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 JUNE 30, 1996
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: 0-3585
________________________
EVEREST & JENNINGS INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2536185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4203 EARTH CITY EXPRESSWAY, EARTH CITY, MISSOURI 63045
(Address of principal executive offices)
Registrant's telephone number, including area code: 314-512-7000
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
the filing requirements for the past 90 days: Yes X No
Shares of Common Stock outstanding as of August 1, 1996: 7,196,565
<PAGE>
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1996
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.......................................3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................22
Item 2. Changes in Securities.....................................22
Item 3. Defaults Upon Senior Securities...........................22
Item 4. Submission of Matters to a Vote of Security Holders.......23
Item 5. Other Information.........................................23
Item 6. Exhibits and Reports on Form 8-K..........................24
SIGNATURES .............................................................24
INDEX TO EXHIBITS.......................................................25
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements included herein have been
prepared by the management of Everest & Jennings International Ltd. (the
"Company") without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary to
state fairly the results for the interim periods presented herein in
accordance with generally accepted accounting principles for interim
financial information have been made (however, the consolidated financial
statements included herewith do not include any adjustments that might
result from the Company's inability to emerge from or complete its ongoing
restructuring activities and continue as a going concern -- see Note 1 to
these Unaudited Consolidated Financial Statements). Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Management
believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per-share data)
Three Months Ended June 30
---------------------------
1996 1995
-------- --------
(Unaudited)
Revenues $16,745 $18,449
Cost of sales 13,443 14,045
------ ------
Gross profit 3,302 4,404
Selling expenses 2,888 3,125
General and administrative expenses 1,900 1,220
------ ------
Total operating expenses 4,788 4,345
------ ------
Income (loss) from operations (1,486) 59
Interest expense, BIL (Note 6) 427 373
Interest expense, other 629 548
------ ------
Loss before income taxes (2,542) (862)
Income tax provisions 15 (2)
------ ------
Net loss $(2,557) $ (860)
Loss per share (Notes 5 and 7) $(.35) $(.12)
Weighted average number of Common
Shares outstanding 7,219,411 7,226,618
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per-share data)
Six Months Ended June 30
---------------------------
1996 1995
-------- --------
(Unaudited)
Revenues $34,293 $36,962
Cost of sales 27,108 28,351
------ ------
Gross profit 7,185 8,611
Selling expenses 5,945 6,181
General and administrative expenses 3,408 2,646
------ ------
Total operating expenses 9,353 8,827
------ ------
Loss from operations (2,168) (216)
Interest expense, BIL (Note 6) 854 748
Interest expense, other 1,370 1,054
------ ------
Loss before income taxes (4,392) (2,018)
Income tax provisions 21 12
------ ------
Net loss $(4,413) $(2,030)
Loss per share (Notes 5 and 7) $(.61) $(.28)
Weighted average number of Common
Shares outstanding 7,223,714 7,226,545
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
June 30 December 31
1996 1995
-------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 12 $ 117
Accounts receivable, less allowance
for doubtful accounts of $1,355
in 1996 and $1,847 in 1995 16,614 16,952
Notes receivable 1,642 252
Inventories (Note 8) 19,823 19,570
Other current assets 651 1,047
------ ------
Total current assets 38,742 37,938
PROPERTY, PLANT AND EQUIPMENT:
Land 354 261
Buildings and improvements 4,568 4,500
Machinery and equipment 15,914 15,380
------ ------
20,836 20,141
Less accumulated depreciation
and amortization (13,648) (12,992)
------ ------
Property, plant and equipment, net 7,188 7,149
NOTES RECEIVABLE (Note 9) 509 2,524
INTANGIBLE ASSETS, NET 248 402
OTHER ASSETS 222 217
------ ------
TOTAL ASSETS $46,909 $48,230
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' DEFICIT
June 30 December 31
1996 1995
-------- -----------
(Unaudited)
CURRENT LIABILITIES:
Short-term borrowings and current install-
ments of long-term debt of $1,609
in 1996 and $1,089 in 1995 (Note 6) $ 4,142 $ 4,473
Accounts payable 7,119 8,361
Accrued payroll costs 6,086 6,327
Accrued interest, BIL (Note 6) 3,483 2,629
Accrued expenses 5,341 5,310
Accrued restructuring expenses (Note 1) 442 659
------ ------
Total current liabilities 26,613 27,759
LONG-TERM DEBT, NET OF CURRENT PORTION
(Note 6) 27,010 22,370
LONG-TERM BORROWINGS FROM BIL (Note 6) 21,103 21,103
OTHER LONG-TERM LIABILITIES 98 130
COMMITMENTS AND CONTINGENCIES (Notes 1 and 10)
STOCKHOLDERS' DEFICIT: (Note 1)
Series A Convertible Preferred Stock 13,175 13,175
Series B Convertible Preferred Stock 1,317 1,317
Series C Convertible Preferred Stock 20,000 20,000
Common Stock, par value: $.10;
authorized 12,000,000 shares 719 722
Additional paid-in capital 105,608 105,608
Accumulated deficit (164,798) (159,793)
Minimum pension liability adjustment (3,264) (3,264)
Cumulative translation adjustments (672) (897)
------ ------
Total stockholders' deficit (27,915) (23,132)
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $46,909 $48,230
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
<TABLE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Dollars in thousands)
<CAPTION>
Series A Series B Series C
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock Common Stock
Shares Amt Shares Amt Shares Amt Shares Amt
------ --- ------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
Balance at December 31, 1995 7,867,842 $13,175 786,357 $1,317 20,000,000 $20,000 72,280,646 $722
Accrued Dividends on Series A
Convertible Preferred Stock -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
Adjustment For one-for-ten
Stock Split -- -- -- -- -- -- (65,084,081) (3)
Translation adjustments -- -- -- -- -- -- -- --
--------- ------- ------- ------ --------- ------- ---------- ---
Balance at June 30, 1996 7,867,842 $13,175 786,357 $1,317 20,000,000 $20,000 7,196,565 $719
The accompanying Notes are an integral part of these Consolidated Financial
Statements
</TABLE>
<PAGE>
<TABLE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Dollars in thousands)
(continued)
<CAPTION>
Minimum
Additional Accumu- Pension Cumulative
Paid-in lated Liability Translation
Capital Deficit Adjustments Adjustments Total
---------- ------- ----------- ----------- -----
<S> <C> <C> <C>
<C> <C>
Balance at December 31, 1995 $105,608 $(159,793) $(3,264) $(897) $(23,132)
Accrued Dividends on Series A
Convertible Preferred Stock -- (592) -- -- (592)
Net loss -- (4,413) -- -- (4,413)
Translation adjustments -- -- -- 225 225
------ -------- ------- ----- -----
Balance at June 30, 1996 $105,608 $(164,798) $(3,264) $(672) $(27,915)
The accompanying Notes are an integral part of these Consolidated Financial Statements
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended June 30
-------------------------
1996 1995
-------- --------
(Unaudited)
Cash flows from operating activities:
Net loss $(4,413) $(2,030)
Adjustment to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 848 1,221
Changes in operating assets and liabilities:
Accounts receivable 338 2,396
Notes receivable (1,390) --
Inventories (253) 1,559
Accounts payable (1,242) (1,933)
Accrued interest, BIL 854 749
Accrued payroll costs, expenses and
income taxes (241) (2,438)
Accrued restructuring expenses (217) (3,223)
Other, net (208) (448)
------ ------
Cash used in operating activities (5,924) (4,147)
Cash flows from investing activities:
Capital expenditures (695) (452)
Proceeds from disposition of assets
held for sale -- 4,518
Cash received in payment of note receivable 2,015 --
------ ------
Cash provided by investing activities 1,320 4,066
Cash flows from financing activities:
Advances from BIL -- 2,100
Increase (decrease) in short-term and
long-term borrowings, net 4,309 (2,532)
Proceeds from exercise of stock options -- 3
Changes in other long-term liabilities (32) (52)
Purchase of fractional shares of
common stock (3) --
------ ------
Cash provided by financing activities 4,274 (481)
Effect of exchange rate changes on cash flow 225 146
Increase (decrease) in cash balance (105) (416)
Cash and cash equivalents balance at
beginning of year 117 513
------ ------
Cash and cash equivalents balance
at end of period $ 12 $ 97
Supplemental disclosures of cash flow
information:
Cash paid for interest $1,147 $1,352
Cash paid for income taxes $ 143 $ 172
The accompanying Notes are an integral part of these
Consolidated Financial Statements
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per-share data)
NOTE 1 -- CORPORATE RESTRUCTURING
The Company has incurred substantial financial losses in a continuing
effort to restructure its operations with the objective of improving its
competitive position within the durable medical equipment industry.
Restructuring activities have included asset sales, significant reductions
in headcount, plant closures and consolidations, product line
rationalization, debt to equity conversion and outsourcing of manufacturing
operations.
The Company's 1996 revenues and operating results have been negatively
impacted by ongoing price competition. Additionally, the Company continues
to address the rationalization of its production facilities in the US,
Canada and Mexico and the increased outsourcing of products and product
components, the effects of which are expected to lower the Company's
production costs. On May 26, 1996 the Company issued a WARN Act Notice and
announced a substantial workforce reduction at its primary domestic
wheelchair manufacturing facility. Such reduction will be substantially
completed during the third quarter of 1996. When complete, US operations
will be limited to distribution, certain custom manufacturing and light
assembly. A severance reserve of approximately $400 has been included in
the Company's results of operations for the three and six month periods
ended June 30, 1996. The Company anticipates recording additional
restructuring expenses during the third quarter 1996 when the workforce
reduction is substantially complete.
The accompanying consolidated financial statements have been prepared
under the going concern concept, which anticipates an entity will continue
in its present form and, accordingly, uses the historical cost basis to
prepare financial statements. The Company has incurred substantial
restructuring expenses and recurring operating losses and has a net capital
deficiency at June 30, 1996. No assurance can be made that the Company
will successfully emerge from or complete its restructuring activities.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed for the three month and six
month periods ended June 30, 1996 are the same as those disclosed in the
Notes to the Company's December 31, 1995 Consolidated Financial Statements,
which were included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995. All dollar amounts in these Notes to
Unaudited Consolidated Financial Statements are in thousands except per-
share data or as otherwise specified. In the opinion of management, all
adjustments, consisting of normal recurring adjustments necessary for a
fair presentation of (a) the consolidated results of operations for the
three month and six month periods ended June 30, 1996 and 1995; (b) the
consolidated financial position at June 30, 1996 and December 31, 1995; and
(c) the consolidated cash flows for the six month periods ended June 30,
1996 and 1995 have been made. However, the consolidated financial
statements included herewith do not include any adjustments that might
result from the Company's inability to emerge from or complete its ongoing
restructuring activities and continue as a going concern -- See Note 1 to
the Unaudited Consolidated Financial Statements.
NOTE 3 -- OWNERSHIP
80% of the Company's common shares and all of the Company's Series A, B
and C Preferred shares are owned by a wholly-owned subsidiary of Brierley
Investments Ltd ("BIL"), a New Zealand investment firm.
NOTE 4 -- PROPOSED MERGER WITH GRAHAM-FIELD HEALTH PRODUCTS, INC.
On June 17, 1996, the Company announced an agreement in principle with
Graham-Field Health Products, Inc. for Graham-Field to acquire the Company
in a merger transaction. The terms of the proposed transaction announced
on June 17, 1996 provided that the stockholders of the Company would
receive one share of common stock of Graham-Field in exchange for each four
shares of common stock of the Company and $2.00 for each share of common
stock of the Company, or a total of approximately 1.8 million shares of
Graham-Field common stock and $14.4 million. On August 14, 1996, the
Company and Graham-Field announced revised terms pursuant to which the
stockholders of the Company will receive one share of common stock of
Graham-Field for each 2.857 shares of the common stock of the Company but
no cash payment, or a total of approximately 2.5 million shares of Graham-
Field Common Stock. The exchange ratio will be reduced if the value of the
Graham-Field common stock to be issued in exchange for each share of common
stock of the Company exceeds $5.50. On August 12, 1996 the closing sale
price of Graham-Field Common Stock on the New York Stock Exchange was $8
per share.
BIL has agreed to purchase up to an additional 1.9 million shares of
common stock of Graham-Field at a price of $13.00 per share or the average
market price of the common stock of Graham-Field for the ten (10)
consecutive trading days prior to the closing date, whichever is higher,
the proceeds of which will be used by Graham-Field to repay all debt of the
Company in the approximate amount of $25 million to The Hongkong and
Shanghai Banking Corporation Limited (see Note 6 -- Debt). As part of the
merger transaction, BIL will also receive (1) Series B Convertible
Preferred Stock with a liquidation value not to exceed $61 million in
exchange for an approximately equal amount of debt owed by the Company to
BIL and Convertible Preferred Stock of the Company held by BIL, and (2) $10
million of Graham-Field Series C Convertible Preferred Stock for $10
million in cash. The Graham-Field Series B and Series C Convertible
Preferred Stock will yield a dividend at the rate of 1.5% per year, which
will be paid at the option of Graham-Field either in cash or common stock.
The Graham-Field Series B Convertible Preferred Stock will be convertible
into common stock of Graham-Field during the five (5) year period following
the closing (a) by BIL at a conversion price of $20 per share and (b) if
Graham-Field's common stock trades at an average stock price of $15.50 per
share or greater for a period of ten (10) consecutive trading days during
such period, by Graham-Field at such average stock price at the time of
conversion or $20.00 per share, whichever is lower; if the Graham-Field
Series B Convertible Preferred Stock has not been converted during such
period, it will automatically convert on the fifth anniversary date of the
closing at a conversion price of $15.50. The Graham-Field Series C
Convertible Preferred Stock will be automatically converted into common
stock of Graham-Field at a conversion price of $20.00 per share on the
fifth anniversary date of the closing unless Graham-Field elects to redeem
it at that time for $10 million plus accrued and unpaid dividends. BIL has
also lent Graham-Field $4 million on a short-term basis, which loan would
be exchanged for a $4 million 7.7% subordinated note of Graham-Field
payable on April 1, 2001. Immediately after the transaction and after
giving effect to the conversion of the Series B Convertible Preferred Stock
at $15.50 per share and the Series C Convertible Preferred Stock at $20.00
per share, BIL would own approximately 34% of the common stock of Graham-
Field on a fully diluted basis.
The transaction, which is currently anticipated to be completed in
November 1996, is subject to, among other things, approval by the Boards of
Directors of Graham-Field and the Company, the negotiation and execution of
definitive documentation, the approval by the stockholders of Graham-Field
and the Company, the receipt of certain regulatory approvals, and the
satisfaction of other customary terms and conditions. Following execution
of definitive documentation and subject to clearance by the Securities and
Exchange Commission, the parties will mail to stockholders a joint proxy
statement/prospectus describing the terms of the proposed transaction.
See Note 10 for a description of a class action complaint filed in
Delaware with respect to the proposed acquisition of the Company by Graham-
Field.
NOTE 5 -- COMMON STOCK
On June 4, 1996 the Company's shareholders approved a one-for-ten reverse
stock split, effective June 6, 1996. The stated par value of one share of
common stock was changed from $.01 to $.10 as a result of the stock split.
All references in the consolidated financial statements to average number
of shares outstanding and related prices, per share amounts and stock
option plan data have been restated to reflect the reverse stock split.
NOTE 6 -- DEBT
The Company's debt as of June 30, 1996 and December 31, 1995 is as
follows:
June 30 December 31
1996 1995
-------- -----------
Loans payable to HSBC $24,240 $18,700
Other domestic debt 2,015 2,622
Foreign debt 4,897 5,521
Long-term loan payable to BIL 21,103 21,103
------ ------
Total debt 52,255 47,946
Less short-term borrowings and current
installments of long-term debt 4,142 4,473
------ ------
Long-term debt, net of current portion,
including BIL Credit Facility $48,113 $43,473
On September 30, 1992 E&J Inc., a wholly-owned subsidiary of the
Company, entered into a Revolving Credit Agreement with The Hongkong and
Shanghai Banking Corporation Limited ("HSBC"). This Agreement has been
revised and extended several times and currently expires September 30,
1997. Advances under the Revolving Credit Agreement, as amended, bear
interest at the prime rate as announced by Marine Midland Bank, N.A. from
time to time plus 0.25% per annum. The HSBC facility, as amended, provides
up to $6 million for letter of credit availability and, additionally, cash
advances of up to $25 million to E&J Inc. Repayment of existing debt with
BIL is subordinated to the HSBC debt, and an affiliate of BIL has
guaranteed repayment of the HSBC debt. As of July 31, 1996 this facility
was fully utilized.
BIL has provided the Company a credit facility which allows advances up
to $21.1 million. At June 30, 1996 and December 31, 1995 this facility has
been fully utilized. The BIL credit facility has been extended to
September 30, 1997, bears interest at the rate of 8% per annum, and is
secured by a lien on and security interest in all assets of the Company and
E&J Inc. As of June 30, 1996, $3.5 million of accrued, unpaid interest was
due BIL under the BIL credit facility .
The Company's Canadian subsidiary has credit facilities in the
aggregate of $5.5 million, of which $4.3 million was borrowed as of June
30, 1996 at interest rates ranging from prime plus 1% to prime plus 1.25%.
The loans are secured by the assets of the Canadian subsidiary and certain
Letters of Credit supplied by HSBC and BIL.
The Company's Mexican subsidiary has a credit facility in the aggregate
of $1.0 million, of which $0.6 million was borrowed as of June 30, 1996 at
interest rates approximating 13%. The loan is secured by the assets of the
Mexican subsidiary.
At June 30, 1996, the Company was contingently liable to HSBC under
existing letters of credit in the aggregate amount of approximately $5.8
million.
NOTE 7 -- LOSS PER SHARE
Loss per share for the three month and six month periods ended June 30,
1996 and 1995 is calculated based on the weighted average number of shares
of Common Stock outstanding during the periods, giving effect to the
reverse stock split as discussed in Note 5.
NOTE 8 -- INVENTORIES
Inventories at June 30, 1996 and December 31, 1995 consist of the
following:
June 30 December 31
1996 1995
-------- --------
Raw materials $10,492 $10,365
Work-in-process 3,650 4,593
Finished goods 5,681 4,612
------ ------
$19,823 $19,570
NOTE 9 -- NOTES RECEIVABLE (LONG TERM)
The Company received notes of $2.1 million and $0.6 million upon the
sale of its institutional business and oxygen concentrator business,
respectively, in 1995. The $2.1 million note was paid in full on April 2,
1996. The $0.6 million note has been reduced to $0.4 million, bears
interest at the rate of 6% after August 15, 1996 and requires monthly
installments, with the final payment due in January, 1997.
NOTE 10 -- CONTINGENT LIABILITIES
In July, 1990 a class action suit was filed in the United States
District Court for the Central District of California by a stockholder of
the Company against the Company and certain of its present and former
directors and officers. The suit seeks unspecified damages for alleged non-
disclosure and misrepresentation concerning the Company in violation of
federal securities laws. The Company twice moved to dismiss the complaint
on various grounds. After the first such motion was granted, plaintiff
filed a first amended complaint, which subsequently was dismissed by order
filed on September 20, 1991. Plaintiff then notified the court that it did
not intend to further amend the complaint, and an order dismissing the
complaint was entered in November 1991. Plaintiff filed a notice of appeal
to the Court of Appeals for the Ninth Circuit on December 23, 1991. The
case was briefed and oral argument heard in June, 1993. Because of the
precedent set by a Ninth Circuit decision in another case which was decided
after the district court's order of dismissal but before the Ninth Circuit
decided plaintiff's appeal, the Ninth Circuit reversed the district court's
dismissal of the case and remanded the case to the district court for
further proceedings in an opinion handed down by the Ninth Circuit on
August 24, 1995. On March 25, 1996, the district court granted plaintiff's
motion to certify a class composed of purchasers of the Company's Common
Stock during the period from March 31, 1989 to June 12, 1990. The ultimate
liability, if any, cannot be determined at this time.
Die Cast Products, Inc. ("Die Cast Products"), a former subsidiary of
the Company, has been named as a defendant in a lawsuit filed by the State
of California pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act 42 U.S.C. para 9601 et sec. The Company was
originally notified of this action on December 10, 1992. The lawsuit seeks
to recover response and remediation costs in connection with the release or
threatened release of hazardous substances at 5619-21 Randolph Street, in
the City of Commerce, California ("Randolph Street Site"). It is alleged
that the Randolph Street Site was used for the treatment, storage and
disposal of hazardous substances. The Company anticipates being named as a
defendant as a result of its former ownership of Die Cast Products, which
allegedly disposed of hazardous waste materials at the Randolph Street
Site. A settlement in principle between the State of California and the
various potentially responsible parties was reached in October 1995. A
consent decree was signed in July 1996. The Company's portion of the
settlement was less than originally anticipated. Accordingly, the
previously recorded reserve for this matter was reduced in 1995 to the
settlement amount.
In March, 1993 E&J Inc. received a notice from the U.S. Environmental
Protection Agency ("EPA") regarding an organizational meeting of generators
with respect to the Casmalia Resources Hazardous Waste Management Facility
("Casmalia Site") in Santa Barbara County, CA. The EPA alleges that the
Casmalia Site is an inactive hazardous waste treatment, storage and
disposal facility which accepted large volumes of commercial and industrial
wastes from 1973 until 1989. In late 1991, the Casmalia Site owner/
operator abandoned efforts to actively pursue site permitting and closure
and is currently conducting only minimal maintenance activities. The EPA
estimates that the Casmalia Site's closure trust fund, approximately $10
million, is substantially insufficient to cover cleanup and closure of the
site. Since August, 1992, the EPA has undertaken certain interim
stabilization actions to control actual or threatened releases of hazardous
substances at the Casmalia Site. The EPA is seeking cooperation from
generators to assist in the cleaning up, and closing of, the Casmalia Site.
E&J Inc. and 64 other entities were invited to the organizational meeting.
E&J Inc. is a member of a manufacturers' group of potentially responsible
parties which has investigated the site and proposed a remediation plan to
the EPA. To reflect E&J Inc.'s estimated allocation of costs thereunder, a
reserve of $1.0 million was recorded, which was included in the
Consolidated Statements of Operations for 1993. During 1995 an agreement
in principle was reached with the EPA for a settlement of the majority of
the Casmalia site liability. A consent decree was signed during July 1996.
The settlement provides for the work to be completed in three phases.
Phase I work, which is estimated to take three to five years to complete,
will require the Company, along with other responsible parties, to
participate in funding the water management, certain construction projects
and completion of the site investigation. Phase II work, consisting of the
remaining remedial construction activities and the first five years of
operation and maintenance, will be funded by other parties and is estimated
to take ten years. Subsequent to Phase II, additional operation and
maintenance will be required for approximately 30 years. The estimated
exposure of the Company under this agreement is less than originally
anticipated and the previously recorded reserve has been reduced to the
expected settlement amount.
In 1989 a patent infringement case was initiated against E&J Inc. and
other defendants in the U.S. District Court, Central District of
California. E&J Inc. prevailed at trial with a directed verdict of patent
invalidity and non-infringement. The plaintiff filed an appeal with the
U.S. Court of Appeals for the Federal Circuit. On March 31, 1993, the
Court of Appeals vacated the District Court's decision and remanded the
case for trial. Impacting the retrial of this litigation was a re-
examination proceeding before the Board of Patent Appeals with respect to
the subject patent. A ruling was rendered November 23, 1993 sustaining the
claim of the patent which E&J Inc. has been charged with infringing. Upon
the issuance of a patent re-examination certificate by the U.S. Patent
Office, the plaintiff presented a motion to the District Court requesting a
retrial of the case. The Company presented a Motion for Summary Judgment
of Noninfringement based in part upon the November 23, 1993 decision of the
Board of Patent Appeals. The Motion was granted in follow-up conferences
and an official Judgment was entered November 17, 1994. Following the
appeal by the plaintiffs, the case has been remanded to the US District
Court, Central District of California, for further consideration. E&J Inc.
believes that this case is without merit and intends to contest it
vigorously. The ultimate liability of E&J Inc., if any, cannot be
determined at this time.
Following a jury trial on July 15, 1996, a verdict was rendered in the
District Court of the First Judicial District of the State of New Mexico in
a civil product liability law suit (Chris Trew et al. vs. Smith and Davis
Manufacturing Company, Inc., No. SF95-354) against Smith & Davis
Manufacturing Company, a wholly-owned subsidiary of the Company ("Smith &
Davis"), in the amount of $550 actual damages and $4 million punitive
damages. The suit was instituted on February 25, 1995 by the children and
surviving heirs and personal representatives of a nursing home patient in
Carlsbad, New Mexico who died on September 28, 1993 after her head became
pinned between a bed rail allegedly manufactured by Smith & Davis and her
bed. The suit alleged that the bed rail in question was defective and
unsafe for its intended purpose, that Smith & Davis was negligent in
designing, manufacturing, testing and marketing such bed rails and that the
negligence of the nursing home in question was the proximate cause of the
decedent's injuries and death. The nursing home reached a settlement with
plaintiffs prior to trial. Smith & Davis has product liability insurance
coverage which provides $1 million per occurrence coverage in excess of a
$250,000 self insured retention and $5 million of umbrella coverage.
Judgment has not yet been entered on the jury verdict.
On June 18, 1996 a Class Action Complaint captioned Ron Kauffman v. Rodney
F. Hogg, et al. was filed in the Court of Chancery in New Castle County,
Delaware with respect to the proposed acquisition of the Company by Graham-
Field (see Note 4), naming as defendants the Company, its directors, BIL
and Graham-Field. The suit alleges that, as a result of the proposed
acquisition of the Company by Graham-Field, minority shareholders will not
receive their proportionate share of the value of the Company's assets and
will be prevented from obtaining a fair price for their stock. Plaintiff
alleges that the acquisition offers minority shareholders value which is
less than the Company's trading price prior to the announcement of the
acquisition, and that BIL will receive more value for its holdings than
minority shareholders. The plaintiff alleges that the directors breached
their fiduciary duties to minority shareholders by not exercising
independent business judgment and by acting for their own personal benefit.
The plaintiff seeks certification of a class consisting of minority
shareholders of the Company. Plaintiff requests that the acquisition be
enjoined or, alternatively, that damages be awarded to the class. To date,
no responsive pleading has been filed by any of the defendants and no
discovery has been taken.
The Company and its subsidiaries are parties to other lawsuits and
other proceedings arising out of the conduct of its ordinary course of
business, including those relating to product liability and the sale and
distribution of its products. While the results of such lawsuits and other
proceedings cannot be predicted with certainty, management does not expect
that the ultimate liabilities, if any, will have a material adverse effect
on the consolidated financial position or results of operations of the
Company.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996
The following table summarizes operating results of the Company for the
three months ended June 30, 1996 and 1995 (dollars in millions):
Three Months Ended June 30
---------------------------
1996 1995
------------ ------------
Amount % Amount %
------ --- ------ ---
Revenue $16.7 100 $18.4 100
Cost of sales 13.4 80 14.0 76
----- ---- ----- ----
Gross profit 3.3 20 4.4 24
Operating expenses 4.8 29 4.4 24
----- ---- ----- ----
Operating loss (1.5) (9) -- --
Interest expense 1.1 7 0.9 5
----- ---- ----- ----
Loss before income taxes (2.6) (16) (0.9) (5)
Income tax provisions -- -- -- --
----- ---- ----- ----
Net loss $(2.6) (16) $(0.9) (5)
Second quarter 1996 revenues of $16.7 million decreased $1.7 million,
or 9%, from 1995. Second quarter revenues during 1996 for the Company's
domestic operations decreased $1.6 million from 1995's revenue levels. The
decline in domestic sales is attributable to the reduction in distributor
sales and the sale, effective August 9, 1995, of the Company's oxygen
concentrator product line, which contributed $0.5 million revenue during
the second quarter of 1995.
Second quarter 1996 revenues in the Everest & Jennings' Canadian and
Mexican subsidiaries were consistent with 1995 levels.
Total Company second quarter gross profit decreased $1.1 million from
$4.4 million in 1995 to $3.3 million in 1996. As a percentage of sales,
margins decreased from 24% during 1995 to 20% during 1996, due primarily to
discounting related to price competition, poor efficiency at the Company's
primary domestic wheelchair facility, and the recording of a $0.4 million
severance reserve during 1996 as a result of a substantial workforce
reduction at the Company's primary domestic wheelchair manufacturing
facility. Such reduction will be substantially completed during the third
quarter of 1996. When complete, US operations will be limited to
distribution, certain custom manufacturing and light assembly. The Company
anticipates recording additional restructuring expenses during the third
quarter 1996 when the workforce reduction is substantially complete.
Additional production relocation and facility rationalizations are planned
during 1996 and beyond intended to improve the Company's cost structure.
Total Company second quarter operating expenses increased $0.4 million
from $4.4 million in 1995 to $4.8 million in 1996. Research and
development spending was $0.2 million during 1996 compared to spending of
$0.2 million during 1995.
Interest expense of $1.1 million in the second quarter of 1996
increased from the comparable period in the prior year due to increases in
the average outstanding debt during the period.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
The following table summarizes operating results of the Company for the
six months ended June 30, 1996 and 1995 (dollars in millions):
Six Months Ended June 30
------------------------
1996 1995
------------ ------------
Amount % Amount %
------ --- ------ ---
Revenue $34.3 100 $37.0 100
Cost of sales 27.1 79 28.4 77
----- ---- ----- ----
Gross profit 7.2 21 8.6 23
Operating expenses 9.4 27 8.8 24
----- ---- ----- ----
Operating loss (2.2) (6) (0.2) (1)
Interest expense 2.2 6 1.8 4
----- ---- ----- ----
Loss before income taxes (4.4) (12) (2.0) (5)
Income tax provisions -- -- -- --
----- ---- ----- ----
Net loss ($4.4) (12) (2.0) (5)
First half 1996 revenues of $34.3 million decreased $2.7 million, or
7%, from 1995. First half revenues during 1996 for the Company's domestic
operations decreased $2.6 million from 1995's revenue levels. The decline
in domestic sales is attributable to the loss of distributor sales and the
sale, effective August 9, 1995, of the Company's oxygen concentrator
product line, which contributed $0.9 million revenue during the first half
of 1995.
First half 1996 revenues in the Everest & Jennings' Canadian and
Mexican subsidiaries were consistent with 1995 levels.
Total Company first half gross profit decreased $1.4 million from $8.6
million in 1995 to $7.2 million in 1996. As a percentage of sales, margins
decreased from 23% during 1995 to 21% during 1996, due primarily to
discounting related to price competition, poor efficiency at the Company's
primary domestic wheelchair facility, and the recording of a $0.4 million
severance reserve during 1996 as a result of a substantial workforce
reduction at the Company's primary domestic wheelchair manufacturing
facility. Such reduction will be substantially completed during the third
quarter of 1996. When complete, US operations will be limited to
distribution, certain custom manufacturing and light assembly. The Company
anticipates recording additional restructuring expenses during the third
quarter 1996 when the workforce reduction is substantially complete.
Additional production relocation and facility rationalizations are planned
during 1996 and beyond intended to improve the Company's cost structure.
Total Company first half operating expenses increased $0.6 million from
$8.8 million in 1995 to $9.4 million in 1996. Research and development
spending was $0.4 million during 1996 compared to spending of $0.6 million
during 1995.
Interest expense of $2.2 million in the first half of 1996 increased
from the comparable period in the prior year due to increases in the
average outstanding debt during the period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided from
operations, borrowings from BIL and affiliates, proceeds from notes
received in the 1995 sales of the Company's Institutional and Oxycon
businesses, and cash on hand. At June 30, 1996 the Company had $12
thousand in cash, and at December 31, 1995 the Company had $117 thousand in
cash. At June 30, 1996, total debt of $52.3 million was $4.4 million
higher than the $47.9 million in debt at December 31, 1995. The increase
was due to increased borrowings from HSBC of approximately $5.5 million,
offset by repayments of foreign borrowings. The Company received $1.8
million in April 1996 from the payment of a note receivable, which was used
to reduce debt. See Note 6--Debt of the Notes to the Unaudited
Consolidated Financial Statements included in Item 1 of this Form 10-Q.
The $5.5 million borrowed from HSBC during 1996 was used to fund the
Company's operations. This facility was fully utilized at July 31, 1996.
The Company's 1996 revenues and operating results have been negatively
impacted by ongoing price competition, liquidity constraints and loss of
market share due to the relocation of the Company's primary domestic
wheelchair manufacturing facility from California to Missouri. As
described above, management is implementing plans to address the
rationalization of the Company's production facilities and the increased
outsourcing of products and product components, the effects of which are
intended to lower the Company's production costs.
Management believes that the Company's domestic and international
manufacturing capacity is sufficient to meet anticipated demand for the
foreseeable future.
The accompanying consolidated financial statements have been prepared
under the going concern concept. The going concern concept anticipates an
entity will continue in its present form and, accordingly, uses the
historical cost basis to prepare financial statements. The Company has
incurred substantial restructuring expenses and recurring operating losses
and has a net capital deficiency at June 30, 1996. No assurance can be
made that the Company will successfully emerge from or complete its
restructuring activities.
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 10--Contingent Liabilities to the Notes to the Unaudited
Consolidated Financial Statements in Item 1 of this Form 10-Q for a
description of certain pending lawsuits and proceedings.
ITEM 2. CHANGES IN SECURITIES
On June 4, 1996 the Company's shareholders approved a one-for-ten
reverse stock split of the Company's common stock. The stated par value of
one share of common stock was changed from $.01 to $.10 as a result of the
stock split. The reverse stock split changed the voting rights of holders
of each share of the Company's Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock to provide for one-tenth vote on all
matters submitted to a vote of the Company's common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of shareholders was held at the Company's offices on
June 4, 1996.
(a) Proposal No. 1: To elect the following Directors: Sandra L.
Baylis, Bevil J. Hogg, Rodney F. Price, Robert C. Sherburne and Charles D.
Yie.
(b) Proposal No. 2: Whether to approve a proposal to amend the
Company's Certificate of Incorporation to effect a one-for-ten reverse
stock split.
(c) Proposal No. 3: Whether to ratify the appointment of Price
Waterhouse LLP as independent accountants for the fiscal year ended
December 31, 1996.
Tabulations for the proposals voted at the annual meeting follow:
COMMON SHARES:
For Against/Withheld Abstain
--- ---------------- -------
Directors:
Baylis 58,559,057 13,429 0
Hogg 58,559,057 13,429 0
Price 58,558,957 13,529 0
Sherburne 58,558,957 13,529 0
Yie 58,558,957 13,529 0
Proposal No. 2 58,542,578 29,688 220
Proposal No. 3 58,572,416 16 54
PREFERRED SHARES:
For Against/Withheld Abstain
--- ---------------- -------
Directors:
Baylis 28,654,199 0 0
Hogg 28,654,199 0 0
Price 28,654,199 0 0
Sherburne 28,654,199 0 0
Yie 28,654,199 0 0
Proposal No. 2 28,654,199 0 0
Proposal No. 3 28,654,199 0 0
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS:
3(a)(iii) Certificate of Amendment to Certificate of Incorporation
filed June 5, 1996.
3(a)(iv) Certificate of Amendment of Certificate of Designations,
Preferences and Rights of Series A Convertible Preferred
Stock filed June 5, 1996.
3(a)(v) Certificate of Amendment of Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred
Stock filed June 5, 1996.
3(a)(vi) Certificate of Amendment of Certificate of Designations,
Preferences and Rights of Series C Convertible Preferred
Stock filed June 5, 1996.
REPORTS ON FORM 8-K:
Financial
Date of Report Item(s) Reported Statements Filed
-------------- ---------------- ----------------
1. June 4, 1996 5, 7 (relating to None
reverse stock split)
2. June 17, 1996 5, 7 (relating to None
merger transaction)
<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.
Date: August 14, 1996 EVEREST & JENNINGS INTERNATIONAL LTD.
(Registrant)
By /s/ Timothy W. Evans
Senior Vice President and
Chief Financial Officer
By /s/ Bevil J. Hogg
President and
Chief Executive Officer
INDEX TO EXHIBITS
Exhibit No. Description Page
- ----------- ----------- ----
3(a)(iii)* Certificate of Amendment to Certificate of 26
Incorporation filed June 5, 1996.
3(a)(iv)* Certificate of Amendment of Certificate of 27
Designations, Preferences and Rights of Series A
Convertible Preferred Stock filed June 5, 1996.
3(a)(v)* Certificate of Amendment of Certificate of 28
Designations, Preferences and Rights of Series B
Convertible Preferred Stock filed June 5, 1996.
3(a)(vi)* Certificate of Amendment of Certificate of 29
Designations, Preferences and Rights of Series C
Convertible Preferred Stock filed June 5, 1996.
* Filed herewith in this Quarterly Report on Form 10-Q
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 18,256
<ALLOWANCES> 1,355
<INVENTORY> 19,823
<CURRENT-ASSETS> 38,742
<PP&E> 20,836
<DEPRECIATION> 13,648
<TOTAL-ASSETS> 46,909
<CURRENT-LIABILITIES> 26,613
<BONDS> 48,113
<COMMON> 719
0
34,492
<OTHER-SE> (63,126)
<TOTAL-LIABILITY-AND-EQUITY> 46,909
<SALES> 34,293
<TOTAL-REVENUES> 34,293
<CGS> 27,108
<TOTAL-COSTS> 27,108
<OTHER-EXPENSES> 9,353
<LOSS-PROVISION> 1,355
<INTEREST-EXPENSE> 2,224
<INCOME-PRETAX> (4,392)
<INCOME-TAX> 21
<INCOME-CONTINUING> (4,413)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,413)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
</TABLE>
EXHIBIT 3(a)(iii)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
EVEREST & JENNINGS INTERNATIONAL LTD.
Everest & Jennings International Ltd., a corporation organized
and existing under and by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY:
FIRST: That each member of the Board of Directors of Everest &
Jennings International Ltd. has given written consent to the adoption of a
resolution setting forth a proposed amendment to the corporation's
Certificate of Incorporation and declaring said amendment advisable and
calling for the presentation of said amendment to the voting stockholders
of the corporation for consideration thereof. The resolution setting forth
the proposed amendment is as follows:
RESOLVED, that the Board declares it advisable to amend Paragraph
A of Article IV of the Certificate of Incorporation of the Company to
read as follows:
"A. The Corporation is authorized to issue one
class of Common Stock. The number of shares of Common
Stock which the Corporation is authorized to issue is
12,000,000, par value ten cents ($0.10) each.";
SECOND: That thereafter at a meeting of stockholders,
stockholders holding a majority of the outstanding shares of the
corporation's Common Stock, Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, voting together as a single class and
voting separately as a class, gave their approval to the adoption of the
amendment in accordance with the provisions of Section 216(2) of the
General Corporation Law of the State of Delaware.
THIRD: That said amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State
of Delaware, and that the capital of the corporation will not be reduced
under or by reason of the amendment.
IN WITNESS WHEREOF, said Everest & Jennings International Ltd.
has caused its corporate seal to be hereunto affixed and this certificate
to be signed by Timothy W. Evans, its secretary, this 5th day of June,
1996.
/s/ Timothy W. Evans, Secretary
EXHIBIT 3(a)(iv)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
EVEREST & JENNINGS INTERNATIONAL LTD.
Everest & Jennings International Ltd., a corporation organized
and existing under and by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY:
FIRST: That each member of the Board of Directors of Everest &
Jennings International Ltd. has given written consent to the adoption of a
resolution setting forth a proposed amendment to the corporation's
Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock and declaring said amendment advisable and calling for the
presentation of said amendment to the voting stockholders of the
corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the voting rights provided to the Company's Series
A Convertible Preferred Stockholders shall be adjusted to maintain their
relative rights by amending Section 3(a) of the Certificate of
Designations, Preferences and Rights of Series A Convertible Preferred
Stock to read as follows:
"(a) except as provided in Section 3(c) below, each
share of Series A Convertible Preferred Stock shall
entitle the holder thereof to a 1/10 vote on all matters
submitted to a vote of the Corporation's holders of
Common Stock;"
SECOND: That thereafter at a meeting of stockholders,
stockholders holding a majority of the outstanding shares of the
corporation's Common Stock, Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, voting together as a single class and
voting separately as a class, gave their approval to the adoption of the
amendment in accordance with the provisions of Section 216(2) of the
General Corporation Law of the State of Delaware.
THIRD: That said amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State
of Delaware, and that the capital of the corporation will not be reduced
under or by reason of the amendment.
IN WITNESS WHEREOF, said Everest & Jennings International Ltd.
has caused its corporate seal to be hereunto affixed and this certificate
to be signed by Timothy W. Evans, its secretary, this 5th day of June,
1996.
/s/ Timothy W. Evans, Secretary
EXHIBIT 3(a)(v)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
EVEREST & JENNINGS INTERNATIONAL LTD.
Everest & Jennings International Ltd., a corporation organized
and existing under and by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY:
FIRST: That each member of the Board of Directors of Everest &
Jennings International Ltd. has given written consent to the adoption of
resolutions setting forth a proposed amendment to the corporation's
Certificate of Designations, Preferences and Rights of Series B Convertible
Preferred Stockand declaring said amendment advisable and calling for the
presentation of said amendment to the voting stockholders of the
corporation for consideration thereof. The resolutions setting forth the
proposed amendment is as follows:
RESOLVED, that the voting rights provided to the Company's Series
B Convertible Preferred Stockholders shall be adjusted to maintain their
relative rights by amending Section 3(a) of the Certificate of
Designations, Preferences and Rights of Series B Convertible Preferred
Stock to read as follows:
"(a) except as provided in Section 3(c) below, each
share of Series B Convertible Preferred Stock shall
entitle the holder thereof to a 1/10 vote on all matters
submitted to a vote of the Corporation's holders of
Common Stock;"
SECOND: That thereafter at a meeting of stockholders,
stockholders holding a majority of the outstanding shares of the
corporation's Common Stock, Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, voting together as a single class and
voting separately as a class, gave their approval to the adoption of the
amendment in accordance with the provisions of Section 216(2) of the
General Corporation Law of the State of Delaware.
THIRD: That said amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State
of Delaware, and that the capital of the corporation will not be reduced
under or by reason of the amendments.
IN WITNESS WHEREOF, said Everest & Jennings International Ltd.
has caused its corporate seal to be hereunto affixed and this certificate
to be signed by Timothy W. Evans, its secretary, this 5th day of June,
1996.
/s/ Timothy W. Evans, Secretary
EXHIBIT 3(a)(vi)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK
OF
EVEREST & JENNINGS INTERNATIONAL LTD.
Everest & Jennings International Ltd., a corporation organized
and existing under and by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY:
FIRST: That each member of the Board of Directors of Everest &
Jennings International Ltd. has given written consent to the adoption of a
resolution setting forth a proposed amendment to the corporation's
Certificate of Designations, Preferences and Rights of Series C Convertible
Preferred Stock and declaring said amendment advisable and calling for the
presentation of said amendment to the voting stockholders of the
corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the voting rights provided to the Company's Series
C Convertible Preferred Stockholders shall be adjusted to maintain their
relative rights by amending Section 3(a) of the Certificate of
Designations, Preferences and Rights of Series C Convertible Preferred
Stock to read as follows:
"(a) except as provided in Section 3(c) below, each
share of Series C Convertible Preferred Stock shall
entitle the holder thereof to a 1/10 vote on all matters
submitted to a vote of the Corporation's holders of
Common Stock;"
SECOND: That thereafter at a meeting of stockholders,
stockholders holding a majority of the outstanding shares of the
corporation's Common Stock, Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, voting together as a single class and
voting separately as a class, gave their approval to the adoption of the
amendment in accordance with the provisions of Section 216(2) of the
General Corporation Law of the State of Delaware.
THIRD: That said amendment was duly adopted in accordance with
the provisions of Section242 of the General Corporation Law of the State of
Delaware, and that the capital of the corporation will not be reduced under
or by reason of the amendment.
IN WITNESS WHEREOF, said Everest & Jennings International Ltd.
has caused its corporate seal to be hereunto affixed and this certificate
to be signed by Timothy W. Evans, its secretary, this 5th day of June,
1996.
/s/ Timothy W. Evans, Secretary
