SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
____________________
For the Fiscal Year Ended:
December 31, 1995 Commission File Number
0-9574
____________________
UNITED SYSTEMS TECHNOLOGY, INC.
Iowa
(State of Incorporation) 42-1102759
(I.R.S. Employer Identification Number)
3021 Gateway Drive, Suite 240
Irving, Texas 75603
(214) 518-0728
(Address of principal executive offices and telephone number)
_____________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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 _____.
As of March 26, 1995, the aggregate market value of
voting stock held by non-affiliates of the Registrant
was $619,388.
As of March 26, 1995, there were 38,643,163 shares
of the Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of
the Registrant's definitive proxy statement relating to
its 1996 annual meeting of shareholders is incorporated
by reference into Part III of this Form 10-KSB.
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best
of the Registrant's knowledge, in the proxy statement
incorporated by reference into Part III of the Form 10-
KSB or any amendment hereto. X
PART I
ITEM 1. BUSINESS
General Development of Business
United Systems Technology, Inc. ("USTI"), was
incorporated under the laws of the State of Iowa on June
5, 1978, and its wholly-owned subsidiary, United Systems
Technology East, Inc. ("USTEI"), was incorporated under
the laws of the State of Delaware on June 10, 1991 (USTI
and USTEI, collectively, are referred to herein as the
"Company"). The Company is engaged in the business of
developing, supporting and marketing computer software
products to county and local governments. The software
applications of the Company operate on IBM mid-range
computers, UNIX microcomputers, and on various network
computer systems both in DOS and Windows environments.
The products are offered to customers in five product
application groups. These product application groups,
consisting of over 30 separate software titles, are
Financial, General Administration, Public Works, Civil
Processing and Public Safety.
On October 17, 1994, USTI purchased substantially
all of the assets and assumed substantially all of the
liabilities of Noll Computer Systems, Inc. ("NCS"), a
Texas Corporation. The assets included the InterFundTM
software product line. The purchase price consisted of
$330 cash, assumption by USTI of certain obligations of
NCS and NCS's right to receive certain royalty payments
on the sale of the InterFundTM products. In the event
that the royalty payments made do not equal certain
stipulated annual amounts, NCS has the right to reclaim
the InterFundTM product line. These royalty payments are
subject to a royalty agreement entered into between USTI
and NCS on October 17, 1994. The assets purchased by
USTI consisted of (a) all operating assets of NCS, (b)
all hardware, equipment, supplies, furniture,
furnishings and other fixed assets, (c) all software
used for product development, (d) trade secrets and
proprietary information including the name InterFundTM
and any other trademarks, (e) business records of NCS,
including customer lists and related contracts and
contract rights and (f) all accounts receivable of NCS
totaling approximately $64,615. USTI assumed
obligations of NCS which consisted of (a) a promissory
note payable in the amount of $69,298, (b) certain trade
payables and accrued expenses in the amount of $34,688
and certain obligations to customers in the amount of
$7,345.
On December 22, 1994, United Systems Technology,
Inc. ("USTI") sold its Integrity Election ("Integrity")
product line to Sequoia Pacific Systems ("Sequoia"), a
division of Smurfit Packaging Corporation for a selling
price of $678,000. The assets sold include the VIP
Election Office Management and SignaScan Signature
Verification software packages. In addition, the assets
sold included related trade names and trademarks,
furniture and equipment, and all right and interest in
the license and maintenance agreements with the
Integrity customers. USTI retained the accounts payable
and accounts receivable for the products and services
provided prior to the sale to Sequoia. USTI originally
acquired the Integrity product line in February 1990.
On November 15, 1995, United Systems Technology,
Inc. ("USTI") purchased substantially all of the assets
and assumed certain liabilities of QDS Acquisitions, Inc.
(QDS") from Dralvar Capital Corp. ("Dralvar"). These
assets were previously acquired by certain Dralvar
shareholders through foreclosure on their security
interests in such assets granted by QDS. The purchase
price consisted of the issuance of 5,000,000 shares of
USTI Common Stock. Of the total shares issued, 2,500,000
of such shares have been placed in escrow subject to an
Escrow Agreement executed by USTI, Dralvar and Resource
Trust Bank, as escrow agent. In addition, USTI assumed
certain obligations of Dralvar. The assets purchased by
USTI consisted of (a) all operating assets of QDS
including its Utility Billing System ("UBS") and its Law
Enforcement Automated Data Retrieval System ("LEADRS")
software,(b) the non-exclusive right to sell and provide
software maintenance and services for the Quest Fund
Accounting ("QFA") software product line from the closing
date through February 28, 1997, (c) substantially all
hardware, equipment, supplies, furniture, furnishings and
other fixed assets, (d) all software used for product
development, (e) trade secrets and proprietary
information including the name QuestTM and any other
trademarks, (f) business records of Dralvar, including
customer lists and related contracts and contract rights
and (g) certain accounts receivable of Dralvar totaling
approximately $61,131. USTI assumed certain obligations
of Dralvar which consisted of obligations to customers in
the amount of $187,645 and accrued expenses in the amount
of $36,774.
Narrative Description of Business
Products
The software applications offered by the Company
consist of a comprehensive line of management
information systems which were developed to specifically
meet the unique requirements of local governmental
entities. The software applications of the Company are
offered through its InterFundTM, LegacyTM, QuestTM and
AsystTM product lines. The InterFundTM product line
operates in network, UNIX or client/server environments.
The LegacyTM product line operates on the IBM mid-range
computer systems, including the AS/400 and the
Advanced/36. The QuestTM product line operates in a
single user or small network PC environment. The AsystTM
product line operates in a single user or network
Windows environment. An initial software sale typically
averages between $1,500 and $40,000. The cost of the
related hardware varies depending on the type of machine
purchased as well as the amount of memory capacity,
peripheral equipment and optional features obtained on
the machine.
The Company markets its software packages in the
following five product application groups.
Financial Systems
This group includes software modules in the areas of
general ledger and budgetary accounting, budget
preparation, accounts payable, payroll, accounts
receivable, centralized cash receipts, tax billing and
collection, and comprehensive financial report writer.
Public Works
This group includes software modules in the areas of
building permits and inspections, utility billing and
collections, hand held meter reading, assessment
billing and project accounting.
General Administration
This group includes software modules in the areas of
information indexing, perpetual inventory, vehicle and
equipment maintenance, fixed asset records, and
business licenses.
Public Safety
This group includes software modules in the areas of
computer aided dispatch, law enforcement records management,
jail management, emergency medical services billing, court
administration and alarm billing.
Civil Processing
This group includes software modules in the areas of
summonses and complaint docketing, process server
activity, writ and foreclosure docketing and
garnishments and is designed exclusively for the
County Sheriff Civil Process function.
The Company has substantially completed the
development of several new software products which
significantly enhance the competitiveness of its
comprehensive software offering. These products are
marketed under the AsystTM brand name, are developed as
Windows applications to "look and work like Microsoft
Office", and include a new Fund Accounting system
(including General Ledger, Budget Preparation, Accounts
Payable, Purchasing, and Cash Receipts), a Utility
Billing system, and the BOSS for Windows civil
processing system. The company has also entered into a
non-exclusive agreement with MTX International to
private label MTX's Windows based Payroll, software
which the company is modifying to meet the unique needs
of the local government market.
The Company derives its revenue principally from (i)
licensing of its software packages, (ii) installation,
training and customer support, (iii) maintenance
agreements, and (iv) equipment and supplies sales.
Software Packages
The Company licenses its software packages under a
perpetual nonexclusive and nontransferable license
agreement.
Installation, Training and Customer Support
The Company provides services related to the training
and implementation of the software packages to its
customers. These services typically occur at the
customer site, but are also conducted in a classroom
setting at one of the company's two locations, and are
offered as "remote" training through interactive
computer-to-computer hookup. In the event that the
customer requests additional functions from the
product which are not standard in the software
packages, the Company provides custom programming
services for these modifications.
Maintenance Agreements
The Company offers maintenance agreements in
conjunction with the licensing of its software
packages. These agreements provide telephone support,
software product enhancements, error corrections, and
upgrades, and remote diagnostics support.
Equipment and Supplies Sales
The Company sells PC's and hand-held computers as well
as certain computer forms that are used in conjunction
with the Company's products.
For the year ended December 31, 1995, the Company
generated approximately 11% of its revenue from the sale
of software, 25% from installation, training and
customer support, 59% from software maintenance, and 5%
from equipment and supplies sales.
Marketing
The Company markets its products on a nationwide
basis. Marketing is conducted through its Dallas, Texas
and Minneapolis, Minnesota based sales staff and through
a full-time sales representative located in Ringwood, New
Jersey.
The Company's customers are primarily municipal
governments with populations between 2,500 and 100,000,
county governments, police departments, emergency medical
services providers and municipal court systems. The
Company currently has approximately 1,500 customer
installations nationwide. In most cases, the customer
obtains its computer equipment from a hardware
manufacturer or dealer and then purchases one or more
software modules from the Company.
The typical purchaser's representative is a City
Manager, Administrative Manager, Controller or Director
of Finance. Customer leads are established from customer
referrals, direct mail campaigns and attendance at
national and regional trade shows. In addition, the
names and addresses of target city governments are
readily available from directory sources.
The Company also holds an annual users' meeting in
Dallas, Texas. The two-day meeting is typically attended
by approximately 150 current and prospective users. In
the past, new business has been generated from current
customers who have upgraded systems by purchasing new
modules. In addition, the Company has gained new
accounts from persons attending this meeting.
Approximately 35% of the Company's customers are
located in Texas and Minnesota, and the remaining
customers are located in various states nationwide.
Competition
The Company is aware of sizable, nationally
prominent competitors which market products which are
similar to those of the Company. Numerous other
competitors are small, local vendors who often do not
market standard application packages. Management
believes that the comprehensive nature of its product
offering, including the uniqueness of the new AsystTM
product line, has a positive impact on its competitive
status.
Employees
The Company presently has 27 full-time employees,
including its executive officers. In addition, from time
to time, the Company engages the services of various
consultants and part-time employees.
Research and Development
During 1995, the Company incurred approximately
$75,000 in research and development costs related to the
development of its Boss For Windows product and the
AsystTM product line.
Patents, Copyrights, Trademarks and Royalties
The Company does not believe that its products are
patentable, and, to date, has not registered any
copyright with respect to its products. The Company
believes that all of its products are of a proprietary
nature and the Company's licensing arrangements prohibit
disclosure of the program by the customer. However,
there can be no assurance that the Company's software is
incapable of being duplicated or that the Company will be
successful in discovering or preventing any such
duplication.
The Company entered into a royalty agreement as part
of its acquisition of NCS on October 17, 1994. In
addition, the Company is a party to certain royalty
agreements which, individually, and in aggregate, have
not required the payment of material amounts. Under
these agreements, the Company is the licensee of certain
software systems which it markets as part of its product
line.
ITEM 2. PROPERTIES
The Company maintains its offices at 3021 Gateway
Drive, Suite 240, Irving, Texas, 75063. The lease for
this facility was entered into on August 27, 1994 to
include approximately 6,160 square feet and had an
expiration date of August 31, 1995. On July 31, 1995,
the lease was renewed for an additional five year term
commencing on September 1, 1995 and expiring on August
31, 2000. The Company leases this space from a
nonaffiliate for a monthly rental of $4,310 for the first
twelve months of the lease, $4,525 for the next twelve
months of the lease, $4,750 for the next twelve months of
the lease, $4,990 for the next twelve months of the lease
and $5,240 for the final twelve months of the lease. In
addition, the lease allows the Company and the lessor a
right to terminate the lease at the end of the third year
of the lease by providing written notice.
In addition, the Company maintains a sales and
service office at 3312 Gorham Avenue South, Minneapolis,
Minnesota, 55426. This facility consists of
approximately 4,000 square feet. The Company leases this
space from a nonaffiliate for a monthly rental of $1,500
per month. The lease expires on February 28, 1996 and
renews on a month to month basis thereafter at the same
lease rate.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in the following legal proceedings:
On December 10, 1993, Plaintiff County of Essex
filed suit against USTI, USTEI, New Jersey Municipal
Data Management ("MDM") and MDM's surety in Superior
Court of New Jersey. The suit is based on allegations
that MDM failed to perform its obligations related to
software and related services sold by MDM to the County
of Essex and that USTI and USTEI succeeded to the
obligations of MDM by the acquisition of MDM. USTI and
USTEI have answered each of such lawsuits, denying all
material allegations therein, and intend to vigorously
defend such allegations.
On August 11, 1993, Plaintiff City of Sinton, Texas
filed suit against USTI alleging defects in software and
services sold to the city in 1990. The suit failed to
specify a measure of damages which the City of Sinton
seeks and USTI has answered the lawsuit by denying all
material allegations therein, and intends to vigorously
defend such allegations.
On April 28, 1994, Plaintiff Logical Arts, Inc.
filed suit against USTI alleging failure to pay for
certain contract programming services provided. The
Plaintiff seeks the amount of $45,000 plus attorney fees
and costs. USTI has answered the suit and filed a
counter claim for non-performance of contracted
obligations by Plaintiff, and intends to defend the
allegations therein.
On May 11 1995, Plaintiff Township of Dover New
Jersey filed suit against USTEI alleging defects in the
software and services sold to the Township of Dover in
1992. The suit failed to specify a measure of damages
which the Township of Dover seeks and USTEI has
instructed its legal councel to answer the lawsuit by
denying all material allegations therein, and intends to
vigorously defend such allegations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matters were submitted to a vote of the Company's
security holders during the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's common stock is traded over-the-
counter on the National Association of Securities
Dealers, Inc. Over-The-Counter Bulletin Board System.
The quotations shown below represent prices among the
dealers and do not include retail mark-ups, mark-downs,
or commissions, and do not necessarily represent actual
transactions.
<TABLE>
<C> <C> <C>
High Low
Quarter Ended Bid Price Bid Price
March 31, 1994 1/16 1/16
June 30, 1994 1/8 1/32
September 30, 1994 1/32 1/32
December 31, 1994 <1> $0.04 $0.02
March 31, 1995 <1> $0.04 $0.03
June 30, 1995 <1> $0.03 $0.02
September 30, 1995 <1> $0.03 $0.01
December 31, 1995 <1> $0.02 $0.01
</TABLE>
<1> Effective October 1, 1994, the Company's common
stock began to be traded on the National Association of
Securities Dealers, Inc. Over-The-Counter Bulletin Board
System ("OTC"). The OTC does not have traditional
quotations.
As of March 26, 1996, the Company had 471
shareholders of record and its common stock had a
closing bid price of $.02 per share and a closing asked
price of $.03 per share
Holders of the Company's common stock are entitled
to receive such dividends as may be declared by the
Company's Board of Directors. However, no dividends on
common stock have ever been paid by the Company, nor does
the Company anticipate that dividends will be paid in the
foreseeable future. In addition, payment of dividends to
holders of the Company's common stock are restricted
pursuant to the terms of outstanding shares of preferred
stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company derives its revenue from the licensing
of its software packages, installation, training and
customer modifications, maintenance agreements and sale
of equipment and supplies. Results of operations for
1995 include revenues of $1,771,332 resulting in a net
loss of $867,005 as compared to revenues of $2,295,298
and a net loss of $1,272,720 in 1994.
During 1995, the Company continued to adjust its
expenses to compensate for the level of revenue it
generated resulting in a significant reduction in costs
and expenses during the year. The Company continued to
diversify its product offerings in 1995 by introducing
its BOSS for Windows application and plans to introduce
its AsystTM product line in the second quarter of 1996.
The AsystTM product line will initially include Windows
based financial and utility billing applications, and,
like BOSS for Windows, operate in a single user or
network Windows environment and is seamlessly interfaced
with the Microsoft Office products. In November 1995,
the Company acquired the QuestTM product line which
operates in a single user or small network DOS PC
environment. The Company believes that its AsystTM
product line will offer its current and prospective
customers an attractive option, both from a financial and
functionality standpoint. Based on these activities,
management is optimistic that it can grow its business in
1996.
On November 15, 1995, United Systems Technology,
Inc. ("USTI") purchased substantially all of the assets
and assumed certain liabilities of QDS Acquisitions, Inc.
(QDS") from Dralvar Capital Corp. ("Dralvar"). These
assets were previously acquired by certain Dralvar
shareholders through foreclosure on their security
interests in such assets granted by QDS. The purchase
price consisted of the issuance of 5,000,000 shares of
USTI Common Stock. Of the total shares issued, 2,500,000
of such shares have been placed in escrow subject to an
Escrow Agreement executed by USTI, Dralvar and Resource
Trust Bank, as escrow agent In addition, USTI assumed
certain obligations of Dralvar. The assets purchased by
USTI consisted of (a) all operating assets of QDS
including its Utility Billing System ("UBS") and its Law
Enforcement Automated Data Retrieval System ("LEADRS")
software,(b) the non-exclusive right to sell and provide
software maintenance and services for the Quest Fund
Accounting ("QFA") software product line from the closing
date through February 28, 1997, (c) substantially all
hardware, equipment, supplies, furniture, furnishings and
other fixed assets, (d) all software used for product
development, (e) trade secrets and proprietary
information including the name QuestTM and any other
trademarks, (f) business records of Dralvar, including
customer lists and related contracts and contract rights
and (g) certain accounts receivable of Dralvar totaling
approximately $61,131. USTI assumed certain obligations
of Dralvar which consisted of obligations to customers in
the amount of $187,645 and accrued expenses in the amount
of $36,744.
The following table sets forth, for the period
indicated, the relative percentage which certain items in
the Consolidated Statements of Operations of the Company
bear as a percent of total revenues and the percentage
change in those items from period to period.
<TABLE>
<S> <C> <C> <C>
Percentage of Revenues
Year Ended December 31, Percentage
Change
1995 1994 1995 vs 1994
Revenue
Software Packages 11% 14% (42%)
Installation, training and
customer support 25% 31% (37%)
Maintenance 59% 50% ( 9%)
Equipment and other 5% 5% (11%)
100% 100% (23%)
Costs and expenses
Salaries 68% 59% (12%)
Other general administrative
and selling expense 33% 44% (43%)
Depreciation and amortization 44% 35% ( 3%)
Commissions 1% 2% (31%)
Cost of equipment sold 3% 3% (24%)
Total costs and expenses 149% 143% (20%)
Operating loss (49%) (43%) (13%)
Non-operating (expense) income - (12%) (97%)
Loss before income taxes and
extraordinary items (49%) (55%) (32%)
</TABLE>
1995 vs 1994
The Company's total revenue decreased 23% for the
year ended December 31, 1995 from $2,295,298 in 1994 to
$1,771,332. Software license fees decreased 42% in 1995
due to a decrease in the number of software licenses
sold in 1995 and in the revenue per unit sale in 1995 as
compared to 1994. Installation, training and customer
support revenue decreased 37% in 1995 resulting from a
decreased volume of those services generated primarily
from new customers and the completion of a long term
facilities management contract for a customer in early
1995. Maintenance revenue decreased 9% in 1995, due in
large part, to decreased maintenance revenue from the
Integrity Elections product line which was sold by the
Company in December 1994.
Total costs and expenses decreased 20% for the year
ended December 31, 1995 from $3,282,453 in 1994 to
$2,630,623 in 1995. Salary expense decreased 12% in
1995 as a result of continued staffing adjustments made
to compensate for the lower level of revenue being
generated. Other general, administrative and selling
expense decreased 43% as a result of the Company's
continued efforts to reduce expenses resulting in
significant reductions in the areas of travel, payroll
taxes, building rental and telephone expenses.
Commission expenses decreased 31% in 1995 as a result of
a lower volume of license revenue.
Liquidity and Capital Resources
The Company had net cash used by operating
activities of $136,882 during 1995 as compared to
$76,622 in 1994. The increase in cash used by operating
activities during 1995 was due in part to a decrease in
the balance of accounts payable and accrued expenses
during the year. Net cash of $33,968 was utilized in
1995 for the purchase of equipment necessary for the
development of the new AsystTM product line. Net cash of
$109,620 was utilized during 1995 for the reduction of
capital lease obligations.
In January 1995, the Company canceled its working
capital line of credit. Management believes that the
cash flow effect of its continued focus on adjusting
expenses to the level of revenue that the Company
anticipates it will achieve and its current cash
balances will be adequate to meet its working capital
requirements in the near future. However, if the
Company is not able to continue to generate cash flows
in the future by achieving a level of sales adequate to
support the Company's cost structure, additional
financing may be required, of which there can be no
assurance.
The Company has a $50,000 note payable to Ventana
Growth Fund LP, a related party. The maturity date of the
note was extended from September 30, 1994 to September
30, 1996. The original maturity date of this note was
October 17, 1987. As of December 31, 1995, there was
$67,873 of interest outstanding on the note.
The Company is currently in arrears in the payment
of dividends to holders of its preferred stock. As of
December 31, 1995, dividends were in arrears on the
Series B preferred stock in the amount of $253,800, on
the Series C preferred stock in the amount of $101,915,
on the Series D preferred stock in the amount of $205,685
and on Series E preferred stock in the amount of $95,735.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
United Systems Technology, Inc. and Subsidiary
Index to Consolidated Financial Statements
And Supplementary Schedules
<TABLE>
<S> <C>
Pages
Reports of Independent Accountants F-1
Consolidated Financial Statements
Balance sheets as of December 31, 1995 and 1994 F-2
Statements of operations for the years
ended December 31, 1995 and 1994 F-3
Statements of stockholders' equity for the years
ended December 31, 1995 and 1994 F-4
Statements of cash flows for the years
ended December 31, 1995 and 1994 F-5 to F-6
Notes to Consolidated Financial Statements F-7 to F-17
</TABLE>
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
United Systems Technology, Inc.
We have audited the accompanying consolidated balance
sheets of United Systems Technology, Inc. and subsidiary
as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stocksholders'
equity and cash flows for the years then ended. These
financial statements are the responsibility of the
Company's management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation..
We believe our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of United Systems
Technology, Inc. and subsidiary as of December 31, 1995
and 1994 and the consolidated results of their operations
and their consolidated cash flows for the years then
ended, in conformity with generally accepted accounting
principles.
/s/ Grant Thornton LLP
Dallas, Texas
March 22, 1996
F-1
United Systems Technology, Inc. and Subsidiary
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<S> <C> <C>
Assets
1995 1994
Current Assets
Cash and cash equivalents $ 139,234 $ 419,705
Trade accounts receivable, less allowance for
doubtful accounts of $75,000 368,803 791,026
Prepaid expenses and other 8,314 3,670
Total current assets 516,351 1,214,401
Property and equipment at cost, net 164,962 224,745
Goodwill, net 1,168,515 1,117,973
Software development costs, net 136,713 664,582
Purchased software, net 195,720 167,791
Deposits and other 28,541 28,333
1,694,451 2,203,424
Total assets $ 2,210,802 $ 3,417,825
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable - related party $ 50,000 $ 50,000
Current portion of capital lease obligations 51,283 109,629
Trade accounts payable 301,645 354,851
Accrued payroll 22,248 40,041
Accrued interest - related party 67,873 63,446
Other accrued expenses 115,970 317,611
Deferred revenue 839,767 869,451
Total current liabilities 1,448,786 1,755,029
Notes payable - related party - 50,000
Capital lease obligations, net of current portion 6,467 57,742
Total liabilities 1,455,253 1,862,771
Commitments and contingencies - -
Stockholders' Equity
Preferred stock, convertible, cumulative, par
value $.10 per share; authorized 5,000,000 shares;
issued and outstanding, 500,000 shares of Series B,
750,000 shares of Series C, 500,000 shares of
Series D and 300,000 shares of Series E
(liquidating preference of $1.00, $.20, $1.00 and
$1.00 per share, respectively,)
aggregating $1,450,000 205,000 205,000
Common stock, par value $.10 per share; authorized
100,000,000 shares; issued and outstanding
38,643,163 and 33,643,163 shares in
1995 and 1994 respectively 3,864,315 3,364,315
Additional paid-in capital 4,157,151 4,589,651
Accumulated deficit (7,470,917) (6,603,912)
Total stockholders' equity 755,549 1,555,054
Total liabilities and stockholders' equity $ 2,210,802 $ 3,417,825
The accompanying notes are an integral part of the financial statements.
F-2
</TABLE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Operations
For The Years Ended December 31,
<TABLE>
<S> <C> <C>
1995 1994
Revenue
Software packages $ 189,756 $ 329,976
Installation, training and customer support 446,671 713,942
Maintenance 1,040,246 1,145,403
Equipment sales 61,402 95,757
Other 33,256 10,220
1,771,331 2,295,298
Costs and expenses
Salaries 1,204,488 1,364,627
Other general, administrative and
selling expense 506,388 907,339
Depreciation and amortization 501,151 597,947
Rent 72,913 113,100
Commissions 24,982 36,395
Cost of equipment sold 47,912 62,845
Impairment of software development cost 272,788 200,200
2,630,622 3,282,453
Operating loss (859,291) (987,155)
Nonoperating (expense) income
Interest expense (18,349) (85,322)
Loss on sale of assets - (181,658)
Other - (18,618)
Interest income 10,635 33
(7,714) (285,565)
Net loss $ (867,005) $(1,272,720)
Preferred stock dividend requirement (104,500) (104,500)
Loss allocable to common shareholders $ (971,505) $(1,377,220)
Net loss per common share $ (0.03) $ (0.05)
Weighted average number of common
shares outstanding 34,273,165 26,103,180
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Additional Paid-In
Capital Stock Issued Capital Applicable To Accumulated
Preferred Common Preferred Common Deficit Total
Balance January 1, 1994
205,000 2,000,419 1,245,000 3,996,390 (5,331,192) 2,115,617
Issuance of
1,000,000 shares
of common stock
for services 100,000 (53,125) 46,875
Issuance of
1,705,640 shares of
common stock for
conversion of debt 170,564 (85,282) 85,282
Issuance of
10,933,332 shares
of common stock in
private placements 1,093,332 (513,332) 580,000
Net loss for year (1,272,720) (1,272,720)
Balance, December 31, 1994
205,000 3,364,315 1,245,000 3,344,651 (6,603,912) 1,555,054
Issuance of
5,000,000 shares of
common stock for a
business acquisition 500,000 (432,500) 67,500
Net loss (867,005) (867,005)
Balance, December 31, 1995
$205,000 $3,864,315 $1,245,000 $2,912,151 ($7,470,917) $755,549
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Years Ended December 31,
<TABLE>
<S> <C> <C>
1995 1994
Cash flows in operating activities:
Net loss $ (867,005) $ (1,272,720)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 501,151 597,947
Impairment of software development costs 272,788 200,200
Loss on sale of assets - 200,276
Stock issued for services - 46,875
Change in operating assets and liabilities:
Trade accounts receivable 483,353 274,453
Prepaid expenses (4,644) 27,908
Deposits and other (208) 940
Accounts payable (56,611) (55,756)
Accrued expenses (248,377) (74,078)
Deferred revenue (217,329) (22,667)
$ 730,123 $ 1,196,098
Net cash used in operating activities (136,882) (76,622)
Cash flows from investing activities:
Property and equipment additions $ (33,968) $ (16,680)
Purchase of Noll Computer Systems, Inc. - (330)
Sale of assets - 610,200
Net cash provided by (used in) investing
activities: $ (33,968) $ 593,190
Cash flows from financing activities:
Borrowings under note payable agreements $ - $ 35,000
Payments under note payable agreements - (620,000)
Proceeds from issuance of common stock - 580,000
Payments on capital lease obligations (109,621) (100,048)
Net cash used in financing activities $ (109,621) $ (105,048)
Increase (decrease) in cash and cash
equivalents $ (280,471) $ 411,520
Cash and cash equivalents, beginning of year 419,705 8,185
Cash and cash equivalents, end of year $ 139,234 $ 419,705
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Cash Flows, Cont.
For the Years Ended December 31,
<TABLE>
<S> <C> <C>
1995 1994
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 12,767 $ 18,869
Supplemental disclosures of noncash investing
and financing activities:
The Company entered into capital lease
obligations for new equipment $ - $ 9,988
The Company issued common stock upon conversion
of notes payable to related parties $ - $ 85,282
</TABLE>
On November 15, 1995 the Company purchased
substantially all the assets and assumed
certain liabilities of QDS Acquisitions,
Inc. ("QDS") from Dralvar Capital Corp.
for 5,000,000 shares of the Company's
common stock. In conjunction with the
acquisition, liabilities were assumed
as follows:
Fair value of assets acquired $ 291,919
Fair value of stock issued (67,500)
Liabilities assumed $ 224,419
On October 17, 1994, the Company purchased
substantially all the assets and assumed
certain liabilities of Noll Computer
Systems, Inc. ("NCS") for $330 cash and the
payment of future royalty payments to NCS.
In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 116,492
Cash Paid (330)
Liabilities assumed $ 116,162
The accompanying notes are an integral part of the financial statements.
F-6
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
1. Summary of Significant Accounting Policies:
Nature of Operations
The Company is engaged in the business of
developing, supporting and marketing computer
software products to county and local governments
located throughout the United States.
Basis of Presentation
The financial statements for the years ended
December 31, 1995, and 1994 are consolidated and
include the accounts of United Systems Technology,
Inc. ("USTI") and its wholly-owned subsidiary,
United Systems Technology East, Inc. ("USTEI"). All
material inter-company transactions and balances
have been eliminated.
Cash Equivalents
The Company considers short-term investments
purchased with an initial maturity of three months
or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost.
Depreciation of property and equipment is computed
using the straight-line method over the estimated
useful lives of such property and equipment, which
range from three to five years. Gains and losses on
the disposal of such assets are recognized as
incurred.
Software Development Costs
The Company has implemented and accounted for
certain costs related to the development of its
computer software products in accordance with
Statement of Financial Accounting Standards No. 86,
"Accounting for Costs of Computer Software to be
Sold, Leased or Otherwise Marketed" ("SFAS 86").
Under SFAS 86, all costs incurred to establish the
technological feasibility of a computer software
product are charged to operations as incurred.
After technological feasibility is established,
costs of producing the computer software product are
capitalized until the product is available for
general release to customers. The capitalized cost
of internally developed software is amortized over
its estimated useful life, generally five years,
using the straight-line method or the ratio of
current revenues to current and anticipated revenues
from such software, whichever provides the greater
amortization. Amortization and impairment of
developed software costs was $527,869 and $472,630
for the years ended December 31, 1995 and 1994,
respectively. The net carrying value of capitalized
costs of each computer software product are assessed
annually as to impairment and, if impairment exists,
a loss is recognized.
F-7
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
1. Summary of Significant Accounting Policies (Cont'd.):
Other Assets
Goodwill represents the excess of the total
acquisition cost over the fair value of the net
assets acquired of Municipal Software Consultants,
Inc. ("MSC"), acquired in 1986, New Jersey Municipal
Data Management, Inc. ("MDM") acquired in 1991, and
QDS Acquisitions, Inc. ("QDS") in 1995. The
goodwill resulting from the MSC and MDM acquisitions
is and is being amortized using the straight-line
method over 20 years from date of acquisition. The
goodwill resulting from the QDS acquisition is being
amortized using the straight-line method over 10
years from date of acquisition. Purchased software
represent assets acquired in the MDM, NCS and QDS
acquisitions, and are being amortized using the
straight-line method over a five-year period.
Revenue Recognition
The Company recognizes revenue from the initial
license for computer software product sales upon
delivery of a software package. Revenue from
installation, training and customer support is
recognized in the period in which the services are
provided. Revenue from contracts to maintain its
computer software products is recognized over the
term of the contracts.
Earnings (Loss) Per Common Share
Earnings (loss) per common share is computed based
on the weighted average number of common shares
outstanding. In 1995 and 1994, the convertible
preferred stock, stock options and warrants did not
impact loss as they were anti-dilutive.
Financial Instruments
The fair value of the Company's financial
instruments, consisting of cash and cash equivalents, accounts
receivable and debt, approximate their carrying values.
Use of Estimates
In preparing financial statements in conformity with
generally accepted accounting principles, management
is required to make estimates and assumptions that
affect the reported amounts of assets and
liabilities and the disclosure of contingent asset
and liabilities at the date of the financial
statements and revenues and expenses during the
reporting period. Actual results could differ from
those estimates
F-8
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
2. Property and Equipment:
Property and equipment at December 31, 1995 and 1994
consisted of the following:
<TABLE>
<S> <C> <C>
1995 1994
Leasehold improvements $ 58,702 $ 58,702
Furniture and fixtures 37,518 35,518
Equipment 847,956 797,638
944,176 891,858
Less accumulated depreciation
and amortization (779,214) (667,113)
$ 164,962 $ 224,745
</TABLE>
3. Other Assets:
Other assets at December 31, 1995 and 1994 consisted of the following:
<TABLE>
<S> <C> <C> <C>
Accumulated
Cost Amortization Net
1995
Goodwill $ 1,692,128 $ 523,613 $ 1,168,515
Software development costs 2,337,299 2,200,586 136,713
Purchased software 620,853 425,133 195,720
1994
Goodwill $ 1,561,340 $ 443,367 $ 1,117,973
Software development costs 2,337,299 1,672,717 664,582
Purchased software 539,203 371,412 167,791
</TABLE>
The recoverablity of goodwill is dependent upon future revenues. Management
believes that future revenues will be adequate to recover the aformentioned
cost. However, due to the competitive pressures and other business risk,
it is reasonably possible that the estimates of future revenues necessary to
support the carrying value of goodwill could change significantly in the near
term which could result in a material reduction in the carrying value of this
asset.
4. Capital Lease Obligations:
The Company leases certain assets under capital
leases. The leases include interest at rates
ranging from 6.9% to 13% and expire at various dates
through 1999. The leases are collateralized by the
related asset and most of the leases include options
to purchase the equipment at the end of the lease
term. During 1991, the Company entered into a
$200,000 capital lease with Ventana Leasing, Inc., a
related party. The balance of this lease was
$39,840 and $70,550 at December 31, 1995 and 1994,
respectively.
F-9
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
4. Capital Lease Obligations (Cont'd.):
Included in property and equipment as of December
31, 1995 are the following assets held under capital
lease:
<TABLE>
<S> <C>
Office furniture and equipment $ 431,351
Accumulated amortization (365,694)
Assets under capital lease, net $ 65,657
Future minimum lease payments under capital leases
as of December 31, 1995 are as follows:
1996 $ 54,895
1997 2,592
1998 2,592
1999 2,376
Total minimum lease payments 62,455
Less amount representing interest (4,705)
Present value of capital lease obligations 57,750
Less current portion (51,283)
$ 6,467
</TABLE>
Amortization expense associated with these assets
amounted to $47,615, and $57,253 for the years ended
December 31, 1995, and 1994, respectively.
5. Notes Payable:
The Company had a note payable to a related party in
the amount of $50,000 at December 31, 1995 and 1994.
This note payable, which is unsecured,
bears interest at prime plus 2.5%, through September
30, 1994 and at prime after September 30, 1994, and
is due September 30, 1996. The prime rate of
interest was 8.75% at December 31, 1995 and 1994.
There was approximately $67,873 and $63,446 accrued
interest outstanding on this note at December 31,
1995 and 1994, respectively. Interest expense
incurred was $4,427 and $6,996 for the years ended
December 31, 1995 and 1994, respectively.
F-10
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
6. Capital Stock:
Common Stock
In February 1994, the Company sold 3,333,334 shares
of its common stock in a private placement at a
price of $.06 per share, for a total of $200,000.
In February 1994, the Company issued 1,000,000
shares of common stock to its Chief Executive
Officer in connection with his employment with the
Company. In October 1994, the Company sold
7,600,000 shares of its common stock in a private
placement at a price of $.05 per share for a total
of $380,000. In August 1994, the Company issued
1,750,640 shares of common stock when it converted
$50,000 of a $100,000 note payable to Ventana Growth
Fund and $35,000 note payable to a Company Director,
both related parties, into common stock of the
Company. This debt was converted at a rate of $.05
per share.
In November 1995, the Company purchased
substantially all of the assets and assumed certain
liabilities of QDS Acquisitions, inc. ("QDS") from
Dralvar Capital Corp. ("Dralvar"). The Company
issued 5,000,000 shares of common stock in
connection with this transaction.
Preferred Stock
The Company's amended articles of incorporation
authorize the issuance of 5,000,000 shares of
preferred stock with a par value of $.10 per share.
The preferred stock may be issued in series from
time to time with such designation, rights,
preferences and limitations as the Board of
Directors may determine by resolution. The Company
has established four series of preferred stock:
Series B, Series C, Series D and Series E.
In June 1988, the Company established and issued
500,000 shares of Series B preferred stock. The
terms of the Series B preferred stock provide for,
among other things: (i) a cumulative dividend of
$.07 per share per annum, payable quarterly, which
accrues day to day and which must be paid prior to
the payment of a dividend to holders of the
Company's common stock; (ii) a liquidation
preference of $1.00 per share plus accrued but
unpaid dividends paid prior to any distribution to
holders of common stock and Series C preferred
stock; (iii) the right to convert each share plus
accrued but unpaid dividends into common stock;
(iv) the right to vote on all matters submitted to a
vote of stockholders of the Company; and
(v) redemption at the Company's option at a
redemption price of $1.00 per share plus all accrued
and unpaid dividends. As of December 31, 1995 the
500,000 outstanding shares of Series B preferred
stock were entitled to be converted into 3,768,995
shares of common stock and were entitled to
3,768,995 votes on all matters submitted to a vote
of stockholders of the Company. At December 31,
1995 cumulative dividends of approximately $253,800
were in arrears.
In June 1988, the Company established and issued
750,000 shares of Series C preferred stock. The
terms of the Series C preferred stock provide for,
among other things: (i) a cumulative dividend of
$0.018 per share per annum which accrues from day to
day and which must be paid prior to the payment of a
dividend to holders of the Company's
F-11
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
6. Capital Stock (Cont'd.):
common stock; (ii) a dividend equal to that paid any
other holders of common stock; (iii) a liquidation
preference of $.20 per share plus accrued but unpaid
dividends paid prior to any distribution to holders
of common stock; (iv) the right to convert each
share plus accrued but unpaid dividends into common
stock; (v) the right to vote on all matters
submitted to a vote of stockholders of the Company;
and (vi) the right to approve any issuance of
Series A preferred stock prior to its issuance. As
of December 31, 1995, the 750,000 outstanding shares
of Series C preferred stock were entitled to be
converted into 1,259,570 shares of common stock and
were entitled to 1,259,570 votes on all matters
submitted to a vote of stockholders of the Company.
At December 31, 1995 cumulative dividends of
approximately $101,915 were in arrears.
In February 1990, the Company established and issued
500,000 shares of Series D preferred stock. The
terms of the Series D preferred stock provide for,
among other things: (i) a cumulative dividend of
$.07 per share per annum, payable quarterly, which
accrues day to day and which must be paid prior to
the payment of a dividend to holders of the
Company's common stock; (ii) a liquidation
preference of $1.00 per share plus accrued but
unpaid dividends paid prior to any distribution to
holders of common stock and Series C preferred
stock; (iii) the right to convert each share plus
accrued but unpaid dividends into common stock;
(iv) the right to vote on all matters submitted to
a vote of stockholders of the Company; and
(v) redemption at the Company's option at a
redemption price of $1.00 per share plus all accrued
and unpaid dividends. As of December 31, 1995 the
500,000 outstanding shares of Series D preferred
stock were entitled to be converted into 2,016,245
shares of common stock and were entitled to
2,016,245 votes on all matters submitted to a vote
of stockholders of the Company. At December 31,
1995 cumulative dividends of approximately
$205,685 were in arrears.
In June 1991, the Company established and issued
300,000 shares of Series E preferred stock. The
terms of the Series E preferred stock provide for,
among other things: (i) a cumulative dividend of
$.07 per share per annum, payable quarterly, which
accrues day to day and which must be paid prior to
the payment of the dividend to holders of the
Company's common stock; (ii) a liquidation
preference of $1.00 per share plus accrued but
unpaid dividends paid prior to any distribution to
holders of common stock and Series C preferred
stock; (iii) the right to convert each share plus
accrued but unpaid dividends into common stock; (iv)
the right to vote on all matters submitted to a vote
of stockholders of the Company; and (v) redemption
at the Company's option at a redemption price of
$1.00 per share plus all accrued and unpaid
dividends. As of December 31, 1995 the 300,000
outstanding shares of Series E preferred stock were
entitled to be converted into 1,978,685 shares of
common stock and were entitled to 1,978,685 votes on
all matters submitted to a vote of stockholders of
the Company. At December 31, 1995, cumulative
dividends of approximately $95,735 were in arrears.
F-12
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
7. Commitments and Contingencies:
Operating Leases
The Company leases certain office facilities under
non-cancelable lease agreements which expire at
various dates through August 31, 2000. The future
minimum lease payments under these leases are
$55,573 in 1996, $55,201 in 1997, $57,960 in 1998,
$60,858 in 1999 and $41,903 in 2000.
Legal Proceedings
The Company is involved in the following legal proceedings:
On December 10, 1993, Plaintiff County of Essex
filed suit against USTI, USTEI, New Jersey Municipal
Data Management ("MDM") and MDM's surety in Superior
Court of New Jersey. The suit is based on
allegations that MDM failed to perform its
obligations related to software and related services
sold by MDM to the County of Essex and that USTI and
USTEI succeeded to the obligations of MDM by the
acquisition of MDM. USTI and USTEI have answered
each of such lawsuits, denying all material
allegations therein, and intend to vigorously defend
such allegations.
On August 11, 1993, Plaintiff City of Sinton, Texas
filed suit against USTI alleging defects in software
and services sold to the city in 1990. The suit
failed to specify a measure of damages which the
City of Sinton seeks and USTI has answered the
lawsuit by denying all material allegations therein,
and intends to vigorously defend such allegations.
On April 28, 1994, Plaintiff Logical Arts, Inc.
filed suit against USTI alleging failure to pay for
certain contract programming services provided. The
Plaintiff seeks the amount of $45,000 plus attorney
fees and costs. USTI has answered the suit and
filed a counter claim for non-performance of
contracted obligations by Plaintiff, and intends to
defend the allegations therein.
On May 11 1995, Plaintiff Township of Dover New
Jersey filed suit against USTEI alleging defects in
the software and services sold to the Township of
Dover in 1992. The suit failed to specify a measure
of damages which the Township of Dover seeks and
USTEI has instructed its legal councel to answer the
lawsuit by denying all material allegations therein,
and intends to vigorously defend such allegations.
F-13
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
8. Common Stock Options and Warrants:
Stock Options
In September 1986, the Board of Directors approved
the adoption of a stock option plan (the "Plan"),
whereby 12,000,000 shares of the Company's common
stock are reserved for options to be granted to
employees and directors at the discretion of the
Board of Directors. The exercise price shall be at
a minimum of 100% of the fair market value of the
stock at the time the option is granted. Unless
otherwise specified, the options expire ten years
from the date of grant and may not be exercised
during the initial one-year period from the date of
grant.
Information relating to stock option activity during 1995 and 1994 follows:
<TABLE>
<S> <C> <C>
1995 1994
Outstanding at beginning of year 1,600,000 233,500
Granted 4,730,000 1,500,000
Exercised - -
Canceled (1,520,000) (133,500)
Outstanding at end of year
(Prices ranging from $.035 to
$.025 per share) 4,810,000 1,600,000
Options exercisable at end of year 75,000 50,000
Options available for grant at
end of year 7,190,000 1,900,000
</TABLE>
Stock Purchase Warrants
In connection with the sale of preferred stock
discussed in Note 6 and the loan from a partnership
discussed in Note 5, the Company issued stock
purchase warrants which entitle the partnership to
purchase 750,000 shares of the Company's common
stock at a price of $.20 per share. These stock
purchase warrants expired on September 30, 1994. A
new warrant was issued in connection with the
extension of the loan from the partnership. The new
warrant entitles the partnership to purchase 750,000
shares of the Company's common stock at a price of
$.05 per share and expires on November 22, 1997.
The terms of the warrants provide that the holder
has certain registration rights, at the Company's
expense, regarding public resale of the common stock
underlying the warrants. As of December 31, 1995,
none of these warrants have been exercised.
F-14
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
8. Common Stock Options and Warrants (Cont'd.):
As of December 31, 1995 additional common stock
purchase warrants had been issued primarily to
officers, directors and employees including warrants
to purchase 1,000,000 shares at $.035 per share
issued to a director of the Company for the issuance
of a letter of credit to collateralize debt of the
Company. As of December 31, 1995, none of these
warrants have been exercised and vest as follows:
<TABLE>
<C> <C> <C> <C> <C>
Vesting As Of the Years Ending
Expiration Exercise
Date Price 1995 1996 Total
May 23, 1996 $.080 150,000 150,000
Mar 1, 1997 $.250 500,000 500,000
Mar 31, 1997 $.280 200,000 200,000
Oct 29, 1997 $.190 87,500 12,500 100,000
Feb 16, 1999 $.080 1,000,000 1,000,000
Aug 9, 1999 $.050 1,000,000 1,000,000
Aug 9, 2000 $.035 1,000,000 1,000,000
3,937,500 12,500 3,950,000
</TABLE>
9. Income Taxes:
At December 31, 1995, the Company has net operating
loss carry-forwards of approximately $4,526,000.
These carry-forwards expire during the period 1996
through 2010. Additionally, the Company has
approximately $71,000 in unused general business tax
credits available to directly offset future income
tax liabilities and $624,000 in capital loss carry-
forwards available to directly offset future capital
gains.
For the years ended December 31, 1995 and 1994 the
difference between the effective federal income tax
rate and the amounts determined by applying the
statutory federal income tax rate to income before
provision for federal income tax was as follows:
<TABLE>
<S> <C> <C>
1995 1994
Amount Amount
Federal income tax benefit at statutory rate $ (294,780) $ (432,725)
Excess of tax over book basis of
goodwill of product line sold in 1994 - (82,193)
Amortization of goodwill 27,280 43,262
Other 54,500 ( 12,844)
Change in valuation allowance 213,000 484,500
$ - $ -
</TABLE>
F-15
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
9. Income Taxes Cont'd.):
The Company adopted the new income tax accounting
and disclosure rules outlined in Statement of
Financial Accounting Standards No. 109 "Accounting
For Income Taxes" ("SFAS 109) effective January 1, 1993.
Because of losses from operations for the past two
years, the Company has recorded a valuation
allowance equal to the net deferred tax asset.
There was no cumulative effect on the Company's
financial statements as a result of the adoption of
SFAS 109.
The components of the deferred tax accounts as of
December 31, 1995 and 1994 are approximately as follows:
<TABLE>
<S> <C> <C>
1995 1994
Deferred tax assets:
Net operating losses carried forward $ 1,538,800 $ 1,544,400
Capital losses carried forward 212,300 173,400
Deferred revenue 285,500 295,600
Accounts payable & accrued expenses 166,900 262,600
General business tax credits 71,000 71,000
Total deferred tax asset $ 2,274,500 $ 2,347,000
Deferred tax liabilities:
Accounts receivable $ 122,500 $ 268,900
Capitalized software 46,500 226,000
Purchased software, property & equipment 61,900 21,500
Total deferred tax asset 230,900 516,400
Net deferred tax asset before
valuation allowance 2,043,600 1,830,600
Less valuation allowance 2,043,600 1,830,600
Net deferred tax asset $ - $ -
</TABLE>
F-16
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
10. Acquisition of Assets:
On November 15, 1995, the Company purchased
substantially all of the assets and assumed certain
liabilities of QDS Acquisitions, Inc. ("QDS") from
Dralvar Capital Corp. ("Dralvar"). The
purchase price consisted of the issuance of
5,000,000 shares of the Company's common stock. Of
the total shares issued, 2,500,000 of such shares
have been placed in escrow subject to an Escrow
Agreement executed by USTI, Dralvar and Resource
Trust Bank, as escrow agent The assets purchased by
USTI consisted of (a) all operating assets of QDS
including its Utility Billing System ("UBS") and its
Law Enforcement Automated Data Retrieval System
("LEADRS") software,(b) the non-exclusive right to
sell and provide software maintenance and services
for the Quest Fund Accounting ("QFA") software
product line from the closing date through February
28, 1997, (c) substantially all hardware, equipment,
supplies, furniture, furnishings and other fixed
assets, (d) all software used for product
development, (e) trade secrets and proprietary
information including the name QuestTM and any other
trademarks, (f) business records of Dralvar,
including customer lists and related contracts and
contract rights and (g) certain accounts receivable
of Dralvar totaling approximately $61,131,. USTI
assumed certain obligations of Dralvar which
consisted of obligations to customers in the amount
of $187,645 and accrued expenses in the amount of
$36,774.
The following summarizes the unaudited consolidated
pro forma results of operations of the Company as
though the acquisition had occurred as of the
beginning of the year ended December 31, 1995 (in
thousands):
Year Ended December 31,
Historical Pro Forma
Revenue $ 1,771 $2,366
Net loss (867) (1,033)
Net loss per share (0.03) (0.03)
11. Sale of Assets:
On December 22, 1994, the Company sold its Integrity
Election ("Integrity") product line to Sequoia
Pacific Systems ("Sequoia"), a division of Smurfit
Packaging Corporation for cash and notes receivable
totaling $678,000. The assets sold include the VIP
Election Office Management and SignaScan Signature
Verification software packages. In addition, the
assets sold included related trade names and
trademarks, furniture and equipment, and all right
and interest in the license and maintenance
agreements with the Integrity customers. The
Company retained the accounts payable and accounts
receivable for products and services provided prior
to the sale to Sequoia. Total revenue for Integrity
for the period ended December 31, 1994 was
approximately $361,500.
F-17
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
12. Concentration of Credit Risk:
In the normal course of business, the Company grants
credit to its customers, primarily city and county
governments located throughout the country.
13. Employee Benefit Plans:
Effective January 16, 1992, the Company established
the USTI Employee's 401(k) Profit Sharing Plan and
Trust (the "Plan"), which is a defined contribution
plan that covers substantially all full-time
employees of the Company eligible to participate.
The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 401(k) of the Internal
Revenue Code. The Company made contributions for
the benefit of the participants in the Plan in the
amount of $1,425 and $6,530 for the years ended
December 31,1995 and 1994, respectively.
14. Fourth Quarter Adjustment:
During the fourth quarter of 1995 and 1994, the
Company charged earnings for adjustment to software
development costs of approximately $273,000 in 1995
and $200,000 in 1994.
F-18
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its
Independent Accountants on accounting and financial
disclosure matters.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth
in the Company's definitive proxy statement relating to
the Company's 1996 Annual Meeting of Shareholders under
the captions "Election of Directors" and "Executive
Officers." Such information is incorporated herein by
reference therefrom.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is set forth
in the Company's definitive proxy statement relating to
the Company's 1996 Annual Meeting of Shareholders under
the caption "Management Compensation." Such information
is incorporated herein by reference therefrom.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this item is set forth
in the Company's definitive proxy statement relating to
the Company's 1996 Annual Meeting of Shareholders under
the caption "Security Ownership of Certain Beneficial
Owners and Management." Such information is incorporated
herein by reference therefrom.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth
in the Company's definitive proxy statement relating to
the Company's 1996 Annual Meeting of Shareholders under
the caption "Certain Relationships and Related
Transactions." Such information is incorporated herein
by reference therefrom.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. Consolidated Financial Statements
See "Index to Consolidated Financial
Statements and Supplementary Schedules" under
Item 8 of this Report.
2. Consolidated Financial Statements Schedules
See "Index to Consolidated Financial
Statements" under Item 8 of this Report. All other schedules have
been omitted, as the required information is
inapplicable or the information is presented in
the financial statements or the notes thereto.
3. Exhibits
The following documents are filed as
exhibits herewith, unless otherwise specified,
and are incorporated herein by this reference:
Exhibit
Number
3.1 Amended and Restated Articles of Incorporation
of the Company as filed on November 21, 1986
with the Secretary of State of the State of
Iowa. (Incorporated by reference, Registration
Statement on Form S-1, File No. 33-9574, Exhibit 3.11)
3.2 Articles of Merger of Municipal Software
Consultants, Inc. into United Systems
Technology, Inc., as filed on December 31, 1986
with the Secretaries of State of the States of
Iowa and Texas. (Incorporated by reference,
Annual Report on Form 10-K for the fiscal year
ended December 31, 1986, Exhibit 3.2)
3.3 Statement Establishing and Designating Series B Preferred
Stock of the Company, as filed on June 13,
1988 with the Secretary of State of the State of
Iowa. (Incorporated by reference, Quarterly
Report on Form 10-Q for the quarter ended June
30, 1988, Exhibit 4.1)
3.4 Statement Establishing and Designating Series C Preferred
Stock of the Company, as filed on June 13, 1988
with the Secretary of State of the State of
Iowa. (Incorporated by reference, Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1988, Exhibit 4.2)
Exhibit
Number
3.5 Articles of Amendment to the Articles of
Incorporation of the Company, as filed on July
15, 1988 with the Secretary of State of the
State of Iowa. (Incorporated by reference,
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1988, Exhibit 3.1)
3.6 By-Laws of the Company, as amended and currently
in effect. (Incorporated by reference,
Registration Statement on Form S-1, File No.
33-9574, Exhibit 3.6)
3.7 Articles of Amendment to the Articles of
Incorporation designating the Series D Preferred
Stock of the Company, as filed on February 23,
1990 with the Iowa Secretary of State.
(Incorporated by reference, Form 8-K Current
Report dated February 15, 1990, Exhibit 3.1)
3.8 Statement establishing and designating Series E
Preferred Stock of the Company, as filed on June
26, 1991, with the Secretary of the State of
Iowa. (Incorporated by referenced, Annual Report
on Form 10-K for the year ended December 31,
1991, Exhibit 3.8)
3.9 Articles of amendment to the articles of incorporation of the company
as filed on October 30, 1995 with secretary of state of the state
of Iowa.
10.1 1986 Stock Option Plan. (Incorporated by
reference, Registration Statement on Form S-1,
File No. 33-9574, Exhibit 10.9)
10.2 Agreement Regarding Preferred Stock Purchase,
Warrant Purchase and Loan, dated October 16,
1986, by and between the Company and Ventana
Growth Fund. (Incorporated by reference,
Registration Statement on Form S-1, File No.
33-9574, Exhibit 10.10)
10.3 Preferred Stock Purchase Agreement, dated
October 28, 1986, by and between the Company and
Ventana Growth Fund. (Incorporated by
reference, Registration Statement on Form S-1,
File No. 33-9574, Exhibit 10.17)
10.4 Promissory Note, dated October 16, 1986, in the
amount of $150,000.00, from the Company to
Ventana Growth Fund. (Incorporated by
reference, Registration Statement on Form S-1,
File No. 33-9574, Exhibit 10.19)
10.5 Stock Purchase Agreement, dated June 8, 1988, by
and between the Company and Farm Bureau Mutual
Insurance Company. (Incorporated by reference,
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1988, Exhibit 19.1)
10.6 Preferred Stock Exchange Agreement, dated
June 8, 1988, by and between the Company and
Ventana Growth Fund. (Incorporated by
reference, Quarterly Report on Form 10-Q for the
quarter ended June 30, 1988, Exhibit 19.2)
10.7 Purchase Agreement, dated February 15, 1990, by
and between the Company and International
Technology Group, Inc. (Incorporated by
reference, Form 8-K Current Report dated
February 15, 1990, Exhibit 10.1)
Exhibit
Number
10.8 Assignment and Assumption Agreement, dated
February 15, 1990, by and between the Company
and International Technology Group, Inc.
assigning all relevant rights and interest in a
maintenance agreement with Grumman Systems
Support Corp. to the Company. (Incorporated by
reference, Form 8-K Current Report dated
February 15, 1990, Exhibit 10.2)
10.9 Assignment and Assumption Agreement, dated
February 15, 1990, by and between the Company
and International Technology Group, Inc.
assigning all rights and interest in a
Technology Transfer Agreement with AM Computer
Corporation and Microvote Partners, Ltd. to the
Company. (Incorporated by reference, Form 8-K
Current Report dated February 15, 1990, Exhibit 10.3)
10.10 Assignment and Assumption Agreement, dated
February 15, 1990, by and between the Company
and International Technology Group, Inc.
assigning all rights and interest in trademark
INTEGRITY to the Company. (Incorporated by
reference, Form 8-K Current Report dated
February 15, 1990, Exhibit 10.4)
10.11 Stock Purchase Agreement, dated February 14,
1990, by and between Farm Bureau Mutual
Insurance Company and the Company.
(Incorporated by reference, Form 8-K Current
Report dated February 15, 1990, Exhibit 10.5)
10.12 Asset Purchase Agreement, dated June 10, 1991,
by and between the Company and New Jersey
Municipal Data Management, Inc. (Incorporated by
reference Form 8-K Current Report, dated June 10, 1991)
10.13 Asset Purchase Agreement, dated December 22,
1994, by and between the Company and Sequoia
Pacific Systems, a division of Smurfit Packaging
Corporation. (Incorporated by reference Form 8-K
Current Report, dated December 22, 1994,
Exhibit 10.1)
10.14 Assignment and Assumption Agreement, dated
December 22, 1994, by and between the Company
and Sequoia Pacific Systems, a division of
Smurfit Packaging Corporation. (Incorporated by
reference Form 8-K Current Report, dated
December 22, 1994, Exhibit 10.2)
10.15 Asset Purchase Agreement, dated October 17,
1994, by and between the Company and Noll
Computer Systems, Inc.("NCS"). (Incorporated by
reference, Annual Report on Form 10-KSB for the
year ended December 31, 1994, Exhibit 10.15)
10.16 Asset Purchase Agreement, dated November 15,
1995, by and between the Company, Dralvar
Capital Corp. ("Dralvar") and Ken Neff.
(Incorporated by reference, Form 8-K Current
Report, dated November 15, 1995, Exhibit 10.1)
Exhibit
Number
(b) Reports on Form 8-K
A report on Form 8-K dated November 15, 1995,
reporting the acquisition by the Company of QDS
Acquisition, Inc. was filed by the Company on
November 30, 1995.
(c) Exhibits
The response to this portion of Item 14 is
submitted as a separate section of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is
submitted as a separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
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.
UNITED SYSTEMS TECHNOLOGY, INC.
Date: March 29, 1996 By: /s/ Thomas E. Gibbs
Thomas E. Gibbs,
Chief Executive
Officer and
Chairman of the Board
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ Thomas E. Gibbs
Thomas E. Gibbs,
Chief Executive
Officer and
Chairman of the Board
(Principal Executive Officer)
Date: March 29, 1996 By: /s/ Randall L. McGee
Randall L. McGee,
Secretary and Treasurer
(Principal Financial & Accounting Officer)
Date: March 29, 1996 By: /s/ John Pappajohn
John Pappajohn, Director
Date: March 29, 1996 By: /s/ Scott Burri
Scott Burri, Director
Date: March 29, 1996 By: /s/ Jordan Issackedes
Jordan Issackedes, Director
Date: March 29, 1996 By: /s/ Earl Cohen
Earl Cohen, Director
[TYPE] EX-3.(i).10.16
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
UNITED SYSTEMS TECHNOLOGY, INC.
Under Sections 490.1006 and 490.1007 of the
Iowa Business Corporation Act
United Systems Technology, Inc., an Iowa
corporation (the "Corporation"), pursuant to
Sections 490.1006 and 490.1007 of the Iowa Business
Corporation Act, hereby adopts the following as an
amendment and complete restatement of its Articles of
Incorporation, as filed with the Iowa Secretary of
State on June 5, 1978 and as amended on November 10,
1980, December 12, 1980, August 8, 1983, October 29,
1984, October 27, 1986, November 21, 1980, August 8,
1983, October 29, 1984, October 27, 1986, November 21,
1986, June 13, 1988, June 27, 1988, July 15, 1988,
February 23, 1990, June 25, 1991 and June 26, 1991 (the
"Articles of Incorporation").
These Amended and Restated Articles of
Incorporation correctly set forth the provisions of the
Articles of Incorporation as hereby amended; they have
been duly adopted by the Board of Directors of this
Corporation on April 21, 1995 and by the shareholders
of this Corporation on July 11, 1995; and they
supersede the original Articles of Incorporation and
all amendments theret. These Amended and Restated
Articles of Incorporation amend the Articles of
Incorporation by amending Article Second to increase
the number ofauthorized shares of Common Stock, par
value $.10 per share, from 50,000,000 shares to
100,000,000 shares so that the first paragraph of
Article Second is amended to read as follows: The total
number of shares that the Corporation shall have
authority to issue is 105,000,000 shares, consisting of
100,000,000 shares of Common Stock, par value $.10 per
share, and 5,000,000 shares of Preferred Stock, par
value $.10 per share.
The number of capital shares of this Corporation
issued and outstanding and entitled to vote at the time
of such adoption was 33,643,163 shares of Common Stock,
par value $.10 per share, 500,000 shares of Series B
Preferred Stock, par value $.10 per share, 750,000
shares of Series C Preferred Stock, par value of $.10
per share, 500,000 shares of Series D Preferred Stock,
par value $.10 per share, and 300,000 shares of
Series E Preferred Stock, par value $.10 per share.
The issued and outstanding shares of Common Stock were
entitled to a total of 33,643,163 votes at the time of
adoption of these Amended and Restated Articles of
Incorporation. The issued and outstanding shares of
Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock
were entitled to 3,6663395, 1,219,995, 1,957,615, and
1,917,125 votes, respectively, at the time these
Amended and Restated Articles of Incorporation were
adopted.
There were indisputably represented at the meeting
adopting these Amended and Restated Articles of
Incorporation 22,162,051 votes entitled to be voted by
the holders of the shares of Common Stock, 3,666,395
votes entitled to be voted by the holders of the shares
of Series B Preferred Stock, 1,219,995 votes entitled
to be voted by the holders of the shares of Series C
Preferred Stock, 1,957,615 votes entitled to be voted
by the holders of the shares of Series D Preferred
Stock, and 1,917,125 votes entitled to be voted by the
holders of the shares of Series E Preferred Stock. The
number of votes cast by the holders of the shares of
Common Stock for these Amended and Restated Articles of
Incorporation were 21,258,029, the number of votes
against were 896,606, and 7,416 shares of Common Stock
abstained from voting. The number of votes cast by the
holders of the shares of Series B Preferred Stock for
these Amended and Restated Articles of Incorporation
were 3,666,395 and there were no votes against. The
number of votes cast by the holders of the shares of
Series C Preferred Stock for these Amended and Restated
Articles of Incorporation were 1,219,995 and there were
no votes against. The number of votes cast by the
holders of the shares of SEries D Preferred stock were
1,957,615 and there were no votes against. The number
of votes cast by the holders of the shares of Series E
Preferred Stock sere 1,917,125 and there were no votes
against.
Pursuant to the foregoing, the undersigned, as
President of this Corporation, does hereby amend and
restate the Articles of Incorporation to read as
follows:
FIRST: The name of the Corporation is United Systems Technology, Inc.
SECOND: The total number of shares that the
Corporation shall have authority to issue is
105,000,000 shares, consisting of 100,000,000 shares of
Common Stock, par value $.10 per share, and 5,000,000
shares of Preferred Stock, par value $.10 per share.
Common Stock
The holders of the shares of Common Stock shall be
entitled to one vote for each share of Common Stock
held by them of record at the time for determining the
holders thereof entitled to vote.
Preferred Stock
The Board of Directors of the Corporation shall
have the authority to divide the class of shares of
Preferred Stock, not already divided into series, into
series and to determine the relative rights and
preferences of the shares of any such series to the
full extent permitted by the laws of the State of Iowa.
1. Series B Preferred Stock. A series of
Preferred Stock consisting of 500,000 shares of
Preferred Stock, par value $.10 per share,
designated as Series B Preferred Stock is
established. The relative rights and preferences
of the Series B Preferred Stock shall be as
follows:
a. Dividend Provisions.
(i) The holders of shares of Series B
Preferred Stock shall be entitled to
receive dividends, out of any assets
legally available therefor, at the rate of
$0.07 per share per annum (the "Series B
Cumulative Dividend"), payable quarterly,
on he first day of January, April, July
and October in each year. The Series B
Cumulative Dividend shall accrue on each
share from the date of its original
issuance and shall accrue from day to day,
whether or not earned or declared. The
Series B cumulative Dividend shall be
cumulative so that if such dividend in
respect of any previous quarterly dividend
period at said rate per share per annum
shall not have been paid on or declared
and set apart for all Series B Preferred
Stock at the time outstanding, the
deficiency shall be fully paid on or
declared and set apart for such shares
before the Corporation makes any
distribution to holders of Common Stock.
(ii) For purposes of subparagraph (i),
"Distribution" shall mean the transfer of
cash or property without consideration,
whether by way of dividend or otherwise,
payable other than in Common Stock of the
Corporation, or the purchase or redemption
of shares of the Corporation (other than
repurchases of Common Stock held by
employees or consultants of this
Corporation upon termination of their
employment or services for an amount not
to exceed fair market value as determined
in good faith by the Board of Directors,
pursuant to agreements providing for such
repurchase) for cash or property,
including any such transfer, purchase or
redemption by a subsidiary of this Corporation.
b. Liquidation Preference.
(i) In the event of any liquidation,
dissolution or winding up of this
Corporation, either voluntary or
involuntary, the holders of Series B
Preferred Stock shall be entitled to
receive, and prior and in preference to
any distribution of any of the assets of
this Corporation to the holders of Common
Stock and of Series C Preferred Stock, if
any, by reason of their ownership thereof,
an amount per share equal to the sum of
$1.00 for each outstanding share of
Series B Preferred Stock (the "Original
Series B Issue Price") and all accrued but
unpaid dividends per share since the date
of issuance of any Series B Preferred
Stock, and no more.
(ii) A consolidation or merger of this
Corporation with or into any other
corporation or corporations, or a sale,
conveyance or disposition of all or
substantially all of the assets of this
Corporation or the effectuation by the
Corporation of a transaction or series of
related transactions in which more than
50% of the voting power of the Corporation
is disposed of, shall not be deemed to be
a liquidation, dissolution or winding up
within the meaning of this Section b, but
shall instead be treated pursuant to
subsection c(v) hereof.
c. Conversion. The holders of the Series B
Preferred Stock shall have conversion rights as
follows (the "Series B Conversion Rights"):
(i) Right to Convert. Subject to
subsection c(iii), each share of Series B
Preferred Stock shall be convertible, at
the option of the holder thereof, at any
time after the date of issuance of such
share, at the office of this Corporation
or any transfer agent for the Series B
Preferred Stock, into such number of fully
paid and nonassessable shares of Common
Stock as is determined by dividing the
Original Series B Issue Price plus all
accrued but unpaid dividends per share on
the date of conversion by the Series B
Conversion Price at the time in effect for
such share. The initial Series B
conversion Price per share shall be $.20;
provided, however, that the Series B
Conversion Price shall be subject to
adjustment as set forth in subsection c(iii).
(ii) Mechanics of Conversion. Before any
holder of Series B Preferred Stock shall
be entitled to convert the same into
shares of Common Stock, he shall surrender
the certificate or certificates therefor,
duly endorsed, at the office of this
Corporation or of any transfer agent for
such series of Preferred Stock, and shall
give written notice by mail, postage
prepaid, to this Corporation at its
principal corporate office, of the
election to convert the same and shall
state therein the name or names in which
the certificate or certificates for shares
of Common Stock are to be issued. This
Corporation shall, as soon as practicable
thereafter, issue and deliver at such
office to such holder of the Series B
Preferred Stock, or to the nominee or
nominees of such holder, a certificate or
certificates for the number of shares of
Common Stock to which such holder shall be
entitled as aforesaid. Such conversion
shall be deemed to have been made
immediately prior to the close of business
on the date of such surrender of the
shares of the Series B Preferred Stock to
be converted, and the person or persons
entitled to receive the shares of Common
Stock issuable upon such conversion shall
be treated for all purposes as the record
holder or holders of such shares of Common
Stock as of such date.
(iii) Conversion Price Adjustments. The
Series B Conversion Price shall be subject
to adjustment from time to time as
follows:
(a) In the event the Corporation
should at any time or from time to
time after the issue date of the
Series B Preferred Stock 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 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 "Series B Common Stock
Equivalents") without payment of any
consideration by such holder for the
additional shares of Common Stock or
the Series B 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 Series B Conversion Price
shall be appropriately decreased to an
amount equal to the Series B
Conversion Price in effect on the
record date (or the date of such
dividend, distribution, split or
subdivision) times a fraction, the
numerator of which shall be the number
of shares outstanding before the
dividend, subdivision, distribution or
split and the denominator of which
shall be the number of shares
outstanding after the dividend,
subdivision, distribution or split.
(b) If the number of shares of Common
Stock outstanding at any time after
the issue date of the Series B
Preferred Stock is decreased by a
combination of the outstanding shares
of Common Stock, then, following the
record date of such combination, the
Series B Conversion Price shall be
appropriately increased to an amount
equal to the Series B Conversion Price
in effect on the record date (or the
date of such combination) times a
fraction, the numerator of which shall
be the number of shares outstanding
before the combination and the
denominator of which shall be the
number of shares outstanding after the
combination.
(iv) Other Distributions. In the event
this Corporation shall declare a
distribution payable in securities of
other persons, evidences of indebtedness
issued by this Corporation or other
persons, assets (excluding cash dividends)
or options or rights not otherwise
referred to in subsection c(iii), then, in
each such case, the holders of the
Series B 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 Corporation into which their
shares of Series B Preferred Stock are
convertible as of the record date fixed
for the determination of the holders of
Common Stock of the Corporation entitled
to receive such distribution.
(v) Mergers and Consolidations. In the
case of any consolidation or any merger of
the Corporation with or into another
corporation (other than a consolidation or
merger in which the Corporation is the
continuing corporation), the corporation
resulting from such consolidation or
surviving such merger shall make suitable
provision so that the Series B Preferred
Stock shall thereafter be convertible into
the kind and amount of shares of stock,
other securities, or property receivable
upon such consolidation or merger by a
holder of the number of shares of Common
Stock into which such Series B Preferred
Stock might have been converted
immediately prior to such consolidation or
merger. The provisions of this subsection
shall apply to successive consolidations
and mergers.
(vi) Recapitalizations. In the case of a
recapitalization of this Corporation
affecting its outstanding shares of Common
Stock, the Series B Preferred Stock shall
thereafter be convertible into the kind
and amount of shares of stock, other
securities, or property receivable upon
such recapitalization by a holder of the
number of shares of Common Stock into
which such Series B Preferred Stock might
have been converted immediately prior to
such recapitalization.
(vii) No Impairment. This Corporation
will not, by amendment of its Articles 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 this
Corporation, but will at all times in good
faith assist in the carrying out of all
the provisions of the Section c and in the
taking of all such action as may be
necessary or appropriate in order to
protect the Series B Conversion Rights of
the holders of the Series B Preferred
Stock against impairment.
(viii) No Fractional Shares and Certificate as to Adjustments.
(a) No fractional shares shall be
issued upon conversion of the Series B
Preferred Stock, and the number of
shares of Common Stock to be issued
shall be rounded to the nearest whole
share. Whether or not fractional
shares are issuable upon such
conversion shall be determined on the
basis of the total number of shares of
Series B Preferred Stock as the case
may be the holder is at the time
converting into Common Stock and the
number of shares of Common Stock
issuable upon such aggregate conversion.
(b) Upon the occurrence of each
adjustment or readjustment of the
Series B Conversion Price pursuant to
this Section c, this Corporation, 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 B Preferred Stock a certificate
setting forth such adjustment or
readjustment and showing in detail the
facts upon which such adjustment or
readjustment is based. This
Corporation shall, upon the written
request at any time of any holder of
Series B Preferred Stock, furnish or
cause to be furnished to such holder a
like certificate setting forth such
adjustment and readjustment, the
Series B Conversion Price at the time
in effect, and 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 Series B Preferred Stock.
(ix) Notices of Record Date. In the event
of any taking by this Corporation 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, this Corporation
shall mail to each holder of Series B
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.
(x) Reservation of Stock Issuable Upon
Conversion. This Corporation shall at all
times reserve and keep available out of
its authorized but unissued shares of
Common Stock solely for the purpose of
effecting the conversion of the shares of
the Series B Preferred Stock such number
of its shares of Common Stock as shall
from time to time to be sufficient to
effect the conversion of all outstanding
shares of the Series B Preferred Stock;
and if at any time the number of
authorized but unissued shares of Common
Stock shall not be sufficient to effect
the conversion of all then outstanding
shares of the Series B Preferred Stock, in
addition to such other remedies as shall
be available to the holder of such
Preferred Stock, this Corporation will
take such corporate action as may, in the
opinion of its counsel, be necessary to
increase its authorized but unissued
shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
(xi) Notices. Any notice required by the
provisions of this Section c to be given
to the holders of shares of Series B
Preferred Stock shall be deemed given if
deposited in the United States mail,
postage prepaid, and addressed to each
holder of record at his address appearing
on the books of this Corporation.
d. Protective Provisions. So long as shares
of Series B Preferred Stock are outstanding,
this Corporation shall not without first
obtaining the approval (by vote or written
consent, as provided by law) of the holders of
at least a majority of the then outstanding
shares of Series B Preferred Stock:
(i) alter or change the rights,
preferences or privileges of the shares of
Series B Preferred Stock so as to affect
adversely the shares; or
(ii) increase the authorized number of
shares of Series B Preferred Stock; or
(iii) create any new class or series of
stock having a preference over, or being
on a parity with, the Series B Preferred
stock with respect to dividends or upon
liquidation, or having rights similar to
any of the rights of the Series B
Preferred stock under Section c hereof; or
(iv) issue any shares of Series A Preferred
stock or distribute any shares of Series A
Preferred Stock held as treasury stock by
the Corporation; or
(v) do any act or thing which would result
in taxation of the holders of shares of
Series B Preferred Stock under Section 305
of the Internal Revenue Code of 1954, as
amended (or any comparable provision of
the Internal Revenue Code as hereafter
from time to time amended).
e. Redemption. The Series B Preferred Stock
shall be redeemable, in whole or in part
(except as to any shares of Series B Preferred
Stock that have been surrendered to this
Corporation for conversion into shares of
Common Stock), at the option of this
Corporation by resolution of the Board of
Directors, by lot or pro rata if less than all
of the Series B Preferred Stock is being
redeemed, at any time and from time to time
after December 15, 1989, or before such time in
the event of a consolidation or merger of this
Corporation with or into any other corporation
or corporations, or a sale, conveyance or
disposition of all or substantially all of the
assets of this Corporation or the effectuation
by this Corporation of a transaction or series
of related transactions in which more than 50%
of the voting power of this Corporation is
disposed of, upon at least 10 but not more than
30 days prior written notice to the record
holders thereof, at the addresses of such
holders as the same appear on the records of
this Corporation, at a redemption price, per
share, of $1.00, plus all dividends accrued and
unpaid up to the date fixed for redemption, and
no more. If such notice of redemption shall
have been duly given and if, on or before the
redemption date specified in such notice, the
funds necessary for such redemption shall have
been set apart so as to be and continue to be
available therefor, then, notwithstanding that
any certificates representing shares of
Series B Preferred Stock called for redemption
shall not have been surrendered, such shares
shall no longer be deemed outstanding and all
rights of the holders of such shares of
Series B Preferred Stock so called for
redemption shall forthwith on such redemption
date cease and terminate, except the right of
the holders thereof to exercise on or before
the redemption date any privilege of conversion
to which the holders are then entitled, and the
right to receive the redemption price as
specified above. In case less than all the
shares represented by any surrendered
certificates are redeemed, a new certificate
shall be issued representing the unredeemed
shares.
f. Voting Rights. Each holder of Series B
Preferred Stock shall be entitled to vote on
all matters and shall be entitled to the number
of votes equal to the largest number of full
shares of Common Stock into which such shares
of Series B Preferred Stock could be converted,
pursuant to the provisions of Section c hereof,
at the record date for the determination of the
shareholders entitled to vote on such matters
or, if no such record date is established, at
the date such vote is taken or any written
consent of shareholders is solicited. Except
as required by law, the holders of shares of
Series B Preferred Stock and Common Stock shall
vote together and not as separate classes.
2. Series C Preferred Stock. A series of
Preferred stock consisting of 750,000 shares of
Preferred Stock, par value $.10 per share,
designated as Series C Preferred Stock is
established. The relative rights and preferences
of the Series C Preferred Stock shall be as follows:
a. Dividend Provisions.
(i) The holders of shares of Series C
Preferred Stock shall be entitled to
receive dividends, out of any assets
legally available therefor, at the rate of
$0.18 per share per annum (the "Series C
Cumulative Dividend"). The Series C
Cumulative Dividend shall accrue on each
share from the date of its original
issuance and shall accrue from day to day,
whether or not earned or declared. The
Series C Cumulative Dividend shall be
cumulative so that if such dividend in
respect of any previous annual dividend
period at said rate per share per annum
shall not have been paid on or declared
and set apart for all Series C Preferred
Stock at the time outstanding, the
deficiency shall be fully paid on or
declared and set apart for such shares
before the Corporation makes any
distribution to holders of Common Stock.
(ii) In addition to the Series C Cumulative
Dividend set forth in subsection (i)
above, the holders of Series C Preferred
Stock shall receive dividends (as
determined on an as converted basis for
all shares of Series C Preferred Stock
held) in an amount equal to that paid to
holders of Common Stock of this
Corporation when, as and if declared by
the Board of Directors, payable whenever
funds are legally available therefore.
(iii) For purposes of subparagraph (i),
"distribution" shall mean the transfer of
cash or property without consideration,
whether by way of dividend or otherwise,
payable other than in Common Stock of the
Corporation, or the purchase or redemption
of shares of the Corporation (other than
repurchases of Common Stock held by
employees or consultants of this
Corporation upon termination of their
employment or services for an amount not
to exceed fair market value as determined
in good faith by the Board of Directors,
pursuant to agreements providing for such
repurchase) for case or property,
including any such transfer, purchase or
redemption by a subsidiary of this
Corporation.
b. Liquidation Preference.
(i) In the event of any liquidation,
dissolution or winding up of this
Corporation, either voluntary or
involuntary, the holders of Series C
Preferred Stock shall be entitled to
receive, and prior and in preference to
any distribution of any of the assets of
this Corporation to the holders of Common
Stock, by reason of their ownership
thereof, an amount per share equal to the
sum of $0.20 for each outstanding share of
Series C Preferred Stock (the "Original
Series C Issue Price") and all accrued but
unpaid dividends per share since the date
of issuance of any Series C Preferred
Stock.
(ii) After the distribution described in
subsection (i) above has been paid, the
remaining assets of the Corporation
available for distribution to shareholders
shall be distributed among the holders of
Series C Preferred Stock and Common Stock
pro rata based on the number of shares of
Common Stock held by each (assuming
conversion of all such Series C Preferred
Stock into Common Stock on the formula set
forth in Section c below).
(iii) A consolidation or merger of this
Corporation with or into any other
corporation or corporations, or a sale,
conveyance or disposition of all or
substantially all of the assets of this
Corporation or the effectuation by the
Corporation of a transition or series of
related transactions in which more than
50% of the voting power of the Corporation
is disposed of, shall not be deemed to be
a liquidation, dissolution or winding up
within the meaning of this Section b, but
shall instead be treated pursuant to
subsection c(v) hereof.
c. Conversion. The holders of the Series C
Preferred stock shall have conversion rights as
follows (the "Series C Conversion Rights"):
(i) Right to Convert. Subject to
subsection c(iii), each share of Series C
Preferred Stock shall be convertible, at
the option of the holder thereof, at any
time after the date of issuance of such
share, at the office of this Corporation
or any transfer agent for the Series C
Preferred Stock, into such number of fully
paid and nonassessable shares of Common
Stock as is determined by dividing the
Original Series C Issue Price plus all
accrued but unpaid dividends per share on
the date of conversion by the Series C
Conversion Price at the time in effect for
such shares. The initial Series C
Conversion Price per share shall be the
Original Series C Issue Price; provided,
however, that the Series C Conversion
Price shall be subject to adjustment as
set forth in subsection c(iii).
(ii) Mechanics of Conversion. Before any
holder of Series C Preferred Stock shall
be entitled to convert the same into
shares of Common Stock, he shall surrender
the certificate or certificates therefor,
duly endorsed, at the office of this
Corporation or of any transfer agent for
such series of Preferred Stock, and shall
give written notice by mail, postage
prepaid, to this Corporation at its
principal corporate office, of the
election to convert the same and shall
state therein the name or names in which
the certificate or certificates for shares
of Common Stock are to be issued. This
Corporation shall, as soon as practicable
thereafter, issue and deliver at such
office to such holder of the Series C
Preferred Stock, or to the nominee or
nominees of such holder, a certificate or
certificates for the number of shares of
Common Stock to which such holder shall be
entitled as aforesaid. Such conversion
shall be deemed to have been made
immediately prior to the close of business
on the date of such surrender of the
shares of the Series C Preferred Stock to
be converted, and the person or persons
entitled to receive the shares of Common
stock issuable upon such conversion shall
be treated for all purposes as the record
holder or holders of such shares of Common
Stock as of such date.
(iii) Series C Conversion Price
Adjustments. The Series C Conversion
Price shall be subject to adjustment from
time to time as follows:
(a) (1) If the Corporation shall issue
any Additional Stock (as defined
below) without consideration or
for a consideration per share less
than the Series C Conversion Price
in effect immediately prior to the
issuance of such Additional Stock,
then, and in each case, the
Series C Conversion Price in
effect immediately prior to each
such issuance shall be reduced
only, as of the opening of
business on the date of such
issuance or sale, to a price equal
to the lowest price at which such
Additional Stock has been issued
on or after the date on which the
Series C Preferred Stock was
issued.
(2) For the purpose of making any
adjustment in the Series C
Conversion Price, the
consideration received by the
Corporation for any issue or sale
of Additional Stock,
i. to the extent it consists
of cash, shall be computed at
the net amount of cash
received by the Corporation
after deduction of any
underwriting or similar
commission or compensation
paid or allowed by the Company
in connection with such issue or sale;
ii. to the extent it consists
of property other than cash,
shall be computed at the fair
value of that property as
determined in good faith by
the Board of Directors of this
Corporation ("Board"); and
iii. if Additional Stock,
Convertible Securities (as
hereinafter defined), or
rights or options to purchase
either Additional Stock or
Convertible Securities are
issued or sold together with
other stock or securities or
other assets of this Corporation for a
consideration that covers
both, shall be computed as the
portion of the consideration
so received that may be
reasonably determined in good
faith by the Board to be
allocable to such Additional
Stock, Convertible Securities or rights or options.
(b) For the purpose of the adjustment
provided in this subsection c(iii), if
at any time or from time to time after
the issue date of the Series C
Preferred Stock, this Corporation
shall issue or have outstanding any
rights or options for the purchase of,
or stock or other securities
convertible into, Additional Stock
(such convertible stock or securities
being hereinafter referred to as
"Convertible Securities"), then, in
each case, if the Effective Price (as
hereinafter defined) of such rights,
options, or Convertible Securities
shall be less than then existing
Series C Conversion Price, the
Corporation shall be deemed to have
issued at the time of the issuance of
such rights or options or Convertible
Securities the maximum amount of
Additional Stock issuable upon
exercise or conversion thereof and to
have received as consideration for the
issuance of such shares an amount
equal to the total amount of the
consideration, if any, received by the
Corporation for the issuance of such
rights or options or Convertible
Securities, plus, in the case of such
options or rights, the minimum amounts
of consideration, if any, payable to
the Corporation upon exercise or
conversion of such options or rights.
"Effective Price" shall mean the
quotient determined by dividing the
total of all of such consideration by
such maximum number of shares of
Additional Stock which may be obtained
upon conversion of such Convertible
Securities. No further adjustment of
the Series C Conversion Price adjusted
upon the issuance of such rights,
options, or Convertible Securities
shall be made as a result of the
actual issuance of Additional Stock on
the exercise of any such rights or
options or the conversion of any such
Convertible Securities.
(c) For the purpose of the adjustment
provided for in this
subsection c(iii), if at any time or
from time to time after the issue date
of the Series C Preferred Stock, the
Corporation shall issue any rights or
options for the purchase of
Convertible Securities, then, in each
such case, if the Effective Price
thereof is less than the then current
Series C Conversion Price, the
Corporation shall be deemed to have
issued at the time of the issuance of
such rights or options the maximum
amount of Additional Stock issuable
upon conversion of the total amount of
convertible Securities covered by such
rights or options and to have received
as consideration for the issuance of
such Additional Stock an amount equal
to the amount of consideration, if
any, received by the Corporation for
the issuance of such rights or
options, plus the minimum amounts of
consideration, if any, payable to the
Corporation upon the exercise of such
rights or options plus the minimum
amount of consideration, if any,
payable to the Corporation upon the
conversion of such Convertible
Securities. "Effective Price" shall
mean the quotient determined by
dividing the total amount of such
consideration by such maximum amount
of Additional Stock. No further
adjustment of such Series C Conversion
Price adjusted upon the issuance of
such rights or options shall be made
as a result of the actual issuance of
the Convertible Securities upon the
exercise of such rights or options or
upon the actual issuance of Additional
Stock upon the conversion of such
Convertible Securities.
(d) The term "Additional Stock" as
used herein shall mean all shares of
Common Stock issued or deemed issued
by the Corporation after the issue
date of the Series C Preferred Stock,
whether or not subsequently reacquired
or retired by the Corporation, other
than (1) pursuant to a qualified
Employee Stock Option Plan approved by
the Board of Directors of the
Corporation; and (2) Warrants existing
on June 13, 1988 to purchase 80,000
shares of Common Stock at $0.10 per
share.
(e) In the event the Corporation
should at any time or from time to
time after the issue date of the
Series C Preferred Stock 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 "Series C
Common Stock Equivalents") without
payment of any consideration by such
holder for the additional shares of
Common Stock or the Series C 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 Series C
Conversion Price shall be
appropriately decreased to an amount
equal to the Series C Conversion Price
in effect on the record date (or the
date of such dividend, distribution,
split or subdivision) times a
fraction, the numerator of which shall
be the number of shares outstanding
before the dividend, subdivision,
distribution or split and the
denominator of which shall be the
number of shares outstanding after the
dividend, subdivision, distribution or
split.
(f) If the number of shares of Common
Stock outstanding at any time after
the issue date of the Series C
Preferred Stock is decreased by a
combination of the outstanding shares
of Common Stock, then, following the
record date of such combination, the
Series C Conversion Price shall be
appropriately increased to an amount
equal to the Series C Conversion Price
in effect on the record date (or the
date of such combination) times a
fraction, the numerator of which shall
be the number of shares outstanding
before the combination and the
denominator of which shall be the
number of shares outstanding after the
combination.
(iv) Other Distributions. In the event
this Corporation shall declare a
distribution payable in securities of
other persons, evidences of indebtedness
issued by this Corporation or other
persons, assets (excluding cash dividends)
or options or rights not otherwise
referred to in subsection c(iii), then, in
each such case for the purpose of
subsection c(iii), the holders of the
Series C 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 Corporation into which their
shares of Series C Preferred Stock are
convertible as of the record date fixed
for the determination of the holders of
Common Stock of the Corporation entitled
to receive such distribution.
(v) Mergers and Consolidations. In the
case of any consolidation or any merger of
the Corporation with or into another
corporation (other than a consolidation or
merger in which the Corporation is the
continuing corporation), the corporation
resulting from such consolidation or
surviving such merger shall make suitable
provision so that the Series C Preferred
Stock shall thereafter be convertible into
the kind and amount of shares of stock,
other securities, or property receivable
upon such consolidation or merger by a
holder of the number of shares of Common
Stock into which such Series C Preferred
Stock might have been converted
immediately prior to such consolidation or
merger. The provisions of this subsection
shall apply to successive consolidations
and mergers.
(vi) Recapitalizations. In the case of a
recapitalization of this Corporation
affecting its outstanding shares of Common
Stock, the Series C Preferred Stock shall
thereafter be convertible into the kind
and amount of shares of stock, other
securities, or property receivable upon
such recapitalization by a holder of the
number of shares of Common stock into
which such Series C Preferred Stock might
have been converted immediately prior to
such recapitalization.
(vii) No Impairment. This Corporation
will not, by amendment of its Articles 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 this
Corporation, but will at all times in good
faith assist in the carrying out of all
the provisions of this Section c and in
the taking of all such action as may be
necessary or appropriate in order to
protect the Series C Conversion Rights of
the holders of the Series C Preferred
Stock against impairment.
(viii) No Fractional Shares and
Certificate as to Adjustments.
(a) No fractional shares shall be
issued upon conversion of the Series C
Preferred Stock, and the number of
shares of Common Stock to be issued
shall be rounded to the nearest whole
share. Whether or not fractional
shares are issuable upon such
conversion shall be determined on the
basis of the total number of shares of
Series C Preferred Stock as the case
may be the holder is at the time
converting into Common Stock and the
number of shares of Common Stock
issuable upon such aggregate
conversion.
(b) Upon the occurrence of each
adjustment or readjustment of the
Series C Conversion Price pursuant to
this Section c, this Corporation, 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 C Preferred Stock a certificate
setting forth such adjustment or
readjustment and showing in detail the
facts upon which such adjustment or
readjustment is based. This
Corporation shall, upon the written
request at any time of any holder of
Series C Preferred Stock, furnish or
cause to be furnished to such holder a
like certificate setting forth such
adjustment and readjustment, the
Series C Conversion Price at the time
in effect, and 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 Series C Preferred Stock.
(ix) Notices of Record Date. In the event
of any taking by this Corporation 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, this Corporation
shall mail to each holder of Series C
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.
(x) Reservation of Stock Issuable Upon
Conversion. This Corporation shall at all
times reserve and keep available out of
its authorized but unissued shares of
Common Stock solely for the purpose of
effecting the conversion of the shares of
the Series C Preferred Stock such number
of its shares of Common Stock as shall
from time to time to be sufficient to
effect the conversion of all outstanding
shares of the Series C Preferred Stock;
and if at any time the number of
authorized but unissued shares of Common
Stock shall not be sufficient to effect
the conversion of all then outstanding
shares of the Series C Preferred Stock, in
addition to such other remedies as shall
be available to the holder of such
Preferred Stock, this Corporation will
take such corporate action as may, in the
opinion of its counsel, be necessary to
increase its authorized but unissued
shares of Common Stock to such number of
shares as shall be sufficient for such
purposes.
(xi) Notices. Any notice required by the
provisions of this Section c to be given
to the holders of shares of Series C
Preferred Stock shall be deemed given if
deposited in the United States mail,
postage prepaid, and addressed to each
holder of record at his address appearing
on the books of this Corporation.
d. Protective Provisions. So long as shares
of Series C Preferred Stock are outstanding,
this Corporation shall not without first
obtaining the approval (by vote or written
consent, as provided by law) of the holders of
at least a majority of the then outstanding
shares of Series C Preferred Stock:
(i) alter or change the rights,
preferences or privileges of the shares of
Series C Preferred Stock so as to affect
adversely the shares; or
(ii) increase the authorized number of
shares of Series C Preferred Stock; or
(iii) create any new class or series of
stock having a preference over, or being
on a parity with, the Series C Preferred
stock with respect to dividends or upon
liquidation, or having rights similar to
any of the rights of the Series C
Preferred stock under Section c hereof; or
(iv) issue any shares of Series A Preferred
stock or distribute any shares of Series A
Preferred Stock held as treasury stock by
the Corporation; or
(v) do any act or thing which would result
in taxation of the holders of shares of
Series C Preferred Stock under Section 305
of the Internal Revenue Code of 1954, as
amended (or any comparable provision of
the Internal Revenue Code as hereafter
from time to time amended).
e. Voting Rights. Each holder of Series C
Preferred Stock shall be entitled to vote on
all matters and shall be entitled to the number
of votes equal to the largest number of full
shares of Common Stock into which such shares
of Series C Preferred Stock could be converted,
pursuant to the provisions of Section c hereof,
at the record date for the determination of the
shareholders entitled to vote on such matters
or, if no such record date is established, at
the date such vote is taken or any written
consent of shareholders is solicited. Except
as required by law, the holders of shares of
Series C Preferred Stock and Common Stock shall
vote together and not as separate classes.
3. Series D Preferred Stock. A series of
Preferred Stock consisting of 500,000 shares of
Preferred Stock, par value $.10 per share,
designated as Series D Preferred Stock is
established. The relative rights and preferences
of the Series D Preferred Stock shall be as
follows:
a. Dividend Provisions.
(i) The holders of shares of Series D
Preferred Stock shall be entitled to
receive dividends, out of any assets
legally available therefor, at the rate of
$0.07 per share per annum (the "Series D
Cumulative Dividend"), payable quarterly,
on the first day of January, April, July
and October in each year. The Series D
Cumulative Dividend shall accrue on each
share from the date of its original
issuance and shall accrue on each share
from the date of its original issuance and
shall accrue from day to day, whether or
not earned or declared. The Series D
Cumulative Dividend shall be cumulative so
that if such dividend in respect of any
previous quarterly dividend period at said
rate per share per annum shall not have
been paid on or declared and set apart for
all Series D Preferred Stock at the time
outstanding, the deficiency shall be fully
paid on or declared and set apart for such
shares before the Corporation makes any
distribution to holders of Common Stock.
(ii) For purposes of subparagraph (i),
"distribution" shall mean the transfer of
cash or property without consideration.
whether by way of dividend or otherwise,
payable other than in Common Stock of the
Corporation, or the purchase or redemption
of shares of the Corporation (other than
repurchases of Common Stock held by
employees or consultants of this
Corporation upon termination of their
employment or services for an amount not
to exceed fair market value as determined
in good faith by the Board of Directors,
pursuant to agreements providing for such
repurchase) for cash or property,
including any such transfer, purchase or
redemption by a subsidiary of this
Corporation.
b. Liquidation Preference.
(i) In the event of any liquidation,
dissolution or winding up of this
Corporation, either voluntary or
involuntary, the holders of Series D
Preferred Stock shall be entitled to
receive, and prior and in preference to
any distribution of any of the assets of
this Corporation to the holders of Common
Stock, if any, by reason of their
ownership thereof, an amount per share
equal to the sum of $1.00 for each
outstanding share of Series D Preferred
Stock (the "Original Series D Issue
Price") and all accrued but unpaid
dividends per share since the date of
issuance of any Series D Preferred Stock,
and no more. Notwithstanding the above,
the holders of the Series D Preferred
Stock shall not be superior or prior to,
nor in parity with, in any respect, the
holders of the Series B Preferred Stock or
Series C Preferred Stock.
(ii) A consolidation or merger of this
Corporation with or into any other
corporation or corporations, or a sale,
conveyance or disposition of all or
substantially all of the assets of this
Corporation or the effectuation by the
Corporation of a transaction or series of
related transactions in which more than
50% of the voting power of the Corporation
is disposed of, shall not be deemed to be
a liquidation, dissolution or winding up
within the meaning of the Section b, but
shall instead be treated pursuant to
subsection c(v) hereof.
c. Conversion. The holders of the Series D
Preferred Stock shall have conversion rights as
follows (the "Series D Conversion Rights"):
(i) Right to Convert. Subject to
subsection c(iii), each share of Series D
Preferred Stock shall be convertible, at
the option of the holder thereof, at any
time after the date of issuance of such
share, at the office of this Corporation
or any transfer agent for the Series D
Preferred Stock, into such number of fully
paid and nonassessable shares of Common
Stock as is determined by dividing the
Original Series D Issue Price plus all
accrued but unpaid dividends per share on
the date of conversion by the Series D
Conversion Price at the time in effect for
such shares. The initial Series D
Conversion Price per share shall be the
Original Series D Issue Price; provided,
however, that the Series D Conversion
Price shall be subject to adjustment as
set forth in subsection c(iii).
(ii) Mechanics of Conversion. Before any
holder of Series D Preferred Stock shall
be entitled to convert the same into
shares of Common Stock, he shall surrender
the certificate or certificates therefor,
duly endorsed, at the office of this
Corporation or of any transfer agent for
such series of Preferred Stock, and shall
give written notice by mail, postage
prepaid, to this Corporation at its
principal corporate office, of the
election to convert the same and shall
state therein the name or names in which
the certificate or certificates for shares
of Common Stock are to be issued. This
Corporation shall, as soon as practicable
thereafter, issue and deliver at such
office to such holder of the Series D
Preferred Stock, or to the nominee or
nominees of such holder, a certificate or
certificates for the number of shares of
Common Stock to which such holder shall be
entitled as aforesaid. Such conversion
shall be deemed to have been made
immediately prior to the close of business
on the date of such surrender of the
shares of the Series D Preferred Stock to
be converted, and the person or persons
entitled to receive the shares of Common
stock issuable upon such conversion shall
be treated for all purposes as the record
holder or holders of such shares of Common
Stock as of such date.
(iii) Series D Conversion Price
Adjustments. The Series D Conversion
Price shall be subject to adjustment from
time to time as follows:
(a) In the event the Corporation
should at any time or from time to
time after the issue date of the
Series D Preferred Stock 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 "Series D
Common Stock Equivalents") without
payment of any consideration by such
holder for the additional shares of
Common Stock or the Series D 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 Series D
Conversion Price shall be
appropriately decreased to an amount
equal to the Series D Conversion Price
in effect on the record date (or the
date of such dividend, distribution,
split or subdivision) times a
fraction, the numerator of which shall
be the number of shares outstanding
before the dividend, subdivision,
distribution or split and the
denominator of which shall be the
number of shares outstanding after the
dividend, subdivision, distribution or
split.
(b) If the number of shares of Common
Stock outstanding at any time after
the issue date of the Series D
Preferred Stock is decreased by a
combination of the outstanding shares
of Common Stock, then, following the
record date of such combination, the
Series D Conversion Price shall be
appropriately increased to an amount
equal to the Series D Conversion Price
in effect on the record date (or the
date of such combination) times a
fraction, the numerator of which shall
be the number of shares outstanding
before the combination and the
denominator of which shall be the
number of shares outstanding after the
combination.
(iv) Other Distributions. In the event
this Corporation shall declare a
distribution payable in securities of
other persons, evidences of indebtedness
issued by this Corporation or other
persons, assets (excluding cash dividends)
or options or rights not otherwise
referred to in subsection c(iii), then, in
each such case, the holders of the
Series D Preferred Stock shall be entitled
to a proportionate share of any such
distribution as though they were holders
of the number of shares of Common Stock of
the Corporation into which their shares of
Series D Preferred Stock are convertible
as of the record date fixed for the
determination of the holders of Common
Stock of the Corporation entitled to
receive such distribution.
(v) Mergers and Consolidations. In the
case of any consolidation or any merger of
the Corporation with or into another
corporation (other than a consolidation or
merger in which the Corporation is the
continuing corporation), the corporation
resulting from such consolidation or
surviving such merger shall make suitable
provision so that the Series D Preferred
Stock shall thereafter be convertible into
the kind and amount of shares of stock,
other securities, or property receivable
upon such consolidation or merger by a
holder of the number of shares of Common
Stock into which such Series D Preferred
Stock might have been converted
immediately prior to such consolidation or
merger. The provisions of this subsection
shall apply to successive consolidations
and mergers.
(vi) Recapitalizations. In the case of a
recapitalization of this Corporation
affecting its outstanding shares of Common
Stock, the Series D Preferred Stock shall
thereafter be convertible into the kind
and amount of shares of stock, other
securities, or property receivable upon
such recapitalization by a holder of the
number of shares of Common Stock into
which such Series D Preferred Stock might
have been converted immediately prior to
such recapitalization.
(vii) No Impairment. This Corporation
will not, by amendment of its Articles 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 this
Corporation, but will at all times in good
faith assist in the carrying out of all
the provisions of this Section c and in
the taking of all such action as may be
necessary or appropriate in order to
protect the Series D Conversion Rights of
the holders of the Series D Preferred
Stock against impairment.
(viii) No Fractional Shares and
Certificate as to Adjustments.
(a) No fractional shares shall be
issued upon conversion of the Series D
Preferred Stock, and the number of
shares of Common Stock to be issued
shall be rounded to the nearest whole
share. Whether or not fractional
shares are issuable upon such
conversion shall be determined on the
basis of the total number of shares of
Series D Preferred Stock as the case
may be the holder is at the time
converting into Common Stock and the
number of shares of Common Stock
issuable upon such aggregate
conversion.
(b) Upon the occurrence of each
adjustment or readjustment of the
Series D Conversion Price pursuant to
this Section c, this Corporation, 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 D Preferred Stock a certificate
setting forth such adjustment or
readjustment and showing in detail the
facts upon which such adjustment or
readjustment is based. This
Corporation shall, upon the written
request at any time of any holder of
Series D Preferred Stock, furnish or
cause to be furnished to such holder a
like certificate setting forth such
adjustment and readjustment, the
Series D Conversion Price at the time
in effect, and 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 Series D Preferred Stock.
(ix) Notices of Record Date. In the event
of any taking by this Corporation 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, this Corporation
shall mail to each holder of Series D
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.
(x) Reservation of Stock Issuable Upon
Conversion. This Corporation shall at all
times reserve and keep available out of
its authorized but unissued shares of
Common Stock solely for the purpose of
effecting the conversion of the shares of
the Series D Preferred Stock such number
of its shares of Common Stock as shall
from time to time to be sufficient to
effect the conversion of all outstanding
shares of the Series D Preferred Stock;
and if at any time the number of
authorized but unissued shares of Common
Stock shall not be sufficient to effect
the conversion of all then outstanding
shares of the Series D Preferred Stock, in
addition to such other remedies as shall
be available to the holder of such
Preferred Stock, this Corporation will
take such corporate action as may, in the
opinion of its counsel, be necessary to
increase its authorized but unissued
shares of Common Stock to such number of
shares as shall be sufficient for such
purposes.
(xi) Notices. Any notice required by the
provisions of this Section c to be given
to the holders of shares of Series D
Preferred Stock shall be deemed given if
deposited in the United States mail,
postage prepaid, and addressed to each
holder of record at his address appearing
on the books of this Corporation.
d. Protective Provisions. So long as shares
of Series D Preferred Stock are outstanding,
this Corporation shall not without first
obtaining the approval (by vote or written
consent, as provided by law) of the holders of
at least a majority of the then outstanding
shares of Series D Preferred Stock:
(i) alter or change the rights,
preferences or privileges of the shares of
Series D Preferred Stock so as to affect
adversely the shares; or
(ii) increase the authorized number of
shares of Series D Preferred Stock; or
(iii) create any new class or series of
stock having a preference over, or being
on a parity with, the Series D Preferred
stock with respect to dividends or upon
liquidation, or having rights similar to
any of the rights of the Series D
Preferred stock under Section c hereof; or
(iv) issue any shares of Series A Preferred
stock; or
(v) do any act or thing which would result
in taxation of the holders of shares of
Series D Preferred Stock under Section 305
of the Internal Revenue Code of 1954, as
amended (or any comparable provision of
the Internal Revenue Code as hereafter
from time to time amended).
e. Redemption. The Series D Preferred Stock
shall be redeemable, in whole or in part
(except as to any shares of Series D Preferred
Stock that have been surrendered to this
Corporation for conversion into shares of
Common Stock), at the option of this
Corporation by resolution of the Board of
Directors, by lot or pro rata if less than all
of the Series D Preferred Stock is being
redeemed, at any time and from time to time
after July 31, 1991, or before such time in the
event of a consolidation or merger of this
Corporation with or into any other corporation
or corporations, or a sale, conveyance or
disposition of all or substantially all of the
assets of this Corporation or the effectuation
by this Corporation of a transaction or series
of related transactions in which more than 50%
of the voting power of this Corporation is
disposed of, upon at least 10 but not more than
30 days prior written notice to the record
holders thereof, at the addresses of such
holders as the same appear on the records of
this Corporation, at a redemption price, per
share, of $1.00, plus all dividends accrued and
unpaid up to the date fixed for redemption, and
no more. If such notice of redemption shall
have been duly given and is, on or before the
redemption date specified in such notice, the
funds necessary for such redemption shall have
been set apart so as to be and continue to be
available therefor, then, notwithstanding that
any certificates representing shares of
Series D Preferred stock called for redemption
shall not have been surrendered, such shares
shall no longer be deemed outstanding and all
rights of the holders of such shares of
Series D Preferred Stock so called for
redemption shall forthwith on such redemption
date cease and terminate, except the right of
the holders thereof to exercise on or before
the redemption date any privilege of conversion
to which the holders are then entitled, and the
right to receive the redemption price as
specified above. In case less than all the
shares represented by any surrendered
certificates are redeemed, a new certificate
shall be issued representing the unredeemed
shares.
f. Voting Rights. Each holder of Series D
Preferred stock shall be entitled to vote on
all matters and shall be entitled to the number
of votes equal to the largest number of full
shares of Common Stock into which such shares
of Series D Preferred Stock could be converted,
pursuant to the provisions of Section c hereof,
at the record date for the determination of the
shareholders entitled to vote on such matters
or, if no such record date is established, at
the date such vote is taken or any written
consent of shareholders is solicited. Except
as required by law, the holders of shares of
Series D Preferred Stock and Common Stock shall
vote together and not as separate classes.
4. Series D Preferred Stock. A series of
Preferred stock consisting of 300,000 shares of
Preferred Stock, par value $.10 per share,
designated as Series E Preferred Stock is
established. The relative rights and preferences
of the Series E Preferred Stock shall be as
follows:
a. Dividend Provisions.
The holders of shares of Series E
Preferred Stock shall be entitled to receive
dividends when and as declared by the Board of
Directors; provided, however, that such holders
of Series E Preferred Stock shall be entitled
to receive dividends equivalent on a per share
basis to the holders of Common Stock.
b. Liquidation Preference.
(i) In the event of any liquidation,
dissolution or winding up of this
Corporation, either voluntary or
involuntary, the holders of Series E
Preferred Stock shall be entitled to
receive, and prior and in preference to
any distribution of any of the assets of
this Corporation to the holders of Common
Stock, if any, by reason of their
ownership thereof, an amount per share
equal to the sum of $1.00 for each
outstanding share of Series E Preferred
Stock (the "Original Series E Issue
Price") and all accrued but unpaid
dividends per share since the date of
issuance of any Series E Preferred Stock,
and no more; provided, however, that the
holders of the Series E Preferred Stock
shall be entitled to receive the amount
that such holders would have received had
their shares been converted immediately
prior to liquidation, dissolution or
winding up of the Corporation, if such
amount is greater than the amount payable
under the first sentence of this
subsection. Notwithstanding the above,
the holders of the Series E Preferred
Stock shall not be superior or prior to,
nor in parity with, in any respect, the
holders of the Series B Preferred Stock,
Series C Preferred Stock, or Series D
Preferred Stock.
(ii) A consolidation or merger of this
Corporation with or into any other
corporation or corporations, or a sale,
conveyance or disposition of all or
substantially all of the assets of this
Corporation or the effectuation by the
Corporation of a transaction or series of
related transactions in which more than
50% of the voting power of the Corporation
is disposed of, shall not be deemed to be
a liquidation, dissolution or winding up
within the meaning of this Section b but
shall instead be treated pursuant to
subsection c(v) hereof.
c. Conversion. The holders of the Series E
Preferred Stock shall have conversion rights as
follows (the "Series E Conversion Rights"):
(i) Right to Convert. Subject to
subsection c(iii), each share of Series E
Preferred Stock shall be convertible, at
the option of the holder thereof, at any
time after the date of issuance of such
share, at the office of this Corporation
or any transfer agent for the Series E
Preferred Stock, into such number of fully
paid and nonassessable shares of Common
Stock as is determined by dividing the
Original Series E issue Price plus all
accrued but unpaid dividends per share on
the date of conversion by the Series E
Conversion Price at the time in effect for
such shares. The initial SEries E
Conversion Price per share shall be $.20;
provided, however, that the Series E
conversion Price shall be subject to
adjustment as set forth in subsection c(iii).
(ii) Mechanics of Conversion. Before any
holder of Series E Preferred Stock shall
be entitled to convert the same into
shares of Common Stock, he shall surrender
the certificate or certificates therefor,
duly endorsed, at the office of this
Corporation or of any transfer agent for
such series of Preferred Stock, and shall
give written notice by mail, postage
prepaid, to this Corporation at its
principal corporate office, of the
election to convert the same and shall
state therein the name or names in which
the certificate or certificates for shares
of Common Stock are to be issued. This
Corporation shall, as soon as practicable
thereafter, issue and deliver at such
office to such holder of the Series E
Preferred Stock, or to the nominee or
nominees of such holder, a certificate or
certificates for the number of shares of
Common Stock to which such holder shall be
entitled as aforesaid. Such conversion
shall be deemed to have been made
immediately prior to the close of business
on the date of such surrender of the
shares of the Series E Preferred Stock to
be converted, and the person or persons
entitled to receive the shares of Common
Stock issuable upon such conversion shall
be treated for all purposes as the record
holder or holders of such shares of Common
Stock as of such date.
(iii) Series E Conversion Price
Adjustments. The Series E Conversion
Price shall be subject to adjustment from
time to time as follows:
(a) In the event the Corporation
should at any time or from time to
time after the issue date of the
Series E Preferred Stock 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 "Series E
Common Stock Equivalents") without
payment of any consideration by such
holder for the additional shares of
Common Stock or the Series 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 Series E
Conversion Price shall be
appropriately decreased to an amount
equal to the Series E Conversion Price
in effect on the record date (or the
date of such dividend, distribution,
split or subdivision) times a
fraction, the numerator of which shall
be the number of shares outstanding
before the dividend, subdivision,
distribution or split and the
denominator of which shall be the
number of shares outstanding after the
dividend, subdivision, distribution or
split.
(b) If the number of shares of Common
Stock outstanding at any time after
the issue date of the Series E
Preferred Stock is decreased by a
combination of the outstanding shares
of Common Stock, then, following the
record date of such combination, the
Series E Conversion Price shall be
appropriately increased to an amount
equal to the Series E Conversion Price
in effect on the record date (or the
date of such combination) times a
fraction, the numerator of which shall
be the number of shares outstanding
before the combination and the
denominator of which shall be the
number of shares outstanding after the
combination.
(iv) Other Distributions. In the event
this Corporation shall declare a
distribution payable in securities of
other persons, evidences of indebtedness
issued by this Corporation or other
persons, assets (excluding cash dividends)
or options or rights not otherwise
referred to in subsection c(iii), then, in
each such case, the holders of the
Series E 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 Corporation into which their
shares of Series E Preferred Stock are
convertible as of the record date fixed
for the determination of the holders of
Common Stock of the Corporation entitled
to receive such distributions.
(v) Mergers and Consolidations. In the
case of any consolidation or any merger of
the Corporation with or into another
corporation (other than a consolidation or
merger in which the Corporation is the
continuing corporation), the corporation
resulting from such consolidation or
surviving such merger shall make suitable
provision so that the Series E Preferred
Stock shall thereafter be convertible into
the kind and amount of shares of stock,
other securities, or property receivable
upon such consolidation or merger by a
holder of the number of shares of Common
Stock into which such Series E Preferred
Stock might have been converted
immediately prior to such consolidation or
merger. The provisions of this subsection
shall apply to successive consolidations
and mergers.
(vi) Recapitalizations. In the case of a
recapitalization of this Corporation
affecting its outstanding shares of Common
Stock, the Series E Preferred Stock shall
thereafter be convertible into the kind
and amount of shares of stock, other
securities or property receivable upon
such recapitalization by a holder of the
number of shares of Common Stock into
which such Series E Preferred Stock might
have been converted immediately prior to
such recapitalization.
(vii) No Impairment. This Corporation
will not, by amendment of its Articles 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 this
Corporation, but will at all times in good
faith assist in the carrying out of all
the provisions of the Section c and in the
taking of all such action as may be
necessary or appropriate in order to
protect the Series E Conversion Rights of
the holders of the Series E Preferred
Stock against impairment.
(viii) No Fractional Shares and
Certificate as to Adjustments.
(a) No fractional shares shall be
issued upon conversion of the Series E
Preferred Stock, and the number of
shares of Common Stock to be issued
shall be rounded to the nearest whole
share. Whether or not fractional
shares are issuable upon such
conversion shall be determined on the
basis of the total number of shares of
Series E Preferred Stock as the case
may be the holder is at the time
converting into Common Stock and the
number of shares of Common Stock
issuable upon such aggregate
conversion.
(b) Upon the occurrence of each
adjustment or readjustment of the
Series E Conversion Price pursuant to
this Section c, this Corporation, 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 E Preferred Stock a certificate
setting forth such adjustment or
readjustment and showing in detail the
facts upon which such adjustment or
readjustment is based. This
Corporation shall, upon the written
request at any time of any holder of
Series E Preferred Stock, furnish or
cause to be furnished to such holder a
like certificate setting forth such
adjustment and readjustment, the
Series E Conversion Price at the time
in effect, and 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 Series E Preferred
Stock.
(ix) Notices of Record Date. In the event
of any taking by this Corporation 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, this Corporation
shall mail to each holder of Series E
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.
(x) Reservation of Stock Issuable Upon
Conversion. This Corporation shall at all
Stock solely for the purpose of effecting the
conversion of the shares of the Series E
Preferred Stock such number of its shares of
Common Stock as shall from time to time be and
if at any time the number of authorized but
unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then
outstanding shares of the Series E Preferred
stock, in addition to such other remedies as
shall be available to the holder of such
Preferred Stock, this Corporation will take
such corporate action as may, in the opinion of
its counsel, be necessary to increase its
authorized but unissued shares of Common Stock
to such number of shares as shall be sufficient
for such purposes.
(xi) Notices. Any notice required by the
provisions of this Section c to be given to the
holders of shares of Series E Preferred Stock
shall be deemed given if deposited in the
United States mail, postage prepaid, and
addressed to each holder of record at his
address appearing on the books of this
Corporation.
d. Protective Provisions. So long as shares of
Series E Preferred Stock are outstanding, this
Corporation shall not without first obtaining the
approval (by vote or written consent, as provided
by law) of the holders of at least a majority of
the then outstanding shares of Series E Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the shares of Series E Preferred
Stock so as to affect adversely the shares; or
(ii) increase the authorized number of shares
of Series E Preferred Stock; or
(iii) Create any new class or series of
stock having a preference over, or being on a
parity with, the Series E Preferred Stock with
respect to dividends or upon liquidation, or
having rights similar to any of the rights of
Series E Preferred Stock under Section c
hereof; or
(iv) issue any shares of Series A Preferred
Stock; or
(v) Do any act or thing which would result in
taxation of the holders of shares of Series E
Preferred Stock under Section 305 of the
Internal Revenue Code of 1954, as amended (or
any comparable provision of the Internal
Revenue Code as hereafter from time to time
amended); or
(vi) cause this Corporation to be liquidated or
dissolved, either voluntarily or involuntarily.
e. Redemption. The Series E Preferred Stock shall
be redeemable, in whole or in part (except as to
any shares of Series E Preferred Stock that have
been surrendered to this Corporation for conversion
into shares of Common Stock), at the option of this
Corporation by resolution of the Board of
Directors, by lot or pro rata if less than all of
the Series E Preferred stock is being redeemed, at
any time and from time to time after September 30,
1992, or before such time in the event of a
consolidation or merger of this Corporation with or
into any other corporation or corporations, or a
sale, conveyance or disposition of all or
substantially all of the assets of this Corporation
or the effectuation by this Corporation of a
transaction or series of related transactions in
which more than 50% of the voting power of this
Corporation is disposed of, upon at least 10 but
not more than 30 days prior written notice to the
record holders thereof, at the addresses of such
holders as the same appear on the records of this
Corporation, at a redemption price, per share, of
$1.00, plus all dividends accrued and unpaid up to
the date fixed for redemption, and no more. If
such notice of redemption shall have been duly
given and if, on or before the redemption date
specified in such notice, the funds necessary for
such redemption shall have been set apart so as to
be and continue to be available therefor, then,
notwithstanding that any certificates representing
shares of Series E Preferred Stock called for
redemption shall not have been surrendered, such
shares shall no longer be deemed outstanding and
all rights of the holders of such shares of
Series E Preferred Stock so called for redemption
shall forthwith on such redemption date cease and
terminate, except the right of the holders thereof
to exercise on or before the redemption date any
privilege of conversion to which the holders are
then entitled, and the right to receive the
redemption price as specified above. In case less
than all the shares represented by any surrendered
certificates are redeemed, a new certificate shall
be issued representing the unredeemed shares.
f. Voting Rights. Each holder of Series E
Preferred Stock shall be entitled to vote on all
matters and shall be entitled to the number of
votes equal to the largest number of full shares of
Common Stock into which such shares of Series E
Preferred Stock could be converted, pursuant to the
provisions of Section c hereof, at the record date
for the determination of the shareholders entitled
to vote on such matters or, if no such record date
is established, at the date such vote is taken or
any written consent of shareholders is solicited.
Except as required by law, the holders of shares of
Series E Preferred Stock and Common Stock shall
vote together and not as separate classes.
g. Notices. Any notice required by these
provisions to be given to the holders of shares of
Series E Preferred Stock shall be deemed given if
sent by U.S. certified mail, return receipt
requested and postage prepaid, or by overnight
courier and addressed to each holder of record at
its address appearing on the books of this
Corporation. The date of any such notice shall be
deemed to be the date on which it is received.
THIRD: The business and affairs of the Corporation
shall be managed by the Board of Directors. The number
of directors constituting the Board of Directors shall
be fixed in the manner provided in the Bylaws of the
Corporation. Each person shall serve as a director of
the Corporation until the first annual meeting of
shareholders or until his successor shall have been
elected and qualified.
FOURTH: Cumulative voting shall not be allowed in
the election of directors.
FIFTH: Shareholders shall not have a preemptive
right to subscribe for, purchase or acquire additional
unissued or treasury shares of the Corporation or
securities convertible into shares or carrying share
purchase warrants or privileges as the same may be
issued from time to time by the Corporation.
Sixth: The Board of Directors shall have the power
to enact, alter, amend and repeal Bylaws not
inconsistent with the laws of the State of Iowa and
these Amended and Restated Articles of Incorporation as
it may deem best for the management of the Corporation.
Seventh: To the fullest extent permitted by the
Iowa Business Corporation Act, as the same exits or may
hereafter be amended, a director of the Corporation
shall not be liable to the Corporation or its
shareholders for monetary damages for breach of
fiduciary duty as a director. Any repeal or
modification of the Article by the shareholders of the
Corporation shall be prospective only and shall not
adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal
or modification.
IN WITNESS WHEREOF, the Corporation has caused its
corporate seal be affixed hereto and these Amended and
Restated Articles of Incorporation to be signed by its
President this 26th day of October, 1995.
UNITED SYSTEMS TECHNOLOGY, INC.
BY:/s/Thomas E. Gibbs
Thomas E. Gibb, President
