United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 1995
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: 0-9023
COMDIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 94-2443673
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P. O. Box 7266
1180 Seminole Trail; Charlottesville, Virginia 22906-7266
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 978-2200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
_X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of latest practicable date. 21,261,587
common shares as of July 2, 1995.
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
INDEX PAGE
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets as of
July 2, 1995 and December 31, 1994 3
Consolidated Statements of Operations
for the Three and Six Months ended
July 2, 1995 and July 3, 1994 4
Consolidated Statements of Cash Flows
for the Six Months ended
July 2, 1995 and July 3, 1994 5
Notes to Consolidated Financial Statements 6-9
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-16
PART II - OTHER INFORMATION
ITEM 4: Submission of Matters to a Vote by Security Holders 17
ITEM 6: Exhibits and Reports on Form 8-K 18
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
Consolidated Balance Sheets - (Unaudited)
(Unaudited) *
July 2, December 31,
In thousands except par value 1995 1994
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $91 $1,679
Accounts receivable - net 9,557 6,637
Inventories 17,903 16,869
Prepaid expenses and other current assets 1,342 1,014
Total current assets 28,893 26,199
Property - net 13,233 13,668
Deferred tax asset - net 6,484 -
Other assets 2,398 2,393
Total assets $51,008 $42,260
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $6,959 $6,977
Accrued promotional allowances 1,119 1,592
Other accrued liabilities 3,289 3,533
Current maturities of debt 3,488 2,466
Total current liabilities 14,855 14,568
Long-term debt 3,601 4,737
Deferred tax liability 1,981 -
Long-term employee benefit obligations 2,041 1,912
Commitments and contingent liabilities (See Note G)
Total liabilities 22,478 21,217
Stockholders' equity
Series A 7-1/2% preferred stock ($10.00 par value),
(Authorized shares 2,000; issued 750 shares) 7,500 7,500
Common stock ($0.01 par value) and paid-in capital
(Authorized 30,000 shares; issued shares:
1995 = 21,262; 1994 = 20,953) 100,589 100,320
Other (1,017) (942)
Accumulated deficit (78,542) (85,835)
Total stockholders' equity 28,530 21,043
Total liabilities and stockholders' equity $51,008 $42,260
* Condensed from audited financial statements.
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Operations - (Unaudited)
Three Months Ended Six Months Ended
July 2, July 3, July 2, July 3,
In thousands except per share amounts 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $25,442 $19,019 $47,758 $36,658
Cost of goods sold 17,188 12,897 32,380 24,670
Gross profit 8,254 6,122 15,378 11,988
Operating expenses
Selling, general & administrative 4,836 3,663 9,180 7,402
Engineering, research & development 1,016 997 2,059 1,981
Operating income 2,402 1,462 4,139 2,605
Other expense (income)
Interest expense 282 319 555 711
Miscellaneous expense 197 163 391 277
Income before income taxes and
extraordinary item 1,923 980 3,193 1,617
Income tax expense (benefit):
Income tax expense 77 38 117 60
Income tax benefit (4,503) - (4,503) -
Income before extraordinary item 6,349 942 7,579 1,557
Extraordinary item, write-off of
debt issuance cost - - - 389
Net income 6,349 942 7,579 1,168
Dividends on preferred stock 142 161 285 267
Net income applicable to common stock $6,207 $781 $7,294 $901
Earnings per common share and common equivalent share:
Primary:
Income before income taxes and
extraordinary item $0.08 $0.04 $0.13 $0.06
Income tax expense - - (0.01) -
Income tax benefit 0.20 - 0.21 -
Extraordinary item - - - (0.02)
Net income per common share $0.28 $0.04 $0.33 $0.04
Fully diluted $0.26 $0.04 $0.31 $0.04
Weighted average common shares outstanding:
Primary 21,876 21,732 21,793 21,740
Fully diluted 24,603 21,732 24,599 21,740
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows - (Unaudited)
July 2, July 3,
In thousands 1995 1994
Cash flows from operating activities:
Cash received from customers $47,451 $37,364
Other cash received 428 870
Interest received 15 50
Cash paid to suppliers and employees (47,554) (36,709)
Interest paid on debt (418) (631)
Interest paid under capital lease obligations (51) (162)
Income taxes paid (117) (127)
Net cash provided (used) by operating activities (246) 655
Cash flows from investing activities:
Proceeds from the sale of equipment 1 205
Capital expenditures (1,024) (1,682)
Net cash used by investing activities (1,023) (1,477)
Cash flows from financing activities:
Proceeds from borrowings - 7,300
Net borrowings under revolver agreement 1,282 2,278
Proceeds from issuance of common stock 80 167
Principal payments on debt (1,064) (13,604)
Principal payments under capital lease
obligations (332) (454)
Preferred dividends paid (285) (267)
Net cash used in financing activities (319) (4,580)
Net decrease in cash and cash equivalents (1,588) (5,402)
Cash and cash equivalents at beginning of year 1,679 5,474
Cash and cash equivalents at end of period $91 $72
Reconciliation of net income to net cash provided by operating activities:
Net Income $7,579 $1,168
Depreciation and amortization 1,814 2,077
Increase in accounts receivable (2,920) (1,494)
Inventory provision 1,324 591
Increase in inventory (2,358) (995)
Increase in other assets (7,173) (1,040)
Increase (decrease) in accounts payable (18) 168
Increase in other liabilities 1,393 24
Increase in paid-in capital and other equity 113 156
Total adjustments (7,825) (513)
Net cash provided (used) by operating activities $(246) $655
The accompanying notes are an integral part of these financial
statements.
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JULY 2, 1995 - (Unaudited)
Note A: CONSOLIDATED FINANCIAL STATEMENTS______________________________
The financial information included as of July 2, 1995 and for the three
and six months ended July 2, 1995 and July 3, 1994 included herein is
unaudited; however, such information reflects all adjustments
(consisting only of normal recurring adjustments except for Statement of
Financial Accounting Standards ("SFAS") No. 109) which are, in the
opinion of management, necessary for a fair statement of results for
such periods. Accounting policies followed by the Company are described
in Note 1 to the consolidated financial statements in it's Annual Report
to the Stockholders for the year ended December 31, 1994. The
consolidated financial statements for 1995 should be read in
conjunction with the 1994 financial statements, including notes thereto,
contained in the Company's Annual Report to the Stockholders for the
year ended December 31, 1994. Certain amounts in the 1994 consolidated
financial statements have been reclassified to conform to the 1995
presentation. The results of operations for the six months ended July
2, 1995 are not necessarily indicative of the results to be expected for
the full year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES_____________________
Under the Company's current cash management policy, borrowings from the
revolving credit facility are used for operating purposes. The
revolving credit facility is reduced by cash receipts that are deposited
daily. The Company is reporting the revolving credit facility activity
on a net basis on the Consolidated Statements of Cash Flows. The
Company considers out-standing checks to be a bank overdraft. Bank
overdrafts are outstanding checks that have not cleared the bank or been
funded by the revolving credit facility (see Note D). At July 2, 1995,
bank overdrafts increased accounts payable by $1,369,000.
Note C: INVENTORIES__________________________________________________________
Inventories consist of the following:
________________________________________________________________________
July 2, December 31,
In thousands 1995 1994
Finished goods $2,876 $2,936
Work-in-process 5,630 4,455
Materials and supplies 9,397 9,478
Total $17,903 $16,869
________________________________________________________________________
Note D: BORROWINGS___________________________________________________________
Since February 1, 1994, Shawmut Capital Corporation ("Shawmut"),
formerly known as Barclays Business Credit, Inc., had held substantially
all of the Company's indebtedness. Prior to February 1, 1994,
PacifiCorp, through its indirect subsidiary, PacifiCorp Credit, Inc.
("PCI"), held substantially all of the Company's indebtedness.
Long-term Debt. Long-term debt consisted of the following:
________________________________________________________________________
July 2, December 31,
In thousands 1995 1994
Notes payable to Shawmut
Term notes I and II $4,790 $5,854
Revolving credit 1,282 -
Capitalized leases 1,017 1,349
Total debt 7,089 7,203
Less current maturities on debt 3,488 2,466
Total long-term debt $3,601 $4,737
________________________________________________________________________
On December 23, 1993, the Company and PCI entered into an agreement (the
"Equity Agreement"), pursuant to which, among other things, PCI agreed
to accept 850,000 shares of a newly designated Series A 7 1/2%
Cumulative Convertible Redeemable Preferred Stock ("Series A Preferred
Stock") of the Company in exchange for the cancellation of $8,500,000 of
the Company's existing indebtedness to PCI (which was a non-cash
transaction).
On February 1, 1994, the Company and Shawmut entered into a loan and
security agreement ("Loan Agreement") pursuant to which Shawmut agreed
to provide the Company with a $6,000,000 term loan ("Term Note I") and a
$9,000,000 revolving credit loan facility. The Company's principal
balance of its indebtedness on February 1, 1994 to PCI was $21,209,453,
which was paid by using cash generated from operations of $6,000,000,
cash borrowed from Shawmut of $6,709,453, and the cancellation of the
remaining debt of $8,500,000 with the issuance of Preferred Stock. In
December 1994, the Company received proceeds of $1,000,000
from Cortelco International, Inc. ("Cortelco") relating to the sale of
the electromechanical product line in 1992. The Company used the
proceeds to purchase from PCI 100,000 shares of the Redeemable Preferred
Stock.
On April 29, 1994, the Company and Shawmut amended the Loan Agreement to
permit the Company to borrow an additional $1,300,000 under the Term
Note ("Term Note II") to finance the purchase of additional surface
mount technology equipment. The Company will repay the additional
advance in 44 consecutive monthly payments of $27,000 beginning on June
1, 1994 with the balance due on February 1, 1998.
The Shawmut Term Notes I and II of $7,300,000 carry interest rates of 1
1/2% over the Shawmut's prime rate and are payable in equal monthly
principal installments of $152,000 for the next seven months, and 23
equal monthly principal installments of $110,334, with the balance due
on February 1, 1998. Shawmut's prime rate was 8.5% and 9% at December
31, 1994 and July 2, 1995, respectively.
The Shawmut revolving credit facility carries an interest rate of 1%
over Shawmut's prime rate. Availability under the revolving credit
facility is based on eligible accounts receivable and inventory, less
funds already borrowed. The Company's total indebtedness to Shawmut
(term notes plus revolving credit facility) may not exceed $14,000,000.
Capital leases are with various financing facilities which are payable
based on the terms of each individual lease.
Scheduled maturities of Shawmut Term Notes (current and long-term debt)
as defined in the Loan Agreement are as follows:
________________________________________________________________________
Principal
In thousands Fiscal Years Installments
Term Notes payable 1995 $760 *
1996 1,407
1997 1,324
1998 1,299
__* The remaining aggregate for 1995.__________________________________
Debt Covenants. The Company's indebtedness to Shawmut is secured by
liens on the Company's accounts receivable, inventories, intangibles,
land, and other property. Among other restrictions, the Loan Agreement
with Shawmut also contains certain financial covenants that relate to
specified levels of consolidated tangible net worth, profitability, debt
service ratio, and current ratio. The Loan Agreement also limits
additional borrowings and payment of dividends, except for payments to
PCI for its Series A Preferred Stock. On March 31, 1995, the Company
and Shawmut amended the Loan Agreement (the third amendment) to take
into account the creation of certain new subsidiaries of the Company.
The Company is currently in compliance with all the covenants and
terms as defined in the Loan Agreement.
Note E: EARNINGS PER SHARE_____________________________________________
For 1995 and 1994, earnings per common share were computed by dividing
the net income applicable to common stock by the weighted average number
of common shares outstanding and common equivalent shares.
Note F: INCOME TAXES___________________________________________________
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method as
required by SFAS No. 109, "Accounting for Income Taxes". As permitted
under the rules, prior years' financial statements have not been
restated. The components of the income tax expense (benefit) based on
the liability method for the six months are as follows:
________________________________________________________________________
July 2, July 3,
In thousands 1995 1994
Current - Federal $94 $51
State 23 9
Deferred - Federal (4,374) -
State (129) -
Total provision ($4,386) $60
________________________________________________________________________
The income tax provision reconciled to the tax computed at statutory
rates for the months are summarized as follows:
________________________________________________________________________
July 2, July 3,
In thousands 1995 1994
Federal tax (benefit) at statutory rate
(35% in 1995 and 1994) $1,376 $566
State income taxes (net of federal tax benefit) 15 13
Nondeductible charges 22 39
Alternative minimum tax 90 47
Utilization of operating loss carryover (1,386) (605)
Adjustment of valuation allowance (4,503) -
Income tax provision ($4,386) $60
________________________________________________________________________
There is no tax benefit for 1994 of the extraordinary item due to the
presence tax operating loss carryovers.
Net deferred tax assets of $4,503,000 and $0 have been recognized in the
accompanying Consolidated Balance Sheets at July 2, 1995 and December
31, 1994, respectively. The components of the net deferred tax assets
are as follows:
_____________________________________________________________________
July 2, December 31,
In thousands 1995 1994
Total deferred tax assets $28,466 $29,852
Total valuation allowance (21,982) (27,871)
Total deferred tax asset - net 6,484 1,981
Total deferred tax liabilities (1,981) (1,981)
$4,503 $ -
________________________________________________________________________
The valuation allowance decreased $5,889,000 during the six month period
ended July 2, 1995 and this decrease was primarily related to (1) the
re-evaluation of the future utilization of deferred tax assets of
$4,503,000, and (2) the utilization of operating loss carryforwards of
$1,386,000. The Company periodically reviews the requirements for a
valuation allowance and makes adjustments to such allowance when changes
in circumstances result in changes in judgment about the future
realization of deferred tax assets. Based on a re-evaluation
of the realizability of the deferred tax assets, the valuation allowance
was reduced and a tax benefit of $4,503,000 was recognized in the
quarter ended July 2, 1995. Management believes that it is more likely
than not that the Company will realize this tax benefit.
The Company has net operating loss carryforwards and tax credit
carryovers of approximately $67,853,000 and $3,059,000, respectively,
which, if not utilized, will expire at various years up until 2007.
If the Company undergoes an "ownership change" within the meaning of
Section 382 of the Internal Revenue Code, the Company's right to use its
then existing net operating loses ("NOLs") is limited during each future
year to a percentage of the fair market value of the Company's stock
immediately before the owner-ship change. In general, there is an
ownership change under Section 382 if over a three-year period certain
stockholders increase their percentage owner-ship change of a
corporation by more than 50%. The amount of net operating loss
carryforwards expected to be utilized resulting in the reduction of the
valuation allowance of $4,503,000 assumes an ownership change will take
place.
Note G: SUBSEQUENT EVENTS______________________________________________
On May 18, 1995, the Company received a letter from a patent holder
claiming patent infringement. The Company denies any infringement,
however, the patent holder may commence a lawsuit against the Company.
In June, 1995, the Company's Board of Directors authorized management of
the Company to file a Registration Statement with the Securities and
Exchange Commission permitting the Company to sell shares of its common
stock in an underwritten public offering. If the offering is
consummated under the terms presently anticipated, up to an additional
1,000,000 shares of common stock will be issued (not including 450,000
shares that the Underwriters have an option to purchase from the Selling
Stockholder to cover any over allotments, if any). Proceeds from the
offering will be used, in part, to redeem the 750,000 shares of
outstanding Series A Preferred Stock.
On August 7, 1995, Comdial's Registration Statement pertaining to the
offering of 3,000,000 shares of Common Stock was declared effective by
the Securities and Exchange Commission, after the close of business.
The offering price, agreed upon by Comdial, PCI, and its lead
underwriter (Rodman & Renshaw, Inc. of New York, NY), was $12.00 per
share. Comdial shares began trading on August 9, 1995 at $12.00 per
share. Also, the reverse 1 for 3 split of all Common Shares had
taken effect. The number of outstanding shares will decrease from
approximately 21.9 million to 8.3 million. On August 11, 1995, the
entire offering had been sold at the end of the close of the business
day. After the redemption of the preferred shares and payment of
offering expenses, Comdial will realize a net gain in stockholders'
equity of approximately $3,500,000.
On July 28, 1995, the Company's shareholders authorized a one-for-three
reverse split of the Company's common stock, to be effective on the date
of the prospectus. All references in the financial statements to common
share or per share information have not been restated to reflect the
reverse stock split.
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion attempts to explain the financial condition and
results of operations of the Company. This review should be read in
conjunction with the financial statements and accompanying notes. This
analysis attempts to identify trends and material changes that occurred
during the periods presented.
General Development of the Business
Comdial Corporation ("Comdial") is a Delaware corporation based in
Charlottesville, Virginia. Comdial is engaged in the design,
development, manufacture, distribution, and sale of advanced
telecommunications products and system solutions. Comdial was
originally incorporated in Oregon in 1977. In 1982, Comdial
reincorporated in Delaware.
Comdial's core business is designing, manufacturing, and marketing a
broad line of voice communication products and software based product
system solutions to small and medium sized business organizations. These
products are sold through a network of approximately 700 Preferred
Dealers, 700 Associate Dealers, and several thousand independent
interconnects and contractors, who purchase Comdial products from
authorized wholesale distributors. End users served through this
channel are typically small businesses (under 100 employees), but may
also include large businesses, government agencies, and univer-
sities who are served by a host PBX or telephone company supplied
Centrex system. When a Comdial system is installed behind the host
system, it is commonly configured to serve specific departments or call
centers.
In the early 1980's, Comdial was known as a manufacturer and supplier of
industry standard and decorative residential telephones. In the mid-
1980's, Comdial redirected its strategic focus to the small business
market.
In 1992, Comdial introduced the Impact product, a high quality, digital
telephone family which functions on Comdial digital and private branch
exchange ("PBX") systems and provides a variety of sophisticated yet
user-friendly features. In 1993, Comdial introduced an Open Application
Interface ("OAI") toolkit, known as the Enterprise Developer's Toolkit,
allowing third-party software developers to create application packages
for specialized markets.
In 1994, Comdial introduced several new products including: The QuickQ
Automatic Call Distributor ("ACD") which automatically answers and
directs incoming calls; Inntouch DXP specifically for hotel/motel
customers which automatically places wake up calls and costs customer
telephone calls; and the Tracker premises based paging system which
alerts users to incoming calls (via an alphanumeric pager), and
instructs users how to retrieve and answer the messages. The
Tracker was the result of a strategic alliance between Comdial and
Motorola, Inc.
With the introduction of the Enterprise OAI on the DXP switch, Comdial
was able to become an early participant in the computer-telephony
integration ("CTI") market. CTI merges the power of advanced telephone
systems and computers to provide integrated solutions to common
communication needs for various applications. The first turnkey CTI
product from Comdial was the E911 emergency dispatch system.
During the fourth quarter of 1994, Comdial announced two new products
which extend the power of CTI to local area network ("LAN") environments
and desktop personal computers. The first is connectivity software to
link DXPs to Novell NetWare (trademark of Novell Corporation) LANs.
Later in 1995, Comdial will ship special circuit cards to link personal
computers ("PCs") running Microsoft Windows (trademark of Microsoft
Corporation) operating systems to Comdial's Impact and DXP. These two
products will enable users to utilize off-the-shelf applications
software to enhance productivity and improve customer service
using computer-enhanced telephony services. In the second quarter of
1995, Comdial began shipping Scout, a new digital wireless multiline
telephone for use on the Company's Impact and DXP systems.
The Company sells its products primarily through supply house channels.
Supply houses are able to warehouse and efficiently route Comdial
products to Comdial-authorized dealers, interconnect companies, major
independent telephone companies, and large end-users (e.g. universities,
municipalities, and federal government agencies). In marketing its
telephone systems, Comdial emphasizes quality backed by the ISO-9001
certification, state-of-the-art features, competitive pricing, and
commitment to customer and dealer support.
Comdial's Common Stock is traded over-the-counter and is quoted in the
National Association of Security Dealers Automated Quotation System
("Nasdaq") where Comdial's symbol is CMDL.
Results of Operations
Revenue and Earnings
(Second Quarter 1995 vs 1994)
The Company's performance for the second quarter of 1995 improved
significantly over the comparable period of 1994. Income before income
taxes and extraordinary item for 1995 increased by 96% to $1,923,000 as
compared with $980,000 for the comparable period in 1994. This increase
was primarily attributable to the increase in business systems sales.
Net sales for the second quarter of 1995 increased 34% to $25,442,000,
compared with $19,019,000 in the second quarter of 1994. This increase
is primarily due to the increase in sales of digital product lines such
as the DXP and Impact terminals. Cost of goods increased by $4,291,000
or 33% compared with the same period of 1994, primarily due to the
increase in sales.
Selling, general and administrative expenses increased 32% to
$4,836,000, compared with $3,663,000 in the second quarter of 1994.
This increase was primarily due to: (1) an increase in sales allowances
associated with higher sales volume; and (2) an increase in personnel
associated with international sales, and the development and marketing
of CTI products.
Income tax expense (benefit) in the second quarter of 1995 increased to
$77,000 less tax benefit of ($4,503,000) compared with $38,000 for the
same period of 1994.
As of July 2, 1995, the deferred tax assets and the valuation allowance
were reduced by $1,386,000 through the utilization of operating loss
carryforwards and in addition, the valuation allowance was reduced by
$4,503,000 based on management's assessment of future taxable income and
management's belief that it is "more likely than not" that the Company
will realize this tax benefit.
(Six Months 1995 vs 1994)
The Company reported for the first six months of 1995 net income before
income taxes and extraordinary item of $3,193,000 as compared with
$1,617,000 for the comparable period in 1994. The Company's improved
performance of 97% compared with the same period last year is primarily
attributable to the increase in sales of digital products.
Net sales for the first six months of 1995 increased 30% to $47,758,000,
compared with $36,658,000 in the same period of 1994. This increase is
primarily due to the increase in sales of digital product lines such as
the DXP and Impact terminals. In addition, net sales from custom
manufacturing increased to $3,444,000, compared with $442,000 for the
same period of 1995.
Gross profit increased 28% to $15,378,000, compared with $11,988,000 in
the same period of 1994. Gross profit as a percentage of sales for
first six months of 1995 was approximately 32.2% compared with 32.7% for
the same period of 1994. This decrease was primarily due to product mix
and a much higher content of custom manufacturing work which is
anufactured at less than normal product margins. While increased levels
of custom manufacturing have reduced gross margin, the Company
anticipates continuing custom manufacturing in order to offset fixed
costs.
Selling, general and administrative expenses increased 24% to
$9,180,000, compared with $7,402,000 in the first six months of 1994.
This increase was primarily due to: (1) an increase in personnel
associated with international sales, and the development and marketing
of CTI products; and (2) an increase in sales allowances associated with
higher sales volume.
Interest expense decreased 22% for the first six months of 1995 to
$555,000, compared with $711,000 in the same period of 1994. This
decrease was primarily due to recapitalization, effective on February 1,
1994, that lowered the Company's debt and interest rates and the
continual reduction of the Company's indebtedness.
Miscellaneous expense increased 41% to $391,000 for the first six months
of 1995, compared with $277,000 for the same period of 1994. This
increase was primarily due to higher cash discounts which is a direct
result of higher sales. In addition, 1994 amount includes interest
income from a note issued to the Company in connection with the sale of
the residential telephone line in 1992, which was repaid by December 31,
1994.
Income tax expense (benefit) in the first six months of 1995, decreased
to ($4,386,000) compared with $60,000 for the same period of 1994. This
difference is primarily due to the recognition of a deferred tax asset
of $4,503,000 through a reduction of the valuation allowance and an
income tax expense of $117,000.
Extraordinary item, write-off of debt issuance cost, represents debt
restructuring costs that were written off during the first quarter of
1994 in connection with the refinancing of the Company's indebtedness to
PacifiCorp Credit, Inc. ("PCI"), an affiliate of the Company.
Dividends on preferred stock represent quarterly dividends payable to
the holder of Series A 7 1/2% Cumulative Convertible Redeemable
Preferred Stock ("Series A Preferred Stock"). The Company issued
850,000 shares of Series A Preferred Stock to PCI on February 1, 1994,
in exchange for the cancellation of $8,500,000 of the Company's
indebtedness to PCI. Dividends for the first six months of 1995, were
$285,000 compared with $267,000 for the same period of 1994.
Management hopes that the factors which have led to significant
increases in sales, net income and earnings per share for the first six
months of 1995 will continue to influence performance positively for the
majority of the year. The Company hopes to continue to improve sales
by: (1) releasing new products and current-product enhancements, such as
the Scout, and Automatic Call Distribution software as well as a larger
version of the DXP; (2) increasing sales of DXP, Impact, and digital
products; and (3) increasing international sales.
Liquidity
The Company is indebted to Shawmut Capital Corporation ("Shawmut"),
formerly known as Barclays Business Credit, Inc., which holds
substantially all of the Company's indebtedness. Prior to February 1,
1994, PCI held substantially all of the Company's indebtedness. The
Company and Shawmut entered into a loan and security agreement (the
"Loan Agreement") on February 1, 1994. Under the Loan Agreement Shawmut
agreed to provide the Company with a $6,000,000 term loan (the "Term
Note") and a revolving credit loan facility in an amount up to
$9,000,000 (the "Revolver"). The PCI indebtedness was paid off through
the use of funds generated from operations of $6,000,000, funds borrowed
from Shawmut of $6,709,453, and the cancellation of the remaining
$8,500,000 of debt in exchange for the issuance of Series A Preferred
Stock (see note D to Financial Statements).
On April 29, 1994, the Company and Shawmut amended the Loan Agreement to
permit the Company to borrow an additional $1,300,000 under the Term
Note to finance the purchase of additional surface mount technology
equipment.
The Shawmut term loans of $7,300,000 carry interest rate of 1 1/2% over
Shawmut's prime rate and are payable in equal monthly principal
installments of $152,000 up to February 1, 1996, and 23 equal monthly
principal installments of $110,334, with the balance due on February 1,
1998.
The Shawmut revolving credit facility carries an interest rates of 1%
over Shawmut's prime rate. As of July 2, 1995, the Company had borrowed
$1,282,000 under the revolving credit facility and had approximately
$6,766,000 of additional borrowing capacity (see Note D to Consolidated
Financial Statements).
The Company's indebtedness to Shawmut is secured by liens on the
Company's accounts receivable, inventories, intangibles, land, and all
other assets. The Loan Agreement with Shawmut also contains certain
financial covenants that relate to specified levels of consolidated
tangible net worth, profitability, debt service coverage ratio, and
current ratio. Among other restrictions, the Loan Agreement limits
additional borrowings and payment of dividends, except for dividend
payments to PCI for their Series A Preferred Stock.
The following table sets forth the Company's cash and cash equivalents,
current maturities on debt and working capital at the dates indicated.
________________________________________________________________________
In thousands July 2, 1995 December 31 ,1994
Cash and cash equivalents $91 $1,679
Current maturities on debt 3,488 2,466
Working capital 14,038 11,631
________________________________________________________________________
Cash and cash equivalents decreased primarily due to the use of cash to
purchase additional material to meet the increased production rate in
the first quarter of 1995. All operating cash requirements are
currently being funded through the Shawmut Revolver. Current maturities
on debt includes the Revolver balance of $1,282,000, which was zero at
December 31, 1994. Working capital increased by $2,407,000 due
primarily to the increase in accounts receivable and inventory
which relates directly to the increase in sales during this period.
Accounts receivable increased by 34% or $2,920,000, compared to December
31, 1994. This increase was primarily due to the increase in sales of
30% for the first six months of 1995.
Prepaid expenses and other current assets is higher by 32% or $328,000,
primarily due to prepaid costs relating to insurance, rent, and
royalties.
Deferred tax asset and liability relates to the Company recognizing in
the second quarter of 1995, the utilization of net operating losses
("NOL's") for future periods (reference Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes"). Prior to
July 2, 1995, the Company did not recognize any reduction in the
valuation allowance primarily due to the uncertainty as to whether the
Company would generate taxable income during the carry-forward period.
Accrued promotional allowance decreased by 30% or $473,000 primarily due
to payments made to the Company's major distributors for volume rebates
relating to 1994 sales.
On July 28, 1995, the Company held a special shareholders meeting to
amend the Company's Restated Certificate of Incorporation to effect a
one-for-three reverse stock split. Also, the Company and underwriters
in connection with the stock split are offering to sell 3,000,000 shares
(post-split) of Common Stock. 2,000,000 of which belong to PacifiCorp
Credit, Inc.("PCI") and another 1,000,000 new shares to be sold by the
Company. The Company will use its proceeds to (1) redeem Preferred
Stock held by PCI and (2) pay for the offering and future working
capital needs. Management believes this will improve not only the
Company's position but also increase the value of the Company's Common
Stock for its stockholders. The Company will benefit in the following
ways: (1) the elimination of dividends on preferred stock, (2) the
effect of the stock split will increase earnings per share because of
the lower weighted average of common outstanding shares, (3) Owners'
Equity will be increased by the additional proceeds received from the
offering, and (4) the elimination of PCI's ability to dilute the Common
Stock by converting shares of the Preferred Stock to shares of Common
Stock.
During 1995 and 1994, all of the Company's sales, net income and loss,
and identifiable net assets are attributable to the telecommunications
industry except sales relating to custom manufacturing.
Capital Resources
Capital expenditures in the first six months of 1995 and fiscal year
1994 were $838,000 and $2,367,000, respectively. Capital additions for
1995 and 1994 were provided by funds from operations, capital leasing,
and borrowing from Shawmut. The Company anticipates spending
approximately $3,000,000 on capital expenditures during 1995 which
includes equipment for manufacturing and technology.
The Company plans to fund all future capital expenditure additions
through working capital from Shawmut and long-term lease arrangements.
Management expects these sources to provide the capital assets necessary
for near-term future operations and future product development.
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a vote by Security Holders
(a) On April 27, 1995, the Company held its annual meeting of
shareholders in the Ballroom at the Boar's Head Inn, Route 250 West,
Charlottesville, Virginia 22905. The following matters were voted upon:
1. The following directors were elected to serve additional
terms: Michael C. Henderson, William G. Mustain, William
E. Porter, and John W. Rosenblum.
Directors whose term of office continued after the
meeting: A. M. Gleason and Dianne C. Walker.
2. The Certificate of Incorporation of the Company was
approved as restated in the proxy.
3. The firm of Deloitte & Touche LLP was approved as the
independent public auditors of the Company.
Shares of Common Stock were voted as follows:
Item 1: (Election of Board of Directors)
Total Vote For Total Vote Withheld
Michael C. Henderson 19,048,478 49,039
William G. Mustain 19,049,078 48,439
William E. Porter 19,048,878 48,639
John W. Rosenblum 19,047,478 50,039
Item 2: (Restated Certificate of Incorporation)
For - 18,343,621
Against - 415,974
Abstain - 66,948
Item 3: (Selection of Independent Auditors)
For - 18,980,964
Against - 99,730
Abstain - 16,823
(b) On July 28, 1995, the Company held a special shareholders
meeting at the Courtyard by Marriott, 638 Hillsdale Drive,
Charlottesville, Virginia 22901.
1. The matter voted upon at the meeting was to amend the
Company's Restated Certificate of Incorporation to effect a one-for-
three reverse stock split while maintaining the current number of
authorized shares of Common Stock. The motion was passed by 88%
of the shares entitled to vote which resulted in shares voted of
18,723,074 for, 349,291 against, 69,351 abstain, and 2,114,871 not
voted which counted as a vote against.
ITEM 6. Exhibits and Reports on Form 8-K.
(a)
3. Exhibits Included herein:
(3) Articles of Incorporation and bylaws:
3.1 Restated Certificate of Incorporation of Comdial Corporation
as filed with the Secretary of State of the State of Delaware on May 17,
1995.
3.2 Amendment to the Restated Certificate of Incorporation of
Comdial Corporation as filed with the Secretary of State of the State of
Delaware on August 4, 1995.
(10) Material Contracts:
10.1 Amendment No. 3 to the Loan Restructuring Agreement dated
March 31, 1995, among Registrant and Shawmut Capital Corporation.
(11) Statement re Computation of Per Share Earnings.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
The Registrant has not filed any Reports on Form 8-K during the
quarterly period.
__________________
Items not listed if not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Comdial Corporation
(Registrant)
Date: August 15, 1995 By: /s/ Wayne R. Wilver
Wayne R. Wilver
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUL-02-1995
<CASH> 91
<SECURITIES> 0
<RECEIVABLES> 9557
<ALLOWANCES> 29
<INVENTORY> 17903
<CURRENT-ASSETS> 28893
<PP&E> 38911
<DEPRECIATION> 25678
<TOTAL-ASSETS> 51008
<CURRENT-LIABILITIES> 14855
<BONDS> 7089
<COMMON> 215
0
7500
<OTHER-SE> 20815
<TOTAL-LIABILITY-AND-EQUITY> 51008
<SALES> 47758
<TOTAL-REVENUES> 47758
<CGS> 32380
<TOTAL-COSTS> 32380
<OTHER-EXPENSES> 11681
<LOSS-PROVISION> (51)
<INTEREST-EXPENSE> 555
<INCOME-PRETAX> 3193
<INCOME-TAX> (4386)
<INCOME-CONTINUING> 7579
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</TABLE>
RESTATED CERTIFICATE OF INCORPORATION
OF
COMDIAL CORPORATION
Comdial Corporation, a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Comdial Corporation. Comdial
Corporation was originally incorporated under the same name, and the original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on April 6, 1982.
2. Pursuant to, and in accordance with, Sections 242 and 245 of the
General Corporation Law of the State of Delaware, this Restated Certificate of
Incorporation restates and integrates the certificates and other instruments
comprising, and further amends the provisions of, the Certificate of Incorpora-
tion of this corporation and was duly adopted by the board of directors at a
meeting held on February 16, 1995 and by vote of the corporation's stock
entitled to vote thereon at the corporation's annual meeting of stockholders
held on April 29, 1995.
3. The text of the Restated Certificate of Incorporation as hereto-
fore amended or supplemented is hereby restated and further amended to read
in its entirety as follows:
FIRST: The name of this corporation is: COMDIAL CORPORATION
SECOND: The purpose of this corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
THIRD: The aggregate number of shares of capital stock which the corporation
has the authority to issue is Thirty Two Million (32,000,000), which is divided
into two classes as follows:
Two Million (2,000,000) shares of Preferred Stock (Preferred Stock) with a
par value of $10.00 per share, and
Thirty Million (30,000,000) shares of Common Stock (Common Stock) with a par
value of $0.01 per share.
The designations, voting powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or re-
strictions of the above classes of stock are as follows:
I. Preferred Stock
(1) Issuance in Series.
Shares of Preferred Stock may be issued in one or more series at
such time or times, and for such consideration or considerations as the board of
directors may determine. All shares of any one series of Preferred Stock will
be identical with each other in all respects, exceptthat shares of one series
issued at different times may differ as to dates from which dividends thereo
may be cumulative. All series will rank equally and be identical in all
respects, except as permitted by the following provisions of paragraph 2 of
this Division I.
(2) Authority of the Board with Respect to Series.
The board of directors is authorized, at any time and from time to time, to
provide for the issuance of the shares of Preferred Stock in one or more series
with such designations, preferences and relative, participating, optional or
other special rights and qualifications, limitations or restrictions thereof
as are stated and expressed in the resolution or resolutions providing for the
issue thereof adopted by the board of directors, and as are not stated and
expressed in this Certificate of Incorporation or any amendment hereto includ-
ing, but not limited to, determination of any of the following:
(i) The number of shares constituting that series and the distinctive designa-
tion of that series;
(ii) The dividend rate or rates on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, the payment date or
dates for dividends and the relative rights of priority, if any, of payment of
dividends on shares of that series;
(iii) Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
(iv) Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the board of directors shall determine;
(v) Whether or not the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the date or date upon or
after which they shall be redeemable, and the amount per share payable in case
of redemption, which amount may vary under different conditions and at different
redemption dates;
(vi) Whether that series shall have a sinking or retirement fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking or retirement fund;
(vii) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the corporation, and the
relative rights of priority, if any, of payment of shares of that series;
(viii) Any other preferences, privileges and powers, and relative participat-
ing, optional or other special rights, and qualifications, limitations or re-
strictions of a series, as the board of directors may deem advisable and are not
inconsistent with the provisions of this Certificate of Incorporation.
(3) Dividends.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment in accordance with their respective pre-
ferential and relative rights before any dividends shall be paid or declared
and set apart for payment on the outstanding shares of Common Stock with
respect to the same dividend period.
(4) Liquidation.
If upon any voluntary or involuntary liquidation, dissolution or winding
up of the corporation, the assets available for distribution to holders of
shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then
such assets shall be distributed ratably among the shares of all series of
Preferred Stock in accordance with the respective preferential and relative
amounts (including unpaid cumulative dividends, if any) payable with respect
thereto.
(5) Reacquired Shares.
Shares of Preferred Stock which have been issued and reacquired in any
manner by corporation (excluding, until the corporation elects to retire them,
shares which are held as treasury shares but including shares redeemed, shares
purchased and retired, and shares which have been converted into shares of
Common Stock) will have the status of authorized and unissued shares of Pre-
ferred Stock and may be reissued.
(6) Voting Rights.
Unless and except to the extent otherwise required by law or provided in the
resolution or resolutions of the board of directors creating any series of Pre-
ferred Stock pursuant to this Division I, the holders of the Preferred Stock
shall have no voting power with respect to any matter whatsoever. In no event
shall the Preferred Stock be entitled to more than one vote in respect of each
share of stock except as may be required by law or by this Certificate of
Incorporation.
II. Common Stock
(1) Dividends.
Subject to the preferential rights of the Preferred Stock, the holders
of the Common Stock are entitled to receive, to the extent permitted by law,
such dividends as may be declared from time to time by the board of directors.
(2) Liquidation.
In the event of the voluntary or involuntary liquidation, dissolution,
distribution of assets or winding up of the corporation, after distribution
in full of the preferential amounts, if any, to be distributed to the holders
of shares of Preferred Stock, holders of Common Stock shall be entitled to
receive all of the remaining assets of the corporation of whatever kind
available for distribution to stockholders ratably in proportion to the number
of shares of Common Stock held by them respectively. The board of directors
may distribute in kind to the holders of Common Stock such remaining assets of
the corporation or may sell, transfer or otherwise dispose of all or any part
of such remaining assets to any other corporation, trust or other entity and
receive payment therefor in cash, stock or obligations of such other corpora-
tion, trust or other entity, or any combination thereof, and may sell all or
any part of the consideration so received and distribute any balance
thereof in kind to holders of Common Stock. The merger or consolidation of
the corporation into or with any other corporation, or the merger of any other
corporation into it, or any purchase or redemption of shares of stock of the
corporation of any class, shall not be deemed to be a dissolution, liquidation
or winding up of the corporation for the purposes of this paragraph.
(3) Voting Rights.
Except as may be otherwise required by law or this Certificate of
Incorporation, each holder of Common Stock has one vote in respect of each
share of stock held by him of record on the books of the corporation on all
matters voted upon by the stockholders."
FOURTH: The corporation is to have perpetual existence.
FIFTH: In furtherance and not in limitation of the powers conferred by statute,
the board of directors is authorized to adopt, amend and repeal the Bylaws of
this corporation.
SIXTH: No action shall be taken by the stockholders of the corporation except
in an annual or special meeting of stockholders. Special meetings of the
stockholders of the corporation for any purpose or purposes may be called by
the Chairman of the Board and shall be called by the Chairman of the Board, or
Secretary at the request in writing of a majority of the board of directors.
SEVENTH: (a) The number of directors of the corporation shall be fixed from
time to time in the manner set forth in the Bylaws.
(b) The board of directors shall be divided into three classes,
Class A, Class B and Class C, with each class as nearly equal in number as
possible. Any inequality among the classes in the number of directors
comprising such classes shall not impair the validity of any action taken
by the board of directors. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected. Directors in office on the effective date of this
Restated Certificate of Incorporation will continue to serve in the class to
which they were elected or appointed and for the balance of their respective
terms as they existed immediately prior to the effective date of this
Restated Certificate of Incorporation.
(c) In the event of any increase or decrease in the authorized number
of directors, each director then serving shall nevertheless continue as a
director of the class of which he or she is a member until the expiration of
his or her term, or his or her prior death, retirement or resignation.
(d) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director and the directors so chosen shall hold office until the next
election of the class for which such directors shall have been chosen, and until
their successors shall be elected and qualified. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute.
(e) Vacancies in more than one class of directors shall be filled,
and newly created or eliminated directorships shall be apportioned among the
three classes of directors, so that the number of directors in each class will
be as nearly equal as possible.
EIGHTH: The affirmative vote of the holders of not less than 60 percent of the
total voting power of all outstanding shares of Common Stock of the corporation
shall be required for the merger, consolidation or other business reorganization
or combination of this corporation with any other corporation (collectively
referred to as "Combination") or for the sale of all or substantially all the
assets of this corporation (referred to as a "Sale") notwithstanding that
applicable law would otherwise permit such a Combination or Sale with the
approval of fewer shares or without the approval of any shares.
NINTH: The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation. Notwithstanding
the foregoing, the affirmative vote of the holders of not less than 60 percent
of the total voting power of all outstanding shares of Common Stock of the
corporation shall be required to amend or repeal the provisions set forth in
Articles SIXTH, SEVENTH, EIGHTH and NINTH.
TENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
corporation under the provisions of 279 of Title 8 of the Delaware Code order
a meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this corporation, as the case may be, to be summoned
in such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all of the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
ELEVENTH: The address of the registered office of this corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle, and the name of its registered agent at that address is The
Corporation Trust Company.
TWELFTH: No director of the corporation shall be personally liable to the
corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director involving any act or omission of any such director
occurring on or after May 14, 1987; provided, however, that the foregoing
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from which
the director derived an improper personal benefit. Any repeal or modification
of this Article by the stockholders of the corporation shall be prospective
only, and shall not adversely affect any limitation on the personal liability
of a director of the corporation in respect of any acts or omissions occurring
prior to such repeal or modification, or any such limitation existing at the
time of such repeal or modification.
4. The provisions of Comdial Corporation's Certificate of Designation
of Series A 7-1/2% Cumulative Convertible Redeemable Preferred Stock, par value
$10.00 per share, filed with the Secretary of State of the State of Delaware on
February 1, 1994 shall specifically survive the restatement, integration and
amendment effected by this Restated Certificate of Incorporation. A copy of the
Certificate of Designation, without amendment or modification, is attached to
this Restated Certificate of Incorporation as Exhibit A and is incorporated
herein by reference.
IN WITNESS WHEREOF, Comdial Corporation has caused this Restated
Certificate of Incorporation to be duly executed by William G. Mustain, its
President, and attested to by Wayne R. Wilver, its Secretary, and has caused the
corporate seal to be affixed hereto, this 16 day of May, 1995.
COMDIAL CORPORATION
By:_\s\ William G. Mustain _
William G. Mustain, President
(Corporate Seal)
ATTEST:
\s\ Wayne R. Wilver____
Wayne R. Wilver, Secretary
EXHIBIT A
CERTIFICATE OF DESIGNATION
OF
SERIES A 7-1/2% CUMULATIVE CONVERTIBLE REDEEMABLE
PREFERRED STOCK
Comdial Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "Company"),
certifies that pursuant to the authority contained in Article THIRD of its
Certificate of Incorporation, as amended, and in accordance with the provisions
of Section 151 of the General Corporation Law of the State of Delaware, its
Board of Directors, at a meeting duly convened and held on February 1, 1994,
adopted the following resolution creating a series of its Preferred Stock, par
value $10.00, designated as Series A 7-1/2% Cumulative Convertible Redeemable
Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock, par
value $10.00, of the Company be hereby created, and that the designation and
amount thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations and restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as the "Series A 7-1/2% Cumulative Convertible Redeemable
Preferred Stock" (hereinafter "Series A Preferred Stock") and the number of
shares constituting such series shall be 850,000 and no more.
Section 2. Dividends and Distributions.
(a) The holders of shares of Series A Preferred Stock, in
preference to the holders of shares of the Company's Common Stock, par value
$0.01 per share ("Common Stock"), shall be entitled to receive, when, as and
if declared by the Board of Directors, out of funds of the Company legally
available for the payment of dividends, quarterly dividends per share payable in
cash in the following amounts: $0.19 on the last day of March, $0.19 on the
last day of June, $0.19 on the last day of September, and $0.18 on the last
day of December in each year (each such date being referred to as a "Quarterly
Dividend Payment Date") commencing on the first Quarterly Dividend Payment Date
which is after the date of issue of such shares of Series A Preferred Stock;
provided, however, that with respect to such first Quarterly Dividend Payment
Date, the holders of shares of Series A Preferred Stock shall be entitled
pursuant to this paragraph (a) to receive the pro rata portion of such quarterly
dividend on the basis of the number of days elapsed between the date of issue
and the first Quarterly Dividend Payment Date. Such dividends shall be
cumulative and shall accrue from the date of issue until paid in cash.
(b) Dividends paid on shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis to
all such shares of Series A Preferred Stock at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payments of a dividend declared
thereon, which record date shall be no more than 60 days nor less than 10 days
prior to the date fixed for the payment thereof.
(c) The holders of shares of Series A Preferred Stock shall
not be entitled to receive any dividends or other distributions except as
provided in this Certificate of Designation of Series A 7-1/2% Cumulative
Convertible Redeemable Preferred Stock.
Section 3. Voting Rights. The shares of Series A Preferred Stock
shall not have any voting powers, either general or special, except as required
by applicable law and as follows:
(a) Without the affirmative vote of the holders of 67% of the
shares of Series A Preferred Stock at the time outstanding, voting separately as
a class, the Company shall not amend its Certificate of Incorporation to, adopt
a certification of designation to or otherwise (i) create any class of stock,
issue any series of Preferred Stock or any other equity security ranking prior
to or in parity with the Series A Preferred Stock as to dividends or upon
liquidation or (ii) alter or change any of the preferences, privileges, rights
or powers of the holders of the Series A Preferred Stock so as to affect
adversely such preferences, privileges, rights or powers.
(b) Without the affirmative vote of the holders of a majority
of shares of Series A Preferred Stock at the time outstanding, voting separately
as a class, the Company shall not effect the dissolution of the Company, the
sale, lease, exchange of all or substantially all of its property and assets,
authorize a merger or consolidation of the Company, or seek protection under
the Federal Bankruptcy Code or any successor statute of similar import.
(c) In the event that any four consecutive quarterly dividends
upon the Series A Preferred Stock shall be in arrears and unpaid, the holders of
Series A Preferred Stock shall have the exclusive and special right, voting
separately as a class, to elect two (2) members of the Board of Directors or
such greater number of members as is necessary to equal at least 40% of the
total number of members of the Board of Directors at all times thereafter.
Section 4. Certain Restrictions. Whenever quarterly dividends
payable on shares of Series A Preferred Stock pursuant to the terms of Section
2 are in arrears, then thereafter and until all accrued and unpaid dividends on
shares of Series A Preferred Stock outstanding shall have been paid in full or
declared and set apart for payment, the Company shall not declare or pay
dividends on, or make any other distributions on any shares of any series or
class other than Series A Preferred Stock or purchase, redeem or otherwise
acquire any shares of any series or class other than Series A Preferred stock.
Section 5. Redemption.
(a) The outstanding shares of Series A Preferred Stock may be
redeemed at the option of the Company, in whole or in part, at any time upon not
less than 30 days nor more than 90 days prior written notice to all holders of
record of shares of Series A Preferred Stock to be so redeemed, at a redemption
price equal to all accumulated but unpaid dividends to and including the date
fixed for redemption of such shares (the "Redemption Date") plus an amount
(the "Applicable Amount") equal to (i) during the four calendar years after the
year of issuance of the Series A Preferred Stock, $10.00 per share or (ii)
during each calendar year after the fourth year, an amount equal to the
Applicable Amount in the preceding year plus $0.50 per share; provided that the
redemption price per share for any transaction which results in the total number
of shares of Series A Preferred Stock that have been redeemed (including the
shares redeemed in such transaction) equaling at least ten percent (10%) of the
total number of shares of Series A Preferred Stock which were originally issued,
and for all subsequent transactions, shall be the same price as was in effect
during the year preceding the transaction which results in the redemption of at
least ten percent (10%) of the originally issued Series A Preferred Stock.
Subject to delivery of certificates for the shares to be redeemed, the Company
shall pay the Applicable Amount plus all accumulated but unpaid dividends on
the Redemption Date.
(b) Unless default shall be made in the payment in full of the
redemption price and any accumulated and unpaid dividends, dividends on the
shares of Series A Preferred Stock called for redemption shall cease to
accumulate on the Redemption Date, and all rights of the holders of such shares
as stockholders of the Company by reason of the ownership of such shares shall
cease on the Redemption Date, except the right to receive the amount payable
upon redemption of such shares on presentation and surrender of the respective
certificates representing such shares. After the Redemption Date, such shares
shall not be deemed to be outstanding and shall not be transferable on the
books of the Company except to the Company.
(c) At any time on or after the Redemption Date, the respective
holders of record of shares of Series A Preferred Stock to be redeemed shall be
entitled to receive the redemption price upon actual delivery to the Company of
certificates for the shares to be redeemed, such certificates, if required by
the Company, to be properly stamped for transfer and duly endorsed in blank or
accompanied by proper instruments of transfer thereof duly executed in blank.
Section 6. Liquidation, Dissolution or Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of shares of the Series A Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Company available for distribution
to its stockholders, before any payment shall be made to the holders of any
other class or series of capital stock of the Company, an amount equal to $10.00
per share plus an amount equal to all dividends accrued thereon to and
including the date of payment.
Section 7. Conversion.
(a) Each share of Series A Preferred Stock shall be convertible
at any time at the option of the holder thereof, into shares of Common Stock,
the number of such shares of Common Stock to be determined by dividing the
par value of the Series A Preferred Stock by $2.91738 (the initial conversion
price for each share of Common Stock), subject to the adjustments hereinafter
provided (such price as adjusted, the "Conversion Price").
(b) Each holder of outstanding shares of Series A Preferred
Stock may exercise the conversion right provided in paragraph (a) above as to
all or any portion of the shares he holds by delivering to the Company during
regular business hours, at the principal office of the Company or at such other
place as may be designated in writing by the Company, the certificate or
certificates for the shares to be converted, duly endorsed or assigned in
blank or endorsed or assigned to the Company (if required by it),
accompanied by written notice stating that the holder elects to convert such
shares and stating the name or names (with address and applicable social
security or other tax identification number) in which the certificate or
certificates for shares of Common Stock are to be issued. Conversion shall be
deemed to have been effected on the date (the "Conversion Date") when such
delivery is made. As promptly as practicable thereafter the Company shall issue
and deliver to or upon the written order of such holder, at such office or
other place designated by the Company, a certificate or certificates for the
number of shares of Common Stock to which he is entitled and a check or other
order for the payment of cash due with respect to any fraction of a share, as
provided in paragraph (c) below. The person in whose name the certificate or
certificates for shares of Common Stock are to be issued shall be deemed to
have become a shareholder of record on the Conversion Date, unless the
transfer books of the Company are closed on that date, in which event he shall
be deemed to have become a shareholder of record on the next succeeding date
on which the transfer books are open; but the Conversion Price shall be that in
effect on the Conversion Date.
(c) The Company shall not issue any fraction of a share of
Common Stock upon conversion of shares of Series A Preferred Stock. If more
than one share of Series A Preferred Stock shall be surrendered for conversion
at any time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the total
number of shares of Series A Preferred Stock so surrendered. If any fractional
interest in a share of Common Stock would be deliverable upon conversion, the
Company shall make an adjustment therefor in cash based on the Market Price
of one share of Common Stock on the Conversion Date. The "Market Price" of a
share of Common Stock on any date shall be deemed to be the average of the
closing price of one share of Common Stock on the NASDAQ National Market
System on each of the 20 consecutive trading days commencing 40 trading days
before such date (a trading day being a day on which securities are traded in
the NASDAQ National Market System).
(d) The issuance of shares of Common Stock on conversion of
outstanding shares of Series A Preferred Stock shall be made by the Company
without charge for expenses or for any tax in respect of the issuance of such
shares of Common Stock, but the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in any name other than that of the holder of
record on the books of the Company of the outstanding shares of Series A
Preferred Stock converted, and the Company shall not be required to issue or
deliver any certificate for shares of Common Stock unless and until the person
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
(e) Conversion Price Adjustments. The Conversion Price of the
Series A Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) (A) If the Company shall issue any Additional Stock
(as defined below) without consideration or for a consideration per share that
is less than the Market Price in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price shall forthwith (except as
otherwise provided in this clause (i)) be adjusted as to equal the price
determined by the following formula:
OP x (P x N) + C = NP
(P x (N + n))
where
NP = new Conversion Price,
OP = old Conversion Price
P = Market Price in effect immediately prior to the issuance of
Additional Stock,
N = the number of shares of Common Stock outstanding immediately
prior to the issuance of Additional Stock (including for this
purpose the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock at the Conversion
Price in effect immediately prior to such issuance),
C = the aggregate consideration to be received by the Company for
the Additional Stock, and
n = the number of shares of Additional Stock to be issued.
(B) No adjustment of the Conversion Price for the
Series A Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments that are thereby not required to be made
shall be carried forward and shall be taken into account in any subsequent
adjustment. Except to the limited extent provided for in Subsection 7(e)(i)(E)
(3), no adjustment of the Conversion Price pursuant to this Subsection 7(e)(i)
shall have the effect of increasing the Conversion Price above the Conversion
Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by the Company for any underwriting or otherwise in
connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options to purchase
or rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock or options to purchase or rights to
subscribe for such convertible or exchangeable securities (which are not
excluded from the definition of Additional Stock), the following provisions
shall apply:
(1) subject to subparagraph (4) below, the
aggregate maximum number of shares of Common Stock deliverable upon
exercise of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in Subsections 7(e)(i)(C) and 7(e)(i)(D)), if any, received by
the Company upon the issuance of such options or rights plus the additional
consideration, if any, to be received by the Company upon the exercise of such
options or rights for the Common Stock covered thereby;
(2) subject to subparagraph (4) below, the
aggregate maximum number of shares of Common Stock deliverable upon
conversion of or in exchange for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and the subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such
convertible or exchangeable securities were issued or such options or rights
were issued and for a consideration equal to the consideration, if any, received
by the Company for any such convertible or exchangeable securities and related
options or rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the additional consideration, if any, to be received by
the Company upon the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each case to be deter-
mined in the manner provided in Subsections 7(e)(i)(C) and 7(e)(i)(D));
(3) in the event of any increase in the number
shares of Common Stock deliverable upon exercise of such options or rights or
upon conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have been obtained
had the adjustment that was made upon the issuance of such options, rights or
securities not converted prior to such change or the options or rights related
to such securities not converted prior to such change been made upon the basis
of such change, but no further adjustment shall be made for the actual issuance
of Common Stock upon the exercise of any such options or rights or the
conversion or exchange of such securities; and
(4) upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the adjustment that was
made upon the issuance of such options, rights or securities or options or
rights related to such securities been made upon the basis of the issuance of
only the number of shares of Common Stock actually issued upon the exercise of
such options or rights, upon the conversion or exchange of such securities or
upon the exercise of the options or rights related to such securities.
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to Subsection 7(e)(i)(E))
by the Company after the date Series A Preferred Stock is first issued
("Issuance Date"), other than
(A) Common Stock issued pursuant to a transaction
described in Subsection 7(e)(iii) hereof,
(B) Any shares of Common Stock issuable or issued
to directors, employees or consultants of the Company directly or pursuant to a
stock option or other plan, and
(C) Common Stock issued or issuable upon conversion
of any outstanding Series A Preferred Stock.
(iii) If the Company should at any time or from time to time
after the Issuance Date fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to
as "Common Stock Equivalents") without payment of any consideration by such
holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend, distribution, split or subdivision if no record date is fixed),
the applicable Conversion Price of the Series A Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of Series A Preferred Stock shall be
increased in proportion to such increase of outstanding shares.
(iv) If the number of shares of Common Stock outstanding
at any time after the Issuance Date is decreased by a combination or reverse
stock split of the outstanding shares of Common Stock, then, following the
record date of such combination or reverse stock split, the applicable
Conversion Price of the Series A Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(v) In case of any consolidation or merger of the Company
with or into another corporation or the conveyance of all or substantially all
of the assets of the Company to another corporation, adequate provision shall
be made by the Company or by the successor or purchasing business entity so
that each share of Series A Preferred Stock shall thereafter be convertible
into the number of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock deliverable upon conversion of
such Series A Preferred Stock immediately before the effectiveness of such con-
solidation, merger or conveyance, would have been entitled upon such
consolidation, merger or conveyance; and, in any such case, appropriate
adjustment (as determined by the Board of Directors of the Company) shall be
made in the application of the provisions herein set forth with respect to the
rights and interest thereafter of the holder of the Series A Preferred Stock, to
the end that the provisions set forth herein (including provisions with respect
to changes in and other adjustment of the Conversion Price of the Series A Pre-
ferred Stock) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series A Preferred Stock.
(f) Other Distributions. If the Company shall declare a distribution
payable to holders of Common Stock in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in Subsection 7(e)(iii), then,
in each such case for the purpose of this Subsection 7(f), the holders of the
Series A Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number of shares of
Common Stock of the Company into which their shares of Series A Preferred
Stock are convertible as of the record date fixed for the determination of the
holders of Common Stock of the Company entitled to receive such distribution.
(g) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination, merger, sale of assets or other transaction provided for elsewhere
in this Section 7), provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock de-
liverable upon conversion immediately before the effectiveness of such recapit-
alization would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 7 with respect to the rights of the holders of the Series A Pre-
ferred Stock after the recapitalization to the end that the provisions of this
Section 7 (including adjustment of the Conversion Price then in effect and the
number of shares purchasable upon conversion of the Series A Preferred Stock)
shall be applicable after that event as nearly equivalent as may be practic-
able.
(h) No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by
the Company, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 7 and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of the
holders of the Series A Preferred Stock against impairment.
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Series A Preferred
Stock pursuant to this Section 7, the Company, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof
and prepare and furnish to each holder of Series A Preferred Stock, by first
class mail, postage prepaid, a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement setting forth (A) the considera-
tion received or to be received by the Company for any Additional Stock, (B)
the Conversion Price then in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of the Series A Preferred Stock.
(j) Notices of Record Date. In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall mail
to each holder of Series A Preferred Stock, at least 20 days prior to the
date specified therein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.
(k) Notices. Any notice required by the provisions of this Section 7
to be given to the holder of shares of Series A Preferred Stock shall be deem-
ed given when personally delivered to such holder or five business days after
the same has been deposited in the United States mail, certified or registered
mail, return receipt requested, postage prepaid, and addressed to each holder
of record at his address appearing on the books of the Company.
(l) Effect of Conversion After Certain Record Dates. If any shares
of Series A Preferred Stock are converted into shares of Common Stock after
the record date for the happening of any of the events described in
subparagraphs (i), (ii) or (iii) of Section 7(e) but before the happening of
such event the Company may defer, until the happening of such event, (i)
issuing to the holder of shares of Series A Preferred Stock so converted the
shares of Common Stock which he is entitled to receive because of the
adjustments required pursuant to any such subparagraph and (ii) paying to such
holder any cash in lieu of a fractional share pursuant to this Section 7.
(m) Reservation of Stock Issuable on Conversion. Shares of Common
Stock issued on conversion of shares of Series A Preferred Stock shall be
issued as fully paid shares and shall be nonassessable by the Company. The
Company shall, at all times, reserve and keep available for the purpose of
effecting the conversion of the outstanding shares of Series A Preferred Stock
such number of its duly authorized shares of Common Stock as shall be suffi-
cient to effect the conversion of all of the outstanding shares of Series A
Preferred Stock.
Section 8. Transfer Restrictions. The holder of any shares of Series
A Preferred Stock shall not transfer or purport to transfer any such shares
unless he shall have given to the Company, through its Secretary, at least
fifteen (15) business days' written notice of the proposed transfer, the
number of shares proposed to be transferred, the price at which the proposed
transfer is to be made, and the name of the prospective transferee. During
such fifteen (15) business days, the company shall have the sole option to
exercise its right of redemption consistent with the terms of Section 5 of
this Certificate.
IN WITNESS WHEREOF, Comdial Corporation has caused this
Certificate of Designation to be duly executed by William G. Mustain, its
President, and attested to by Wayne R. Wilver, its Secretary, and has caused
the corporate seal to be affixed hereto, this 1st day of February, 1994.
COMDIAL CORPORATION
By: /s/ William G. Mustain
William G. Mustain, President
(Corporate Seal)
ATTEST: /s/ Wayne R. Wilver
Wayne R. Wilver, Secretary
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COMDIAL CORPORATION
Comdial Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "Corpora-
tion"), does hereby certify:
FIRST: That at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth a proposed amendment to the Certi-
ficate of Incorporation of the Corporation, declaring the amendment to be
advisable and calling a special meeting of stockholders for consideration
thereof. The proposed amendment is as follows:
Article THIRD of the Company's Certificate of Incorporation shall be
amended by adding Division III, as set forth below:
III. Reverse Stock Split
Upon filing with and acceptance by the Secretary of State of the State of
Delaware of a Certificate of Amendment to the Corporation's Restated Certifi-
cate of Incorporation whereby Article THIRD is amended to include this Division
III, each three (3) issued and outstanding shares of Common Stock, $0.01 par
value per share, of this Corporation shall thereby be combined into one (1)
share of validly issued, fully paid and non-assessable share of Common Stock,
$0.01 par value per share. Each person at that time holding of record any
issued and outstanding shares of Common Stock shall receive upon surrender to
the Corporation's transfer agent a stock certificate or certificates to evidence
and represent the number of shares of post-reverse split Common Stock to
which such stockholder is entitled after giving effect to the reverse split;
provided, however, that this Corporation shall not issue fractional shares of
Common Stock in connection with this reverse stock split, but, in lieu thereof
shall make a cash payment equal to the Market Value (as subsequently defined
herein) of each share of Common Stock to holders thereof who would otherwise be
entitled to receive fractional shares, except for the provisions hereof, upon
surrender of certificates representing those shares to the Corporation's trans-
fer agent. The ownership of such fractional interests shall not entitle the
holder thereof to any voting, dividend or other right, except the right to re-
ceive payment therefor as described above. For the purposes hereof, "Market
Value" of shares of Common Stock shall mean an amount per share equal to the
average of the closing bid price for the Common Stock on the five trading days
prior to the date on which the reverse split is effective, as reported by the
National Association of Securities Dealers Automated Quotation system.
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a special meeting of the stockholders of the Corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation
Law of the State of Delaware, at which meeting the necessary number of shares
as required by statute were voted in favor of the proposed amendment.
THIRD: That the proposed amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by William G. Mustain, its President, and Wayne R. Wilver, its Secretary,
this 3rd day of August, 1995.
COMDIAL CORPORATION
By: \S\ William G. Mustain
William G. Mustain, President
\s\ Wayne R. Wilver
ATTEST: Wayne R. Wilver, Secretary
EXHIBIT 10. 1
THIRD AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
("Amendment"), made and executed this 31st day of March, 1995, by and
among SHAWMUT CAPITAL CORPORATION (successor by assignment from
Barclays Business Credit, Inc., a Connecticut corporation ("Lender"); COMDIAL
CORPORATION ("Parent") and its wholly-owned subsidiaries AMERICAN
TELECOMMUNICATIONS CORPORATION ("ATC"), AMERICAN PHONE
CENTERS, INC. ("APC"), COMDIAL ENTERPRISE SYSTEMS, INC. ("CES"),
COMDIAL TELECOMMUNICATIONS INTERNATIONAL, INC. ("CTII"), SCOTT
TECHNOLOGIES CORPORATION ("STC") and COMDIAL
TELECOMMUNICATIONS, INC. ("CTI") and CTI's wholly-owned subsidiaries,
COMDIAL BUSINESS COMMUNICATIONS CORPORATION ("CBCC")
and COMDIAL CONSUMER COMMUNICATIONS CORPORATION ("CCCC";
Parent, ATC, APC, CES, CTII, STC, CTI, CBCC and CCCC being hereinafter
referred to collectively as "Borrowers" and individually as a "Borrower"), each
a Delaware corporation; and COMDIAL CUSTOM MANUFACTURING, INC.
("CCM"), COMDIAL VIDEO TELEPHONY, INC. ("CVT"), and COMDIAL
TECHNOLOGY CORPORATION ("CTC"; CCM, CVT and CTC being
hereinafter referred to collectively as "New Borrowers" and individually as a
"New Borrower"), each a Delaware corporation;
WITNESSETH:
WHEREAS, Borrowers and Lender are parties to that certain Loan and
Security Agreement, dated as of February 1, 1994, as amended by First
Amendment thereto, dated April 29, 1994, and by Second Amendment thereto,
dated January 23, 1995 ("Loan Agreement"), pursuant to which Lender, upon the
terms and subject to the conditions contained therein, has agreed to make loans
and extend credit to Borrowers; WHEREAS, New Borrowers are wholly-owned
subsidiaries of Parent; WHEREAS, Borrowers have requested that New
Borrowers be permitted to become parties to the Loan Agreement and to borrow
thereunder; and WHEREAS, Lender has agreed to such request, and to
accomplish the foregoing purpose, Borrowers, New Borrowers and Lender are
mutually desirous of amending the Loan Agreement and the other Loan
Documents as hereinafter set forth; NOW, THEREFORE, for and in
consideration of the premises and other good and valuable consideration, the
receipt and sufficiency of which are hereby expressly acknowledged, Borrowers,
New Borrowers and Lender do hereby agree as follows:
1. Capitalized Terms. All capitalized terms used herein without definition
shall have the meanings ascribed to such terms in the Loan Agreement.
2. Acknowledgment of Loans Outstanding. Each Borrower and each New
Borrower hereby acknowledges and agrees that, as of the opening of business
on March 30, 1995, the principal amount of the Loans outstanding under the
Loan Agreement is in the sum of $5,943,384.80, consisting of unpaid Revolving
Credit Loans in the amount of $545,384.80, an unpaid principal balance of Term
Loan I in the amount of $4,368,000 and an unpaid principal balance of Term
Loan II in the amount of $1,030,000, and that all such Loans are owed to Lender
without any offset, deduction, defense or counterclaim of any nature.
3. Joiner in Loan Agreement and Other Loan Documents. Each New Borrower
does hereby join in the execution of and agrees to be bound by and to perform
and observe all of the provisions of the Loan Agreement and the other Loan
Documents. Without limiting the generality of the foregoing, each New Borrower
does hereby:
(a) Assume and agree to pay, perform and discharge all Obligations
of Borrowers to or held ~y Lender, including, without limitation, the
Obligations of Borrowers to Lender under the Loan Agreement set forth in
paragraph 2 hereof;
(b) Grant to Lender a security interest in and to its Collateral described in
Section 4.1 of the Loan Agreement, as amended hereby, as security for all
Obligations of Borrowers and New Borrowers now or hereafter owed to Lender;
(c) Unconditionally guarantee the payment, performance and discharge of all
Obligations of each Borrower and each other New Borrower to Lender pursuant
to the terms of the Loan Agreement; and
(d) Agree that all warranties, representations and covenants of Borrowers
under the Loan Agreement and the other Loan Documents shall be applicable to,
and made and remade by, each New Borrower.
4. Amendment to Term Note I. Term Note II and Deed of Trust. Term Note I,
Term Note II and the Deed of Trust are each amended to reflect that all
references therein to the "Borrowers" shall hereafter mean and be a reference
to Borrowers and New Borrowers.
5. Collateral. Each Borrower and each New Borrower hereby acknowledges
and confirms that Lender has, and will continue to have after the date of the
execution of this Amendment, a valid and duly perfected first priority Lien in
all Collateral described in the Loan Agreement, as amended hereby, that is now
or hereafter owned by each Borrower and each New Borrower, and the parties
agree
-2-
to execute all financing statements and other instruments or assurances which
Lender may deem necessary to create, perfect or maintain such security interest
or to effectuate the intent of this Amendment, and the form of such financing
statements, instruments or assurances shall be reasonably satisfactory to
Lender and its counsel.
6. Amendments to Loan Agreement. Effective as of the date hereof, and
subject to the satisfaction of the conditions precedent set forth in paragraph 7
below, the Loan Agreement is hereby amended as follows:
(a) CCM, CVT and CTC are hereby made signatories thereto as
additional Borrowers;
(b) All references in the Loan Agreement to (i) "Borrowers" shall hereafter
mean and be a reference to Parent, ATC, APC, CES, CTII, STC, CTI, CBCC, CCCC,
CCM, CVT and CTC, jointly and severally, as Borrowers; and (ii) "any Borrower",
"no Borrower", "all Borrowers" and such other terms shall hereafter mean and be
a reference to Parent, ATC, APC, CES, CTII, STC, CTI, CBCC, CCCC, CCM,
CVT and CTC;
(c) Section 8.1, General Representations and Warranties, is amended as
follows:
(i) Subsection (Q), Taxes, is amended by deleting the word
"and' from line 8 thereof, and inserting the following phrase after the
number "94-2839703" on line 9 thereof:
", CCM ' s federal tax identification number is 54-
1749259, CVT's federal tax identification number is 54-
1749260, and CTC's federal tax identification number is
54-1749262"; and
(d) Exhibits C, D, F and M attached to the Loan Agreement are
deleted and Exhibits C, D, F and M attached to this Amendment are substituted
in lieu thereof.
7. Conditions Precedent. This Amendment shall become effective and be
deemed effective as of the date hereof upon the satisfaction or waiver by Lender
of the following conditions precedent:
(a) Receipt by Lender of this Amendment, duly executed by each
Borrower and each New Borrower;
(b) Receipt by Lender of the First Modification to Term Note I, duly executed
by each Borrower and each New Borrower;
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(c) Receipt by Lender of the First Amendment to Term Note II, duly
executed by each Borrower and each New Borrower;
(d) Receipt by Lender of a Second Amendment to the Deed of Trust, duly
executed by CBCC, in form and substance satisfactory to Lender and its
counsel, duly recorded, with all fees and taxes, if any, thereon paid;
(e) Receipt by Lender of an endorsement to the mortgagee policy of title
insurance number MM 1441705 issued by Old Republic National Title Insurance
Company, updating the effective date of such policy to the recordation date of
the Second Amendment to the Deed of Trust, with all premiums thereon paid,
and insuring that such Deed of Trust, as amended, continues to constitute a
valid, enforceable first priority Lien upon the Realty encumbered thereby, free
and clear of all title defects and encumbrances whatsoever other than Permitted
Liens applicable thereto;
(f) A copy of the Certificate of Incorporation of each New Borrower, and all
amendments thereto, certified by the Secretary of State of Delaware;
(g) Good standing certificates for each New Borrower, issued by the Secretary
of State of Delaware and by the Secretary of State or other appropriate official
of each jurisdiction where the conduct of each New Borrower's business activi-
ties or the ownership of its Property necessitates qualification;
(h) Receipt by Lender of the favorable, written opinion of counsel to New
Borrowers, in form and substance satisfactory to Lender and its counsel;
(i) Receipt by Lender of UCC-l Financing Statements executed by each-New
Borrower, in form satisfactory to Lender and its counsel, duly filed in all
filing offices necessary to perfect Lender's Lien in the Collateral of each New
Borrower granted under the Loan Agreement as amended hereby, and
appropriate post-filing UCC searches reflecting that Lender has a first priority
perfected Lien in the Collateral of each New Borrower, subject only to Permitted
Liens;
(j) Certificate of the Secretary or an Assistant Secretary of each New Bor-
rower certifying (a) that attached thereto is a true and complete copy of the
Bylaws of such New Borrower, as in effect on the date of such certification, (b)
that attached thereto is a true and complete copy of the resolutions adopted by
the Board of Directors of such New Borrower, authorizing the execution, delivery
and performance of the Loan Agreement and the other Loan Documents and the
consummation of the transactions contemplated hereby and thereby, and (c) as
to the incumbency and genuineness of the signature of each officer of such New
Borrower
-4-
executing this Amendment or any of the Loan Documents executed in
connection herewith;
(k) Receipt by Lender of a certified copy of Borrowers and New
Borrowers' casualty insurance policy, together with a loss payable endorsement
on Lender's standard form of Loss Payee Endorsement naming Lender as loss
payee, and a certified copy of Borrowers' and New Borrowers liability insurance
policy, together with an endorsement thereto naming Lender as additional
insured thereunder; and
(l) Receipt by Lender of such other documents, instruments and agreements as
Lender and its counsel may request.
8. Representations and Warranties. To induce Lender to execute and deliver
this Amendment, each Borrower and each New Borrower hereby reaffirms all
covenants, representations and warranties made in the Loan Agreement and the
other Loan Documents as amended hereby and agrees that all such covenants,
representations and warranties shall be deemed to have been remade as of the
date of this Amendment except for any changes in the nature of any Borrower's
business or operations or which occur in the ordinary course of business that
would render the information contained in any such representation or warranty
either inaccurate or incomplete in any material respect, so long as (a) Lender
has consented to such changes, (b) such changes are not expressly prohibited
by the Loan Agreement, or (c) with respect to matters Borrowers are required to
notify Lender of pursuant to Sections 4.9(E) or 9.1~K) of the Loan Agreement,
Borrowers have given notice as required by such Sections. Any default by any
Borrower in its warranties and representations made in this Amendment shall
constitute an Event of Default under the Loan Agreement.
9. Reference to and Effect Upon Loan Agreement. Each reference in the Loan
Agreement to this Agreement", "hereunder", "hereof", or words of like import,
and each reference in the other Loan Documents to the Loan Agreement, shall
hereafter mean and be a reference to the Loan Agreement, as amended hereby.
Except as specifically amended hereby, the Loan Agreement and each of the
other Loan Documents, and each and every term and provision thereof, shall
remain in full force and effect and are hereby ratified and confirmed. The
execution, delivery and effectiveness of this Amendment shall not operate as a
waiver of any right, power or remedy of Lender under the Loan Agreement or the
other Loan Documents or constitute a waiver of any provision of the Loan
Agreement or the other Loan Documents, except as specifically set forth herein.
10. Governing Laws: Binding Effect. This Amendment shall be construed,
interpreted and enforced in accordance with the laws of the State of North
Carolina; and shall be binding upon and inure to
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the benefit of the parties hereto and their respective successors and assigns.
11. Expenses. Borrowers and New Borrowers shall pay all fees and expenses
incurred by Lender in connection with the preparation, negotiation, execution
and delivery of this Amendment and all other agreements and documents
required or contemplated hereby, including, without limitation, legal fees and
expenses.
12. Section Titles. The section titles contained in this Amendment are and
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties hereto.
13. Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH BORROWER, EACH NEW BORROWER AND
LENDER EACH WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF
OR RELATED TO THIS AMENDMENT, THE LOAN AGREEMENT OR THE
OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO
OR THERETO. IN WITNESS WHEREOF, the parties have caused this
Amendment to be duly executed under seal in their corporate names by their
duly authorized corporate officers on the day and year first above written.
ATTEST: COMDIAL CORPORATION
\s\Linda P. Falconer By: \s\Wayne R. Wilver
Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: AMERICAN TELECOMMUNICATIONS
CORPORATION
\s\Linda P. Falconer By: \s\Wayne R. Wilver
Assistant Secretary Wayne R. Wilver,
[CORPORATE SEAL] Senior Vice President
ATTEST: AMERICAN PHONE CENTERS INC
\s\Linda P. Falconer By: \s\Wayne R. Wilver
Assistant Secretary Wayne R. Wilver,
[CORPORATE SEAL] Senior Vice President
ATTEST: COMDIAL ENTERPRISE SYSTEMS, INC.
\s\Linda P. Falconer By: \s\Wayne R. Wilver
Assistant Secretary Wayne R. Wilver,
[CORPORATE SEAL] Senior Vice President
ATTEST: COMDIAL TELECOMMUNICATIONS, INC.
\s\Linda P. Falconer By: \s\Wayne R. Wilver
Assistant Secretary Wayne R. Wilver,
[CORPORATE SEAL] Senior Vice President
ATTEST: COMDIAL TELECOMMUNICATIONS
INTERNATIONAL, INC.
\s\Linda P. Falconer By: \s\Wayne R. Wilver
Assistant Secretary Wayne R. Wilver,
[CORPORATE SEAL] Senior Vice President
ATTEST: SCOTT TECHNOLOGIES CORPORATION
\s\Linda P. Falconer By: \s\Wayne R. Wilver
Assistant Secretary Wayne R. Wilver,
[CORPORATE SEAL] Senior Vice President
ATTEST: COMDIAL CUSTOM MANUFACTURING, INC.
\s\Linda P. Falconer By: \s\Wayne R. Wilver
Assistant Secretary Wayne R. Wilver,
[CORPORATE SEAL] Senior Vice President
ATTEST: COMDIAL VIDEO TELEPHONY, INC.
\s\Linda P. Falconer By: \s\Wayne R. Wilver
Assistant Secretary Wayne R. Wilver,
[CORPORATE SEAL] Senior Vice President
ATTEST: COMDIAL TECHNOLOGY CORPORATION
\s\Linda P. Falconer By: \s\Wayne R. Wilver
Assistant Secretary Wayne R. Wilver,
[CORPORATE SEAL] Senior Vice President
ATTEST: COMDIAL BUSINESS COMMUNICATIONS
CORPORATION
\s\Linda P. Falconer By: \s\Wayne R. Wilver
Assistant Secretary Wayne R. Wilver,
[CORPORATE SEAL] Senior Vice President
ATTEST: COMDIAL CONSUMER COMMUNICATIONS
CORPORATION
\s\Linda P. Falconer By: \s\Wayne R. Wilver
Assistant Secretary Wayne R. Wilver,
[CORPORATE SEAL] Senior Vice President
SHAWMUT CAPITAL CORPORATION
By: /s/Jimm G. Ramsey
Title: Vice President
COMDIAL CORPORATION AND SUBSIDIARIES
Exhibit 11
<TABLE>
Statement re Computation of Per Share Earnings
Three Months Ended Six Months Ended
July 2, July 3, July 2, July 3,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
PRIMARY
Net income applicable to common shares:
Income before extraordinary item $6,207,000 $781,000 $7,294,000 $1,290,000
Extraordinary item - - - (389,000)
Net income $6,207,000 $781,000 $7,294,000 $901,000
Weighted average number of common
shares outstanding during the period 21,179,948 20,909,664 21,117,012 20,841,077
Add - common equivalent shares (determined
using the "treasury stock" method) repre-
senting shares issuable upon exercise of:
Stock options 696,548 822,087 676,065 898,893
Weighted average number of shares used in
calculation of primary earnings per
common share 21,876,496 21,731,751 21,793,077 21,739,970
Earnings per common share:
Income before extraordinary item $0.28 $0.04 $0.33 $0.06
Extraordinary item - - - (0.02)
Net income $0.28 $0.04 $0.33 $0.04
FULLY DILUTED
Net income applicable to common share $6,207,000 $781,000 $7,294,000 $901,000
Adjustments for convertible securities:
Dividends paid on convertible preferred
stock 142,500 161,000 285,000 267,000
Net income applicable to common shares,
assuming conversion of above securities $6,349,500 $942,000 $7,579,000 $1,168,000
Weighted average number of shares used in
calculation of primary earnings per
common share 21,876,496 21,731,751 21,793,077 21,739,970
Add (deduct) incremental shares representing:
Shares issuable upon exercise of stock
options included in primary
calculation (696,548) (822,087) (676,065) (898,893)
Shares issuable based on period-end market
price or weighted average price:
Convertible preferred stocks 2,570,799 2,427,978 2,570,799 2,427,978
Stock options 851,792 814,523 910,766 881,043
Weighted average number of shares used in
calculation of fully diluted earnings per
common share 24,602,539 24,152,165 24,598,577 24,150,098
Fully diluted earnings per common share $0.26 $0.04 $0.31 $0.05
</TABLE>
