classes of capital stock), to the end that this paragraph 2(d)
(including the adjustments of the Conversion Price) shall thereafter be
reflected, as nearly as reasonably practicable, in all subsequent conversions of
a share of Series B Preferred Stock for any shares or securities or other
property thereafter deliverable upon the conversion of said share of Series B
Preferred Stock.
E. No adjustment in the Conversion Price shall be made unless such
adjustment would require an increase or decrease in the Conversion Price of at
least $0.25; provided, however, that any adjustments which by reason of this
subparagraph (E) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment; provided, further, that any
adjustments which are so carried forward shall be made no later than the date as
to which the aggregate adjustments not previously made would require a total
increase or decrease in the Conversion Price of $0.25. All calculations under
this paragraph 2(d) shall be made to the nearest cent.
F. Anything in this paragraph 2(d) to the contrary notwithstanding, the
Company shall be entitled, but not required, to make such reductions in the
Conversion Price, in addition to those required by this paragraph 2(d), as in
its discretion it shall determine to be advisable, provided that any such
reduction shall be effective for a period of not less than 30 days from the date
of mailing of notice of such red5ction to the registered Holders of the Series B
Preferred Stock.
G. Whenever the Conversion Price is adjusted as provided in this
paragraph 2(d), the Company will promptly mail to the Holders of the Series B
Preferred Stock, by first-class, postage prepaid mail to their last addresses as
they appear on the registry books of the Company, a notice signed by the
Chairman of the Board or the President or a Vice President of the Company and by
the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
-6-
<PAGE>
secretary of the Company setting forth the Conversion Price as so adjusted,
stating that such adjustment in the Conversion Price conforms to the
requirements of this paragraph 2(d), and setting forth a brief statement of
the facts accounting for such adjustment. Such notice shall be presumptive
evidence of the correctness of such adjustment. Failure to give any notice
required under this subparagraph (G), or any defect therein, shall not affect
the legality or validity of any such adjustments under this paragraph 2(d).
Where appropriate, such notice may be given in advance and included as part
of any other notice required to be given to Holders of the Series B Preferred
Stock.
H. In case of any consolidation of the Company with, or merger of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger that does not result in any reclassification or change
of the outstanding Common Stock), or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, the Holder of this Note shall have the right
thereafter to receive, upon conversion of each share of Series B Preferred
Stock, the kind and amount of shares of stock and other securities and property
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock of the Company for which each share of Series B
Preferred Stock might have been converted immediately prior to such
consolidation, merger, sale or transfer. The corporation formed by such
consolidation or merger or the corporation that shall have acquired such assets,
as the case may be, shall execute and deliver to each Holder a notice setting
forth the kind and amount of shares of stock and other securities and property
into which each share of Series B Preferred Stock shall thereafter be
convertible and in addition shall adopt, and include in such notice a
description of, supplemental provisions for future adjustments, which shall be
as nearly equivalent as may be practicable to the other adjustments provided-in
this paragraph 2(d). The above provisions of this subparagraph (H) shall
similarly apply to successive consolidations, mergers, sales or transfers.
I. If a Holder of a share of Series B Preferred Stock converts the
same after the Distribution Date (as defined in the Rights Agreement), the
Holders of the Series B Preferred Stock, upon conversion hereof, shall be
entitled to receive (in addition to the shares of Common Stock and other capital
stock of the Company to which he otherwise is entitled) the same number of
rights to purchase shares of the Series A Junior Participating Preferred Stock,
$10 par value, of the Company as the Holder would have been entitled to receive
if such Series B Preferred Stock had been converted immediately before the
Distribution Date.
3. CONVERSION AND EXCHANGE OF SERIES B PREFERRED STOCK FOR NOTES.
(a) A majority of the Continuing Directors of the Company may at any time
determine that, on such date as it may select (the "Exchange Date"), each share
of - Series B Preferred Stock shall be converted and exchanged into that
principal amount of Notes as shall be equal to the Issue Price, and on the
Exchange Date such conversion and exchange shall occur automatically and without
any necessity for action on the part of the Holders of the shares of the Series
B Preferred Stock.
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<PAGE>
(b) The Company will give to the Holders of the Series B Preferred
Stock a written notice of the Exchange Date and of the automatic conversion
and exchange of the Series B Preferred Stock into Notes as soon as
practicable after its occurrence. Such notice also shall specify the
Conversion Rate that was in effect on the Exchange Date and the principal
amount of Notes into which each share of Series B Preferred Stock was
converted and exchanged, and specify the procedures by which the Holder shall
surrender certificates evidencing the shares of Series B Preferred Stock and
receive the Notes into which such shares have been converted and exchanged.
Failure to deliver such a notice to the Holder shall not affect the validity
of the conversion and exchange of the Series B Preferred Stock into Notes.
(d) At any time on or after the Exchange Date, the Holder may surrender
the certificates representing shares of Series B Preferred Stock to the
Company at the office or agency maintained by the Company in Dallas, Texas,
in exchange for a Note or Notes in the aggregate principal amount specified
in subparagraph 3(a) above, registered in such Holder's name or that of its
nominee, as such Holder shall request. Before any Holder shall be entitled
to receive such Notes, the Holder shall surrender the certificates
representing shares of Series B Preferred Stock to the Company at the address
specified in the notice of exchange, and shall state in writing the name or
names (with addresses), in which the Notes are to be issued. The Company
shall, as soon as practicable thereafter, issue and deliver at said address
to such Holder, or to his nominee or nominees, a Note or Notes in the
aggregate principal amount to which the Holder shall be entitled as
aforesaid. The Notes to be issued in exchange for the Series B Preferred
Stock shall be in substantially the form of such Notes as originally issued
pursuant to the Note Purchase Agreement, except that interest shall commence
to accrue thereunder on the last dividend payment date prior to the Exchange
Date and the initial conversion rate under such Notes shall be the Conversion
Rate in effect for the Series B Preferred Stock on the Exchange Date. The
Company shall not be required to pay any documentary, stamp or transfer tax
which may be payable in respect of any transfer involved in the issue or
transfer or delivery of Notes in a name other than. that in which the shares
of Series B Preferred Stock so exchanged were registered, and no such issue
or delivery- shall be made unless and until the person requesting such issue
has paid to the Company the amount of any such tax or has established to the
satisfaction of the Company that such tax has been paid.
(c) The Series B Preferred Stock shall be deemed to have been converted
and exchanged into Notes effective as of the close of business on the Exchange
Date, and the person or persons entitled to receive the Notes issuable upon such
exchange shall be treated for all purposes a s the record holder or holders of
Notes as of the close of business on such date. As of the close of business on
the Exchange Date, the rights of the Holders of the Series B Preferred Stock as
such shall terminate (including the right to receive accrued and unpaid
dividends to the Exchange Date) and such shares of Series B Preferred Stock
shall be returned to the status of authorized but unissued shares of Series B
Preferred Stock and shall no longer be deemed outstanding, and the former
holders of such shares of Series B Preferred Stock shall continue to possess
only the right to receive the Notes issuable in exchange therefor. No payments
of the accrued and unpaid dividends on the Series B Preferred Stock for periods
prior
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<PAGE>
to the dividend payment date immediately preceding the Exchange Date'. and no
payments of interest on the Notes into which they shall have been converted
and exchanged, shall be paid to the Holder until such time as the Holder has
surrendered the certificates representing shares of Series B Preferred Stock
to the Company in exchange for Notes.
4. REDEMPTION OF SERIES B PREFERRED STOCK.
(a) Commencing on April 1, 1993, and on each April I thereafter
through April 1, 1997, the Company shall redeem 10% of the aggregate number of
shares of Series B Preferred Stock that were issuable upon conversion and
exchange of the Notes at the time of original issuance of the Notes pursuant to
the Note Purchase Agreement (as that number of shares of Series B Preferred
Stock so issuable may. have been adjusted prior to their actual issuance
pursuant to anti-dilution provisions of the Notes), less any shares of Series B
Preferred Stock theretofore acquired other than by conversion (including any
that were subject to issuance pursuant to Notes that were acquired, other than
by conversion, before the conversion and exchange of such Notes into Series B
Preferred Stock) and not previously credited against a mandatory redemption
obligation, at a price equal to 100% of the Issue Price for each share so
redeemed by the Company, plus accrued and unpaid dividends.
(b) The Series B Preferred Stock may be redeemed, at the option of the
Company, at any time on or after April 1, 1993 and from time to time thereafter,
at a price equal to 100% of the Issue Price for each share so redeemed by the
Company, plus accrued and unpaid dividends; PROVIDED, HOWEVER, that the Company
may not redeem any of the shares of Series B Preferred Stock pursuant to this
subparagraph 4(b) unless the Current Market Price per share of the Common Stock
of the Company, on the date of mailing of the notice of such redemption to the
Holders, is greater than 200% of the Conversion Rate in effect at the time. The
maximum number of shares of Series B Preferred Stock that may be redeemed by the
Company in any 12-month period shall be as follows:
(i) For the 12-month period commencing April 1, 1993, the
Company may redeem an aggregate of one-third of the number of shares of
Series B Preferred Stock that were issuable upon conversion and exchange of
the Notes at the time of original issuance of the Notes pursuant to the
Note Purchase Agreement (as that number of shares of Series B Preferred
Stock so issuable may have been adjusted prior to their actual issuance
pursuant to anti-dilution provisions of the Notes), less one-third of the
number of such shares repurchased by the Company pursuant to paragraph
4E(ii) of the Note Purchase Agreement (including any that were subject to
issuance pursuant to Notes that were repurchased pursuant to such paragraph
4E(ii) of the Note Purchase Agreement);
(ii) For the 12-month period commencing April 1, 1994, the
Company may redeem an aggregate of two-thirds of the number of shares
of Series 8 Preferred Stock that were issuable Upon conversion and
exchange of the Notes at the time of original issuance of the Notes
pursuant to the Note Purchase Agreement (as that number of
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shares of Series B Preferred Stock so issuable may have been adjusted
prior to their actual issuance pursuant to anti-dilution provisions of
the Notes), less the sum of (A) two-thirds of the number of such shares
repurchased by the Company pursuant to paragraph 4E(ii) of the Note
Purchase Agreement (including any that were subject to issuance
pursuant to Notes that were repurchased pursuant to such paragraph
4E(ii) of the Note Purchase Agreement) and (B) the number of shares of
Series B Preferred Stock redeemed by the Company pursuant to this
subparagraph 4(b) during the 12-month period commencing April 1, 1993
(including any that were subject to issuance pursuant to Notes that
were redeemed pursuant to paragraph 3(b) of the Notes during the same
period); and
(iii) At any time and from time to time on and after
April 1, 1995, the Company may redeem all or any part of the shares of
Series B Preferred Stock at the time remaining outstanding.
(c) At the option of the Holder of any shares of Series B 'Preferred
Stock, the shares of Series B Preferred Stock held by such Holder shall be
redeemed by the Company, if prior to April 1, 1991: (i) any Person, together
with all Affiliates and Associates of such Person, acquires shares of Common
Stock of the Company in one or more transactions and, as a result thereof,
becomes the Beneficial Owner of more than 50% of the Common Stock of the
Company; and (ii) such amount of beneficial ownership was not submitted by such
Person to the Board of Directors for its prior approval and, if so submitted,
did not receive the affirmative vote or concurrence of both a majority of the
Continuing Directors and of the person nominated for election to the Board of
Directors pursuant to the Note Purchase Agreement (whether or not such person
was in fact so elected), as reflected either in minutes or other records of
proceedings of the Board of Directors or in any other writing executed by such
directors (or nominee). In such event, each Holder of shares of Series B
Preferred Stock shall have the right, to be exercised by written notice to the
Company, either to convert the shares of Series B Preferred Stock into Common
Stock of the Company in accordance with paragraph 2 hereof or .to tender the
shares of Series B Preferred Stock held by him for redemption in their entirety
at a redemption price for each share of Series B Preferred Stock equal to the
higher of (A) the aggregate amount determined by multiplying 100% of the Current
Market Price for the Common Stock by the number of shares of Common Stock into
which each share of Series 8 Preferred Stock is then convertible, plus accrued
and unpaid dividends to- the date of redemption, or (B) the following amount,
plus accrued and unpaid dividends to the date of redemption:
If The Stock Acquisition Percentage of
Date Occurs Issue Price
------------------------ -------------
Prior to April 1, 1989 110%
Between March 31, 1989
and April 1, 1990 109
Between March 31, 1990
and April 1, 1991 108
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<PAGE>
The right of the Holder to convert his shares of Series B Preferred
Stock into Common Stock or to tender the same for redemption as aforesaid shall
commence on the later of the Stock Acquisition Date pursuant to which such
Person became the Beneficial Owner of more than 50% of the Common Stock of the
Company and shall terminate at the close of business on the 60th day.
thereafter. If redemption is elected by the Holder, the date of redemption
shall occur on the 30th day following the date of notice of such election by the
Holder.
(d) At the option of the Holder of any shares of Series B Preferred
Stock, the shares of Series B Preferred Stock held by such Holder shall be
redeemed by the Company if and whenever there occurs a breach of any of the
conversion provisions of paragraph 2 or any of the financial covenants contained
in paragraph 5, or any of the redemption provisions of paragraph 4, or if any
voting action entitled or required to be taken by the holders of the Series B
Preferred Stock is disregarded, and there is no cure of the same within 30 days
after its occurrence. In such event, each Holder of shares of Series B
Preferred Stock shall have the right, to be exercised by written notice to the
Company, to tender the shares of Series B Preferred Stock held by him for
redemption in their entirety at a redemption price for each share of Series B
Preferred Stock equal to 100% of the Issue Price therefor, plus accrued and
unpaid dividends to the date of redemption. The right of the Holder to tender
his shares of Series B Preferred Stock for redemption as aforesaid shall
terminate, if not at the time exercised, at such time as the breach or event
giving rise to such right shall have been cured. If redemption is elected by
the Holder, the date of redemption shall occur on the 30th day following the
date of notice of such election by the Holder.
(e) If less than all of the outstanding shares of Series B Preferred
Stock are to be redeemed, the Company shall select a pro rata portion of the
shares held by each Holder for redemption; PROVIDED, HOWEVER, that the
Company may select for redemption all of the shares of Series B Preferred
Stock held by any one Holder if such Holder owns fewer than 5,000 shares. To
the extent the Company redeems a pro rata portion of the shares of Series B
Preferred Stock held by any one Holder, the Company may round the pro rated
portion to be so redeemed to integral multiples of 1,000 shares.
(f) In the case of a redemption by the Company pursuant to subparagraphs
4(a) or (b) above, the Company shall (i) fix a date for redemption (unless
otherwise fixed in subparagraph 4(a) above) and (ii) mail or cause to be mailed
a notice of such redemption at least 30 and not more than 75 days prior to the
date fixed for the redemption to the Holders of the shares of Series B Preferred
Stock so to be redeemed at their last addresses as they shall appear on the
registry books. Such mailing shall be by first class mail. The notice if
mailed in the manner herein provided shall be conclusively presumed to have been
duly given, whether or not the Holder receives such notice. In any case,
failure to give such notice by mail or any defect in the notice to any Holder
whose shares of Series B Preferred Stock have been designated for redemption
shall not affect the validity -of the proceedings for the redemption of any
other shares.
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<PAGE>
Each such notice of redemption shall specify the date fixed for redemption,
the redemption price at which the shares of Series B Preferred Stock are to be
redeemed, the place or places of payment, that payment will be made upon
presentation and surrender of certificates representing such shares, that
dividends accrued to the date fixed for redemption will be paid as specified in
said notice, and that on and after said date dividends thereon will cease to
accrue. Such notice also shall state that the Series B Preferred Stock may be
converted into Common Stock pursuant to the terms of the Series B Preferred
Stock until the close of business on the date fixed for redemption. If fewer
than all of the shares of Series B Preferred Stock are to be redeemed, the
notice of redemption shall identify the aggregate number of shares to be
redeemed. In case the shares of Series B Preferred Stock held by any Holder are
to be redeemed in part only, the notice of redemption shall state the portion of
the shares so held which are to be redeemed and shall state that on and after
the date fixed for redemption, upon surrender of certificates representing such
shares, a new certificate or certificates representing the unredeemed portion
thereof will be issued.
(g) If notice of redemption by the Company or of election to tender
for redemption by the Holder has been given as above provided, the redemption
price for the shares of Series B Preferred Stock with respect to which such
notice has been given shall become due and payable on the date and at the place
or places stated in such notice or otherwise specified, together with dividends
accrued to the date fixed for redemption, and on and after said date (unless the
Company shall default in the payment for such shares at the redemption price,
together with dividends accrued to said date) dividends on the shares of Series
B Preferred Stock so called for redemption shall cease to accrue and the right
to convert the shares of Series B Preferred Stock Notes into Common Stock shall
terminate at the close of business on such date. On presentation and surrender
of certificates representing such shares at a place of payment in said notice
specified, the said shares shall be paid for and redeemed by the Company at the
applicable redemption price, together with dividends accrued thereon to the date
fixed for redemption.
5. FINANCIAL COVENANTS. As long as any Series B Preferred Stock is
outstanding:
(a) the Company will not pay dividends on or make distributions with
respect to or repurchase or redeem any Common Stock or other capital stock
ranking junior to the Series B Preferred Stock with respect to dividends or in
liquidation if dividends on the Series B Preferred Stock are in arrears or the
Company is in default on any redemption or repurchase obligation with respect to
the Series B Preferred Stock.
(b) The Company will not pay dividends on or make distributions
with respect to or repurchase or redeem Common Stock or other capital stock
ranking junior to the Series B Preferred Stock with respect to dividends or in
liquidation, if the aggregate amount of all such dividends, distributions,
repurchases or redemptions after January 1, 1988 would exceed the total of:
(i) The accumulated net income of the Company from January 1, 1988
through the end of the immediately preceding quarter; plus
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<PAGE>
(ii) The proceeds from the issuance of capital stock or rights,
options or warrants to acquire capital stock of the Company, excluding
capital stock issued upon conversion or exercise of any convertible
security or right, option or warrant; plus
(iii) $5,000,000; plus
(iv) The proceeds of sale of the Notes to the extent such use has been
approved by a majority of the Continuing Directors.
(c) The Company will not sell, transfer or otherwise dispose of assets,
whether in one transaction or a series of related transactions if the aggregate
fair market value of the assets to be so disposed of exceeds $10,000,000, but
excluding from this restriction: (i) sales of inventory in the ordinary course
of business; (ii) sale of equipment that is to be replaced by newer or more
technologically advanced equipment; and (iii) sales of assets approved by a
majority of the Continuing Directors.
(d) The Company will not incur any Indebtedness without the approval of
the holders of a majority of the Series B Preferred Stock if, immediately
thereafter, the ratio of total Indebtedness of the Company to its Shareholders'
Equity would exceed 2.0 to 1, calculated on a consolidated basis.
(e) As long as either the Notes or the Series B Preferred Stock remain
outstanding, the Company will not create or incur any indebtedness for money
borrowed unless under the express provisions of the instrument creating or
evidencing the same or pursuant to which the same is outstanding, such
indebtedness is subordinated in right of payment and upon liquidation of the
Company to the payment in full of all principal, premium (if any) and interest
on the Notes; PROVIDED, HOWEVER, that indebtedness for borrowed money incurred
to fully or partially fund the purchase or acquisition of property or assets
having a purchase price or fair market value at least equal to the original
principal amount of such indebtedness, and which is secured by a security
interest in or pledge or mortgage of the property or assets so acquired, shall
not be required to be so subordinated; and PROVIDED FURTHER, that indebtedness
for borrowed money outstanding as of March 11, 1988, may be renewed, extended or
refunded from time-to-time without being so subordinated.
6. VOTING RIGHTS.
(a) At every meeting of stockholders of the Company, each Holder of Series
B Preferred Stock shall be entitled to cast, for each such share of Series B
Preferred Stock standing in his name on the books of the Company, that number of
votes which equals the number of shares of Common Stock into which each share of
Series B Preferred Stock is then convertible (initially one vote per share).
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<PAGE>
(b) Holders of Series B Preferred Stock shall vote as one class with the
holders of Common Stock and any other capital stock having voting rights on all
matters submitted to shareholders of the Company for a vote, except as provided
by law and as specified in subparagraph (c) below, and except that while the
Holders of Series B Preferred Stock, voting as a class, are entitled to elect
either two directors of the Company or a majority of the directors of the
Company as provided in subparagraphs (d) and (e) below, they shall not be
entitled to participate with the holders of Common Stock and other capital stock
having voting rights in the election of any other directors.
(c) Approval by holders of a majority of the votes to which Holders of the
Series B Preferred Stock are entitled, voting as a separate class if holders of
the Common Stock or any other capital stock having voting power also are
entitled to vote, will be required with respect to:
(i) Creation, authorization or issuance any class of capital stock
ranking, either as to payment of dividends, redemptions or distributions of
assets, prior to or on a parity with the Series B Preferred Stock,
notwithstanding any authority of the Board of Directors to create such a
class of capital stock without approval of shareholders of the Company;
(ii) Changing the powers, preferences, rights or limitations with
respect to the Series B Preferred Stock in any respect prejudicial or
adverse to the Holders thereof, whether by amendments to the Company's
certificate of incorporation or otherwise;
(iii) The issuance of shares of Series B Preferred Stock in excess
of those originally issuable upon conversion of the Notes (as that number
may be adjusted pursuant to anti-dilution provisions of the Notes);
(iv) Any Reorganization that has not been approved by, and submitted
to shareholders of the Company for their approval with a favorable
recommendation by, a majority of Continuing Directors of the Company;
(v) Any Self-Dealing Transactions between the Company or its
subsidiaries and any Acquiring Person; and
(vi) Any action proposed to be authorized or approved by a majority
written consent of shareholders without a meeting.
(d) If and whenever accrued dividends on the Series B Preferred Stock
shall not have been paid, or declared and a sum sufficient for the payment
thereof set aside, in an amount equivalent to not less than four (4) quarterly
dividends on any shares of Series B Preferred Stock at the time outstanding then
and in such event, the holders of the Series B Preferred Stock, voting
separately as a class, shall be entitled, at any annual meeting of the
stockholders or special meeting held in place thereof, or at a special meeting
of the holders of the Series B
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<PAGE>
Preferred Stock called as hereinafter provided, to elect two (2) directors.
Such right of the holders of Series B Preferred Stock to elect two (2)
directors may be exercised until dividends in default on the Series B
Preferred Stock shall have been paid in full or funds sufficient therefor set
aside and, when so paid or provided for, the right of the holders of the
Series B Preferred Stock to elect such number of directors shall cease, but
subject always to the same provisions for the vesting of such voting rights
in the case of any such future dividend default or defaults.
(e) If and whenever there occurs a breach of any of the conversion
provisions of paragraph 2 or any of the financial covenants contained in
paragraph 5, or any of the redemption provisions of paragraph 4, or if any
voting action entitled or required to be taken by the holders of the Series B
Preferred Stock voting as a separate class - is disregarded, and the same is not
cured or remedied within 30 days after written notice from a Holder, then and in
such event, the holders of the Series B Preferred Stock, voting separately as a
class, shall be entitled, at any annual meeting of the stockholders or special
meeting held in place thereof, or at a special meeting of the holders of the
Series B Preferred Stock called as hereinafter provided, to elect such number of
directors as may be necessary to constitute, after such election, a majority of
the members of the Board of Directors of the Company. Such right of the holders
of Series B Preferred Stock to elect a majority of the directors may be
exercised until all of the breaches or events giving rise to the right to so
elect a majority of the directors of the Company shall have been cured or there
shall no longer be any shares of Series B Preferred Stock outstanding and, when
so cured or there are no longer any shares of Series B Preferred Stock
outstanding, the right of the holders of the Series B Preferred Stock to elect
such number of directors shall cease, but subject always to the same provisions
for the vesting of such voting rights in the case of any such future defaults or
events.
(f) At any time after voting power to elect two directors or a majority of
the directors of the Company shall have so vested in the holders of the Series B
Preferred Stock, the Secretary of the Company may, and, upon the written request
of the holders of record of ten per cent (10%) or more of the shares of the
Series B Preferred Stock then outstanding, addressed to him at the principal
office of the Company shall, call a special meeting of the holders of the Series
B Preferred Stock for the election of the directors to be elected by them as
hereinafter provided, to be held within forty (40) days after delivery of such
request and at the place and upon the notice provided by law and in the by-laws
of the Company for the holding of meetings of stockholders; PROVIDED, HOWEVER,
that the Secretary shall not be required to call such special meeting in the
case of any such request received less than ninety (90) days before the date
fixed for the next ensuing annual meeting of stockholders. No such special
meeting and no adjournment thereof shall be held on a date less than thirty (30)
days before the annual meeting of the stockholders or special meeting held in
place thereof next succeeding the time when the holders of the Series B
Preferred Stock become entitled to elect directors as above provided. If at any
such annual or special meeting or any adjournment thereof the holders of at
least a majority of the shares of the Series B Preferred Stock then outstanding
shall be present or represented by proxy, then, by vote of the holders of at
least a majority of the shares of the Series B Preferred Stock present or so
represented at such meeting, the then authorized number of directors of the
Company shall be
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<PAGE>
increased either by two (2) or by such number or as shall constitute a
majority of the then number of directors, and the holders of the Series B
Preferred Stock shall be entitled to elect the additional directors so
provided for. The directors so elected shall serve until the next annual
meeting of stockholders or until their respective successors shall be duly
elected and shall qualify; provided, however, that whenever the holders of
the Series B Preferred Stock shall be divested of voting power as above
provided, the terms of office of all persons elected as directors by the
holders of the Series B Preferred Stock as a class shall forthwith terminate,
and the number of the Board of Directors shall be reduced accordingly.
(g) If, during any interval between any special meeting of the holders of
the Series B Preferred Stock for the election of directors to be elected by them
as provided in subparagraph (d) or (e) and the next ensuing annual meeting of
stockholders, or between annual meetings of stockholders for the election of
directors, and while the holders of the Series B Preferred Stock shall be
entitled to elect additional directors, the number of directors who have been
elected by the holders of the Series B Preferred Stock shall, by reason of
resignation, death or removal, be less than the total number of directors
subject to election by the holders of the Series B Preferred Stock, the
Secretary of the Company shall, in any event, within ten (10) days after
delivery to the Company at its principal office of a request to such effect
signed by the holders of at least ten per cent (10%) of the outstanding shares
of the Series B Preferred Stock, call a special meeting for such purpose to be
held within forty (40) days after delivery of such request and such vacancy or
vacancies shall be filled by the holders of the Series B Preferred Stock at such
special meeting; provided, however, that the Secretary shall not be required to
call such special meeting in the case of any such request received less than
ninety (90) days before the date fixed for the next ensuing annua-1 meeting of
stockholders.
7. PRIORITY OF SERIES B PREFERRED STOCK IN EVENT OF DISSOLUTION. In the event
of any liquidation, dissolution, or winding up of the affairs of the Company,
whether voluntary or otherwise, after payment or provision for payment of the
debts and other liabilities of the Company, the holders of the Series B
Preferred Stock shall be entitled to receive, out of the remaining net assets of
the Company, an amount for each share of Series B Preferred Stock equal to the
Issue Price, plus an amount equal to all dividends accrued and unpaid on each
such share up to the date fixed for distribution, before any distribution shall
be made to the holders of the Common Stock or other capital stock ranking junior
to the Series B Preferred Stock. After such payment shall have been made in
full to the holders of the Series B Preferred Stock, or funds necessary for such
payment shall have been set aside in trust for the account of the holders of the
Series B Preferred Stock, so as to be and continue to be available therefor, the
holders of the Series B Preferred Stock shall be entitled to no further
participation in the distribution of the assets of the Company.
8. DEFINITIONS. For purposes of determining the rights of the Holders of the
Series B Preferred Stock, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person, together with all Affiliates
and Associates of such Person, that either:
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(i) together with all Affiliates and Associates of that Person, is
the Beneficial Owner of 20% or more of the shares of Common Stock then
outstanding, but shall not include the Company, any Subsidiary, any
employee benefit plan of the Company or of any Subsidiary, or any Person
organized, appointed, or established by the Company or any Subsidiary for
or pursuant to the terms of any such plan; or
(ii) is at the time engaged in a tender or exchange offer that could
result in that Person, together with all Affiliates and Associates of that
Person, becoming the Beneficial Owner of 30% or more of the outstanding
Common Stock.
(b) 'Affiliate" and "Associate" shall have the meanings ascribed to such
terms in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the 'Exchange Act"), as in effect on the date
of execution of the Note Purchase Agreement.
(c) A Person shall be deemed the "Beneficial Owner, of, and shall be
deemed to "beneficially own," any securities or equity interests:
(i) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (A) the right to acquire (whether
such right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement, or understanding (whether or not in
writing) or upon the exercise of conversion rights, exchange rights, or
other rights, warrants, or options, or otherwise; PROVIDED, HOWEVER, that a
Person shall not be deemed the "Beneficial Owner" of, or to "beneficially
own," securities tendered pursuant to a tender or exchange offer made by
such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange; or (B) the right
to vote or dispose of or 'beneficial ownership" (as determined pursuant to
Rule 13d-3 of the General Rules and Regulations under the Exchange Act) of
(including pursuant to any agreement, arrangement, or understanding,
whether or not in writing); PROVIDED, HOWEVER, that a Person shall not be
deemed the "Beneficial Owner" of, or to 'beneficially own," any security
under this clause (B) as a result of an agreement, arrangement, or
understanding to vote such security if such agreement, arrangement, or
understanding (1) arises solely from a revocable proxy given in response to
a public proxy or consent solicitation made pursuant to, and in accordance
with, the applicable provisions of the General Rules and Regulations under
the Exchange Act, and (2) is not also then reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(ii) that are beneficially owned, by any other Person (or any
Affiliate or Associate thereof) with which such Person or any of such
Person's Affiliates or Associates has any agreement, arrangement, or
understanding (whether or not in writing), for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy as
-17-
<PAGE>
described in the proviso to subparagraph 5(c)(i)(B) above), or disposing
of any securities or equity interests.
(d) "Business Day" shall mean any day other than a Saturday, Sunday, or a
day on which banking institutions in the State of Texas are authorized or
obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean 5:00 P.M., Dallas
time, on such date; provided, however, that if such date is not a Business Day
it shall mean 5:00 P.M., Dallas time, on the next succeeding Business Day.
(f) "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Certificate of Incorporation of the Company, as amended, at the
date of execution of the Note Purchase Agreement this Note or (ii) any other
class of stock resulting from successive changes or reclassifications of such
Common Stock consisting solely of changes in par value, or from par value to no
par value, or from no par value to par value; except that "common stock" when
used with reference to any Person other than the Company shall mean the class of
capital stock of such Person with the greatest voting power, or the equity
securities or other equity interests having power to control or direct the
management, of such Person.
(g) "Continuing Director" shall mean any member of the Board of Directors
of the Company who (i) (A) is not an Acquiring Person and (B) who was a member
of the Board of .Directors of the Company before the time the Acquiring Person
became an Acquiring Person, or (ii) (A) is not an Acquiring Person and (B) was
recommended to serve on the Board of Directors of the Company by a majority of
Continuing Directors.
(h) "Current Market Price" at any date shall be deemed to be the average
of the last reported sales price per share of Common Stock on the 20 consecutive
Trading Days commencing 25 Trading Days before the day in question.
(i) "Distribution Date" shall mean the date of distribution to holders of
Common Stock of the Company of rights to purchase Series A Junior Participating
Preferred Stock, $10 par value, of the 'Company, as defined in Section 3 of the
Rights Agreement.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(k) "Exchange Date" shall have the meaning assigned to the same in
paragraph 3(a) hereof.
(1) "Holder" shall mean the Person in whose or which name a share of
Series B Preferred Stock is registered either on the face of the Certificate
representing the same or on register books mentioned by the Company. "Holders"
shall mean the holders of all of the Series B Preferred Stock.
-18-
<PAGE>
(m) "Indebtedness" shall mean any of the following, whether the same be
now outstanding or hereafter created or incurred:
(i) Principal of and premium, if any, and interest on indebtedness
for money borrowed;
(ii) Principal of and premium, if any, and interest on indebtedness or
obligations evidenced by notes, debentures, bonds or other debt securities
issued by the Company;
(iii) Obligations as lessee under leases of real or personal
property recorded as capitalized leases in accordance with generally
accepted accounting principles;
(iv) Principal of and premium, if any, and interest on indebtedness of
others of the kinds described in either of the preceding clauses (i) or
(ii) or leases of others of the kind described in the preceding clause
(iii) assumed by or guaranteed in any manner by the Company or in effect
guaranteed by the Company through an agreement to purchase, contingent or
otherwise; and
(v) Principal of and premium, if any, and interest on renewals,
extensions or refundings of indebtedness of the kinds described in any of
the preceding clauses (i), (ii), (iv), or renewals of extensions of leases
of the kinds described in either of the preceding clauses (iii) or (iv).
(n) "Issue Price" shall have the meaning set forth in the preambles to
this resolution designating the Series B Preferred Stock.
(o) "Last reported sales price" for each day shall be (i) the last
reported sales price of Common Stock on the National Market System of the
National Association of Securities Dealers, Inc., Automated Quotation System, or
any similar system of automated dissemination of quotations of securities prices
then in common use, if so quoted, or (ii) if not quoted as described in clause
(i), the mean between the high bid and low asked quotations for Common Stock as
reported by the National Quotation Bureau Incorporated if at least two
securities dealers have inserted both bid and asked quotations for such class of
stock on at least five of the 10 preceding days, or (iii) if the Common Stock is
listed or admitted for trading on any national securities exchange, the last
reported sales price, or the closing bid price if no sale occurred, of such
class of stock on the principal securities exchange on which such class of stock
is listed. If Common Stock is quoted on a national securities or central market
system, in lieu of a market or. quotation system described above, the last
reported sales price shall be determined in the manner set forth in clause (ii)
of the preceding sentence if bid and asked quotations are reported but actual
transactions are not, and in the manner set forth in clause (iii) of the
preceding sentence if actual transactions are reported. If none of the
conditions set forth above is met, the last reported sales price of Common Stock
on any day or the average of such last reported sales prices for any
-19-
<PAGE>
period shall be the fair market value of such class of stock as determined by
a member firm of the New York Stock Exchange, Inc. selected by the Company.
(p) Note Purchase Agreement" shall mean the Note Purchase Agreement
between the Company and P. E. Esping, dated as of March 15, 1988, as the same
may be amended or modified from time to time.
(q) "Notes' shall mean all of the 10% Convertible Exchangeable Notes due
April 1, 1988 of the Company originally issued pursuant to the Note Purchase
Agreement, and any Notes issued upon transfer or in replacement thereof.
(r) "Person" shall mean any individual, firm, corporation, partnership, or
other entity, and any "group" within the meaning of Section 13(d)(3) of the
Exchange Act.
(s) "Reorganization" shall mean any transaction in which it is proposed,
directly or indirectly, that: (i) the Company be consolidated with, or merged
with and into, any other Person, and the Company would not be the continuing or
surviving corporation of such consolidation or merger; (ii) any Person .-be
consolidated with, or merged with or into, the Company, and the Company would be
the continuing or surviving corporation of such consolidation or merger and, in
connection with such consolidation or merger, all or part of the outstanding
shares of Common Stock would be changed into or exchanged for stock or other
securities of any other Person or cash or any other property; or (iii) the
Company sell or otherwise transfer or lease (or one or more of its Subsidiaries
shall sell or otherwise transfer or lease), in one or more transactions, assets
or earning power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any Person or Persons (other
than the Company or any Subsidiary); or (iv) the Company engage in any other
transaction such as a recapitalization, reorganization or liquidation in which
either the previously outstanding Common Stock is changed into or exchanged for
different securities of the Company or interests in another entity or other
property or which would or may cause the Company, immediately after consummation
of the same, to be in breach of its covenants contained in paragraphs 5(c) and
(d) hereof.
(t) "Rights Agreement" shall mean the Rights Agreement dated as of
February 1, 1988 between the Company and Texas American Bank/Dallas, N.A., as
Rights Agent, pursuant to which advantage provided by the Company or any
Subsidiary; or (vii) any reclassification of securities (including any reverse
stock split), or recapitalization of the Company, or any merger or consolidation
of the Company with any of its Subsidiaries, or any other transaction or series
of transactions which would involve the Company or any of its Subsidiaries
(whether or not with or into or otherwise involving an Acquiring Person) that
would or may have the effect, directly or indirectly, of increasing by more than
1% the proportionate share of the' outstanding shares of any class of equity
securities or of securities convertible into or exercisable for equity
securities of the Company or any of its Subsidiaries of which any Acquiring
Person or any Associate or Affiliate of any Acquiring Person, is the Beneficial
Owner.
-20-
<PAGE>
(v) "Shareholders' Equity" as of any date shall mean the consolidated
amount thereof shown on the consolidated balance sheet of the Company and its
Subsidiaries as of the end of the most recent fiscal quarter, as reported in
Form 10-K or Form 10-Q reports filed by the Company with the Securities and
Exchange Commission.
(w) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include a report
filed pursuant to Section 13(d) of the Exchange Act) by the Company or another
Person (including an Acquiring Person) that such Person has, together with all
Affiliates and Associates of such Person, become the Beneficial owner of, as
appropriate, either: (i) 20% or more of the Common Stock of the Company; or (ii)
more than 50% of the Common Stock of the Company.
(x) "Subsidiary" shall mean any corporation or other entity of which a
majority of any class of equity securities or of any equity interests is
beneficially owned by the Company or that is otherwise controlled by the Company
and "subsidiary," with reference to any other Person, shall mean any corporation
or other entity of which a majority of any class of equity securities or of any
equity interests is beneficially owned by such other Person, or which is
otherwise controlled by such other Person.
(y) "Trading Days" with respect to Common Stock means: (i) if such class
of stock is quoted on the National Market System of the National Association of
Securities Dealers, Inc., Automated Quotation System or any similar system of
automated dissemination of quotations of securities prices, days on which trades
may be made on such system; (ii) if such class of stock is listed or admitted
for trading on any national securities exchange, days on which the principal
national securities exchange on which such class of stock is listed or admitted
for trading is open for business; or (iii) if not quoted or listed as described
in clause (i) or (ii), days on which the New York Stock Exchange is open for
business.
9. AMENDMENTS AND WAIVERS. Except as provided below, any amendment of the
terms of the Series B Preferred Stock or these resolutions creating and
authorizing the same, or a waiver of any right that the Holder may have
thereunder or hereunder, shall be effective upon receipt of the written approval
thereof by the Board of Directors of the Company and the written consent thereto
by the Holders of at least two-thirds (2/3) in the aggregate of the number of
shares of Series B Preferred Stock then outstanding, and the filing of any
required certificate or other instrument with the Secretary of State of Delaware
in accordance with the Delaware General Corporation Law; any such amendment or
waiver shall thereupon be binding upon the Holders of all of the Series B
Preferred Stock then or thereafter outstanding. No such amendment or waiver
shall (i) extend the date or dates of redemption of any of the Series B
Preferred Stock, or reduce the rate or extend the time of payment of dividends
thereon, or reduce the redemption price or liquidation preference thereof, or
waive a default in the payment of any redemption price or any dividend thereon,
without the written consent of the Holder of each share of Series B Preferred
Stock so affected, or (ii) reduce the aforesaid percentage of s-hares of Series
B Preferred Stock, the Holders of which are required to consent to any such
amendment or waiver, without the written consent of the Holders of all shares of
Series B Preferred Stock then outstanding."
-21-
<PAGE>
IN WITNESS WHEREOF, Cronus Industries, Inc. has caused its corporate seal
to be hereunto affixed and this certificate to be signed by C.A. Rundell, Jr.,
its Chairman of the Board, and John K. Sterling, its Secretary, this ___ day of
March, 1988.
CRONUS INDUSTRIES, INC.
(CORPORATE SEAL] /s/ C. A. Rundell, Jr.
------------------------------------
C.A. Rundell, Jr.,
Chairman of the Board and
Chief Executive Officer
ATTEST:
/s/ John K. Sterling
- -----------------------------------
John K. Sterling, Secretary
-22-
<PAGE>
EXHIBIT (21)
SUBSIDIARIES
The following schedule lists the Company and its subsidiaries, all of which
are directly or indirectly wholly owned, their respective states of
incorporation, and by indentation the immediate parent of each listed
subsidiary, on March 20, 1998. The schedule includes all subsidiaries except
those that, if considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.
PLACE OF
NAME INCORPORATION
---- --------------
BRC Holdings, Inc. Delaware
BRC Technology Services, Inc. Delaware
BRC Healthcare, Inc. Oregon
Latron Holdings, Inc. Oregon
Latron Computer Systems, Inc. New Jersey
Business Records Corporation Delaware
Coding Systems, Inc. Texas
Clinical Resource Systems, Inc. Texas
Cronus/ESL, Inc. Delaware
Dash Data Processing Corporation Texas
Logan Services, Inc. Delaware
The Pace Group, Inc. Texas
Pace Acquisition II, Inc. Texas
The Pace Group Services, Inc. Texas
<PAGE>
EXHIBIT (23)a
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 for the Management Equity Participation Stock Option
Plan, the Non-Qualified Performance Stock Option Plan for Key Employees, the
Business Records Corporation Holding Company Non-Qualified Director Stock
Option Plan, the Business Records Corporation 401(k) Retirement Plan and
Trust of Cronus Industries, Inc., the Amended and Restated Business Records
Corporation Stock Option Plan, the BRC Holdings, Inc. Performance Stock
Option Plan For New Employees and Employees of Acquired Companies, the
Clinical Resource Systems, Inc. Stock Option Plan and Clinical Resource
Systems, Inc. Common Stock Purchase Warrant of our report dated March 16,
1998 appearing in this Form 10-K.
PRICE WATERHOUSE LLP
Dallas, TX
March 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FINANCIAL STATEMENTS FILED FOR THE PERIOD ENDING DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,464
<SECURITIES> 25,084
<RECEIVABLES> 26,633
<ALLOWANCES> 0
<INVENTORY> 1,585
<CURRENT-ASSETS> 67,666
<PP&E> 39,268
<DEPRECIATION> 28,084
<TOTAL-ASSETS> 202,110
<CURRENT-LIABILITIES> 32,815
<BONDS> 0
0
0
<COMMON> 719
<OTHER-SE> 166,709
<TOTAL-LIABILITY-AND-EQUITY> 202,110
<SALES> 0
<TOTAL-REVENUES> 107,487
<CGS> 0
<TOTAL-COSTS> 77,828
<OTHER-EXPENSES> 27,142
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296
<INCOME-PRETAX> 7,044
<INCOME-TAX> (4,478)
<INCOME-CONTINUING> 2,566
<DISCONTINUED> 17,684
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,250
<EPS-PRIMARY> 2.90
<EPS-DILUTED> 2.85
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FINANCIAL STATEMENTS FILED FOR THE PERIODS ENDING DEC. 31, 1995, MARCH 31, 1996,
JUNE 30, 1996, SEPTEMBER 30, 1996 AND DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 12-MOS 3-MOS 6-MOS 9-MOS
12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996
JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996
DEC-31-1996
<CASH> 10,044 21,121 5,236 7,275
7,089
<SECURITIES> 28,299 16,026 24,509 31,384
33,440
<RECEIVABLES> 19,980 30,625 33,526 36,264
28,728
<ALLOWANCES> 0 0 0 0
0
<INVENTORY> 1,390 9,626 9,177 8,661
1,462
<CURRENT-ASSETS> 66,753 84,006 79,199 91,605
79,391
<PP&E> 33,604 60,328 59,132 59,410
40,033
<DEPRECIATION> 22,590 43,638 43,096 43,337
29,017
<TOTAL-ASSETS> 155,292 165,338 168,626 172,852
175,240
<CURRENT-LIABILITIES> 17,166 24,038 22,622 26,063
19,030
<BONDS> 579 195 68 37
0
0 0 0 0
0
0 0 0 0
0
<COMMON> 645 646 650 693
716
<OTHER-SE> 133,818 136,639 141,616 144,097
153,480
<TOTAL-LIABILITY-AND-EQUITY> 155,292 165,338 168,626 172,852
175,240
<SALES> 0 0 0 0
0
<TOTAL-REVENUES> 103,567 37,646 75,421 110,474
100,248
<CGS> 0 0 0 0
0
<TOTAL-COSTS> 75,529 26,946 51,832 76,831
74,434
<OTHER-EXPENSES> 13,979 6,216 13,264 35,610
31,511
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 428 0 0 0
285
<INCOME-PRETAX> 18,394 5,214 11,836 608
(2,175)
<INCOME-TAX> 7,362 2,106 4,735 4,624
(3,437)
<INCOME-CONTINUING> 11,032 3,108 7,107 (4,016)
(5,612)
<DISCONTINUED> (337) 0 0 0
4,246
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 10,695 3,108 7,107 (4,016)
(1,366)
<EPS-PRIMARY> 1.69 .48 1.10 (.58)
(.21)
<EPS-DILUTED> 1.63 .47 1.07 (.61)
(.21)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FINANCIAL STATEMENTS FILED FOR THE PERIODS ENDING MARCH 31, 1997, JUNE 30, 1997
AND SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 501 8,420 15,148
<SECURITIES> 30,588 27,498 24,067
<RECEIVABLES> 30,525 27,403 28,217
<ALLOWANCES> 0 0 0
<INVENTORY> 1,324 1,363 1,685
<CURRENT-ASSETS> 71,099 70,500 73,930
<PP&E> 40,692 41,591 39,936
<DEPRECIATION> 30,195 31,492 28,946
<TOTAL-ASSETS> 177,998 172,286 175,956
<CURRENT-LIABILITIES> 22,984 21,218 21,779
<BONDS> 39 0 0
0 0 0
0 0 0
<COMMON> 719 719 719
<OTHER-SE> 152,326 148,488 151,447
<TOTAL-LIABILITY-AND-EQUITY> 177,998 172,286 175,956
<SALES> 0 0 0
<TOTAL-REVENUES> 25,379 53,134 79,455
<CGS> 0 0 0
<TOTAL-COSTS> 18,019 36,637 55,622
<OTHER-EXPENSES> 5,218 10,790 15,282
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 3,099 7,706 11,594
<INCOME-TAX> 1,233 3,074 4,639
<INCOME-CONTINUING> 1,866 4,632 6,955
<DISCONTINUED> (787) (781) (540)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,079 3,851 6,415
<EPS-PRIMARY> .15 .55 .92
<EPS-DILUTED> .15 .54 .90
</TABLE>
