SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8086
GENERAL DATACOMM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0853856
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Middlebury, Connecticut 06762-1299
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's phone number, including area code: (203) 574-1118
--------------
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Title of Each Class at June 30, 1999
------------------- ----------------------------
Common Stock, $.10 par value 19,828,321
Class B Stock, $.10 par value 2,092,383
Total Number of Pages in this Document is 26.
<PAGE>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. Financial Information
Consolidated Balance Sheets - June 30, 1999 and
September 30, 1998 3
Consolidated Statements of Operations and Accumulated
Deficit - For the Three and Nine Months Ended
June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows - For the Nine Months
Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Part II.Other Information
Item 4. Submission of Matters to a Vote of Security-Holders 25
Item 6. Exhibits and Reports on Form 8-K 25
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
In thousands, except shares 1999 1998
- -------------------------------------------------------------------------------
ASSETS: (Unaudited)
Current assets:
Cash and cash equivalents $ 3,580 $ 3,757
Restricted cash 1,000 -
Accounts receivable, less allowance
for doubtful receivables of $1,720 in
June and $1,442 in September 26,871 30,013
Inventories 30,309 30,574
Deferred income taxes 1,499 1,675
Other current assets 9,315 7,030
- -------------------------------------------------------------------------------
Total current assets 72,574 73,049
===============================================================================
Property, plant and equipment, net 37,205 40,553
Capitalized software development costs, net 21,815 24,286
Other assets 12,693 11,650
- -------------------------------------------------------------------------------
$144,287 $149,538
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $ 4,370 $8,133
Accounts payable, trade 14,479 12,763
Accrued payroll and payroll-related costs 6,377 5,896
Deferred income 4,908 6,034
Other current liabilities 21,125 15,122
- -------------------------------------------------------------------------------
Total current liabilities 51,259 47,948
===============================================================================
Long-term debt, less current portion 64,131 52,679
Deferred income taxes 2,240 2,589
Other liabilities 1,131 364
- -------------------------------------------------------------------------------
Total liabilities 118,761 103,580
===============================================================================
Commitments and contingent liabilities - -
Stockholders' equity:
Preferred stock, par value $1.00 per share,
3,000,000 shares authorized; issued and
outstanding: 800,000 shares of 9% cumulative
convertible exchangeable preferred stock with
a $20 million liquidation preference 800 800
Class B stock, par value $.10 per share,
10,000,000 shares authorized; issued and
outstanding: 2,092,383 in June and 2,093,083
in September 209 209
Common stock, par value $.10 per share,
50,000,000 shares authorized; issued and
outstanding: 20,158,703 in June and
19,968,280 in September 2,016 1,997
Capital in excess of par value 151,413 151,052
Accumulated deficit (123,117) (103,066)
Cumulative foreign currency translation
adjustment (3,346) (2,589)
Common stock held in treasury, at cost:
330,382 shares in June and September (2,449) (2,445)
- -------------------------------------------------------------------------------
Total stockholders' equity 25,526 45,958
- -------------------------------------------------------------------------------
$144,287 $149,538
===============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED DEFICIT
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
---------------- -----------------
In thousands, except per share data 1999 1998 1999 1998
- ------------------------------------------------------- ------------------
Revenues:
Net product sales $30,163 $37,154 $83,779 $108,889
Service revenue 11,112 9,221 34,565 28,406
Other revenue 1,094 1,656 5,221 7,286
- --------------------------------------------------------- ------------------
42,369 48,031 123,565 144,581
- --------------------------------------------------------- ------------------
Costs and expenses:
Cost of product sales 15,504 17,761 42,962 54,399
Amortization of capitalized
software development costs 3,000 2,921 9,172 8,893
Cost of service revenue 7,984 6,709 23,996 20,119
Cost of other revenue 87 144 696 391
Selling, general and administrative 14,514 17,788 45,967 56,208
Research and product development 6,402 7,396 21,223 24,503
Restructuring of operations - - 2,000 2,500
- --------------------------------------------------------- ------------------
47,491 52,719 146,016 167,013
- --------------------------------------------------------- ------------------
Operating loss (5,122) (4,688) (22,451) (22,432)
- --------------------------------------------------------- ------------------
Other income (expense):
Gain on sale of assets - - 9,001 -
Interest, net (1,801) (1,530) (4,999) (4,341)
Other, net 49 32 448 168
- --------------------------------------------------------- ------------------
(1,752) (1,498) 4,450 (4,173)
- --------------------------------------------------------- ------------------
Loss before income taxes (6,874) (6,186) (18,001) (26,605)
Income tax provision 200 100 700 600
- --------------------------------------------------------- ------------------
Net loss ($7,074) ($6,286) ($18,701) ($27,205)
========================================================= ==================
Basic and diluted loss per share ($0.34) ($0.31) ($0.92) ($1.33)
========================================================= ==================
Weighted average number of common and
common equivalent shares outstanding 21,918 21,542 21,819 21,458
========================================================= ==================
Accumulated deficit at beginning
of period ($115,593) ($89,693) ($103,066) ($67,874)
Net loss (7,074) (6,286) (18,701) (27,205)
Payment of preferred stock dividends (450) (450) (1,350) (1,350)
- --------------------------------------------------------- ------------------
Accumulated deficit at end of period ($123,117) ($96,429) ($123,117) ($96,429)
========================================================= ==================
The accompanying notes are an integral part of these consolidated financial
statements.
- 4 -
<PAGE>
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
and Cash Equivalents
----------------------------
Nine Months Ended
June 30,
----------------------------
In thousands 1999 1998
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss ($18,701) ($27,205)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 19,574 19,963
Gain on sale of assets (9,001) -
Changes in:
Accounts receivable 2,936 4,488
Inventories 329 6,770
Accounts payable and accrued expenses 7,098 (2,694)
Other net current assets (2,588) 89
Other net long-term assets (2,176) (355)
- ------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities (2,529) 1,056
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of property, plant and equipment, net (6,282) (5,247)
Capitalized software development costs (9,534) (9,354)
- ------------------------------------------------------------------------------
Net cash used in investing activities (15,816) (14,601)
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from revolver borrowings 120,646 -
Payments on revolver borrowings (109,211) (4,799)
Proceeds from sale of assets, net 12,013 -
Proceeds from notes and mortgages 14,679 15,094
Principal payments on notes and mortgages (18,898) (6,517)
Proceeds from issuing common stock 380 534
Payment of preferred stock dividends (1,350) (1,350)
- ------------------------------------------------------------------------------
Net cash provided by financing activities 18,259 2,962
- ------------------------------------------------------------------------------
Effect of exchange rates on cash (91) (42)
- ------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (177) (10,625)
Cash and cash equivalents at beginning
of period - (1) 3,757 21,526
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of period - (1) $3,580 $10,901
==============================================================================
(1) - The Corporation considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
necessary to fairly present the consolidated financial position
of General DataComm Industries, Inc. and subsidiaries (the
"Corporation" or "Company") as of June 30, 1999, the consolidated
results of their operations for the three and nine months ended
June 30, 1999 and 1998, and their cash flows for the nine months
ended June 30, 1999 and 1998. Such adjustments are generally of a
normal recurring nature and include adjustments to certain
accruals and asset reserves to appropriate levels.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods presented. Actual results could differ from those
estimates. In addition, the markets for the Company's products
are characterized by intense competition, rapid technological
development, and frequent new product introductions, all of which
could impact the future value of the Company's inventory,
capitalized software, and certain other assets.
The consolidated financial statements contained herein should be
read in conjunction with the consolidated financial statements
and related notes thereto filed with Form 10-K for the year ended
September 30, 1998.
Certain reclassifications were made to the prior years'
consolidated financial statements to conform to the current
year's presentation.
NOTE 2. INVENTORIES
Inventories consist of (in thousands):
June 30, 1999 September 30, 1998
------------- ------------------
Raw materials $10,612 $10,945
Work-in-process 3,003 3,611
Finished goods 16,694 16,018
-------- -------
$30,309 $30,574
======== =======
- 6 -
<PAGE>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of (in thousands):
June 30, 1999 September 30, 1998
------------- ------------------
Land $ 1,763 $ 1,784
Buildings and improvements 29,939 30,134
Test equipment, fixtures
and field spares 56,970 54,897
Machinery and equipment 60,849 59,957
-------- --------
149,521 146,772
Less: accumulated
depreciation and
amortization 112,316 106,219
$ 37,205 $ 40,553
======== ========
NOTE 4. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The accumulated amortization of capitalized software development
costs amounted to $18,356,000 and $17,972,000 at June 30, 1999
and September 30, 1998, respectively.
NOTE 5. LONG-TERM DEBT
Long-term debt consists of (in thousands):
June 30, 1999 September 30, 1998
------------- -----------------
Revolving credit facility $13,022 $ 1,587
Notes payable 19,945 23,173
7-3/4% convertible senior
subordinated debentures 25,000 25,000
Mortgages payable 10,534 11,052
------- -------
68,501 60,812
Less: current portion 4,370 8,133
------- -------
$64,131 $52,679
======= =======
- 7 -
<PAGE>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5. LONG-TERM DEBT (continued)
Revolving Credit Facility
Through May 14, 1999, the Company had a $40.0 million loan and
security agreement (the "Loan Agreement") in place which provided
the Company with $15.0 million in proceeds from a five-year term
loan and an additional $25.0 million (maximum value) revolving
line of credit for a three-year period ending in October 2000,
subject to extension. Availability of the revolving line of
credit funds was subject to satisfying a borrowing base formula
related to levels of certain accounts receivable and inventories
and the satisfaction of other financial covenants.
On May 14, 1999, the Company entered into a new three-year $40.0
million loan and security agreement (the "New Loan Agreement")
with Foothill Capital Corporation to provide additional funds for
operations and replace the Company's existing bank group. Under
provisions of the New Loan Agreement, the Company's cash
availability increased by $6.3 million (before related closing
costs incurred), as a result of the refinancing of the existing
term loan, which had an outstanding balance of approximately $8.7
million, with $15.0 million in new term loans. Furthermore,
financial covenants and formulas in the New Loan Agreement were
restructured to be less restrictive to the Company.
The New Loan Agreement is comprised of $15.0 million in term
loans and a $25.0 million (maximum value) revolving line of
credit. The term loans will bear interest at an annual rate of
12.5% during the first year, 13.0% in the second year and 14.0%
thereafter, payable monthly. Commencing in June 2000, monthly
principal payments in the amount of $312,000 become payable, and
the term loans are due and payable in full upon termination of
the New Loan Agreement. One term loan is convertible into the
Company's common stock at a conversion price of $5.00 per share,
or a maximum of 600,000 shares.
Under the revolving line of credit portion of the New Loan
Agreement, funds are advanced subject to satisfying a borrowing
base formula related to levels of certain accounts receivable and
inventories and the satisfaction of other financial covenants.
Under this formula, at June 30, 1999, the Company would have been
able to borrow up to the full $25.0 million. The actual amount
borrowed at June 30, 1999 was $13.0 million.
Most assets of the Company, including accounts receivable,
inventories and property, plant and equipment are pledged as
collateral under the New Loan Agreement. Interest on revolver
borrowings is payable monthly at the greater of prime plus 0.625%
or 7.0% per annum. The applicable prime rate was 7.75% at June
30, 1999.
- 8 -
<PAGE>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5. LONG-TERM DEBT (continued)
Financial covenants of the New Loan Agreement require that the
Company's reported stockholders' equity, excluding the impact of
any foreign currency translation adjustments occurring subsequent
to March 31, 1999, equal or exceed $18.1 million (such
stockholders' equity, as defined, amounted to $25.6 million at
June 30, 1999). Separately, annual capital expenditures are
limited to a maximum of $12.0 million under the New Loan
Agreement.
Reference is made to the Company's consolidated financial
statements and related notes thereto and exhibits filed with Form
10-K for the year ended September 30, 1998 for further
disclosures applicable to all other outstanding indebtedness of
the Corporation.
NOTE 6. VITAL NETWORK SERVICES, L.L.C. EXPANDED PARTNERSHIP WITH OLICOM, INC.
On October 15, 1998, the Company's VITAL Network Services
("VITAL") business unit entered into an agreement with Olicom,
Inc. whereby VITAL assumed responsibility for Olicom's service
operations in Marlborough, Massachusetts, and Olicom transferred
its service contract business in North America to VITAL. In
addition to the assumption of obligations for a leased facility,
VITAL will pay Olicom a percentage (25% in the first year, 20%
thereafter) of revenues derived from Olicom's business over a
three-year period, not to exceed $3.8 million. As part of the
agreement, VITAL acquired the capital assets used in Olicom's
service business. VITAL recorded the acquisition using the
purchase method of accounting, and due to the conditional nature
of the payments owing to Olicom, no liability or corresponding
assets (including goodwill) were recorded for these payments at
the date of acquisition. Subsequent to the acquisition, VITAL is
recording the assets and corresponding liabilities as such
amounts become unconditional.
NOTE 7. RESTRUCTURING OF OPERATIONS
In December 1998, the Company restructured its operations into
three distinct business units to increase product line focus and
move toward operating autonomy. Two new business units resulted
from the reorganization: Broadband Systems Division and Network
Access Division. The new business units will supplement the
existing VITAL Network Services business unit, which was
launched in October 1997 to provide professional services on
multi-vendor networking equipment on a worldwide basis.
The reorganization resulted in a work force reduction of
approximately 200 persons. The net loss for the nine months
ended June 30, 1999 includes a charge of $2.0 million, or $0.09
per share, primarily for post-employment benefits under the
Company's severance plan, of which $667,000 was unpaid at June
30, 1999; the Company expects to pay such unpaid amounts during
fiscal 1999 or the early part of fiscal 2000.
- 9 -
<PAGE>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7. RESTRUCTURING OF OPERATIONS (continued)
The net loss for the nine months ended June 30, 1998 includes a
charge of $2.5 million, or $0.12 per share, which is comprised of
a $1.0 million provision for post-employment benefits under the
Company's severance plan related to the elimination of
approximately 200 full-time positions and $1.5 million for the
write-off of intangible assets and other costs associated with
the elimination of low-volume product lines.
NOTE 8. SALE OF TECHNOLOGY ALLIANCE GROUP ("TAG") DIVISION
In December 1998, the Company reported the sale of its TAG
division. The Company had been actively pursuing the sale of its
TAG division since it was not strategic to the reorganized
business units described in Note 7 above. The division, which
developed, patented and licensed advanced modem and access
technologies, was principally comprised of scientists and
engineers and held the rights to certain technologies patented by
the division. The sale resulted in a pre-tax gain of $9.0 million
and generated cash proceeds, net of expenses, of approximately
$12.0 million in the nine months ended June 30, 1999. Of such
$12.0 million, $1.0 million was being held in escrow and reported
as restricted cash at June 30, 1999; the Company received the
$1.0 million of escrowed funds in July 1999.
The Company's previous Loan Agreement provided that a portion of
the proceeds (approximately $4.3 million) be used to reduce
outstanding indebtedness under the Loan Agreement, and this
occurred in January 1999.
- 10 -
<PAGE>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and
diluted loss per share (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
------------------- -----------------
Numerator:
Net loss $(7,074) $(6,286) $(18,701) $(27,205)
Preferred stock dividends 450 450 1,350 1,350
Numerator for basic and
diluted loss per share -
loss applicable to common
stockholders $(7,524) $(6,736) $(20,051) $(28,555)
======== ======== ========= =========
Denominator:
Denominator for basic and
diluted loss per share -
weighted average shares
outstanding 21,918 21,542 21,819 21,458
------ ------- ------- -------
Basic and diluted loss per
share $(0.34) $(0.31) $(0.92) $(1.33)
======= ======= ======= =======
The net loss reported for the nine-month periods ended June 30,
1999 and 1998 includes restructuring charges of $2.0 million (or
$0.09 per share) and $2.5 million (or $0.12 per share),
respectively. Refer to Note 7, "Restructuring of Operations,"
for further discussion.
Outstanding securities (not included in the above computations
because of their dilutive impact on reported loss per share)
which could potentially dilute earnings per share in the future
include convertible debentures, convertible preferred stock and
employee stock options and warrants. For additional disclosure
information, including conversion terms, refer to Notes 6, 9 and
11, respectively, in the Company's consolidated financial
statements filed with Form 10-K for the year ended September 30,
1998. Weighted average employee stock options outstanding during
the nine months ended June 30, 1999 approximated 3,508,400
shares, of which 3,263,900 would not have been included in
diluted earnings per share calculations for the nine months
ended June 30, 1999 (if the Company reported net income for the
referenced period) because the effect would be antidilutive.
- 11 -
<PAGE>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10. COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("SFAS No. 130") establishes standards
for the reporting and display of "comprehensive income," and
became effective for the Company in fiscal 1999. Comprehensive
income is defined as "all changes in equity during a period
except those resulting from investments by owners and
distributions to owners." Under various accounting
pronouncements, certain changes in assets and liabilities are
not reported in a statement of operations for the period in
which they are recognized, but instead are included in balances
within a separate component of stockholders' equity in a
statement of financial position. The sum of such changes, along
with other activity reported in the Company's statement of
operations, in effect represents comprehensive income as defined
by SFAS No. 130.
The following table sets forth the computation of comprehensive
income (loss):
Three Months Ended Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
------- -------- -------- ---------
Net loss $(7,074) $(6,286) $(18,701) $(27,205)
Other comprehensive income
(loss), net of tax:
Foreign currency translation
adjustments (93) (261) (757) (295)
-------- -------- --------- ---------
Comprehensive loss $(7,167) $(6,547) $(19,458) $(27,500)
======== ======== ========= =========
- 12 -
<PAGE>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General Summary Discussion
The quarter ended June 30, 1999 represents the second fiscal quarter completed
since the Company restructured its business operations into three distinct
business units in December 1998, and the new business units have started to show
improved results when compared to the preceding quarter ended March 31, 1999.
The Network Access business unit achieved product revenue growth of $1.5
million, or 10%, and the Broadband Systems business unit achieved product
revenue growth of $2.9 million, or 26%.
In addition, the business units were able to reduce expenses in accordance with
plans. When compared to the preceding quarter ended March 31, 1999, operating
expenses were reduced by $836,000, or approximately 4%. Furthermore, in July
1999, the Company decided to suspend product development activities in its U.K.
Advanced Research Centre. All documentation and intellectual property will be
transferred to the U.S. research and development operation. The Company's
operating expenses will be reduced by, approximately, an additional $1.0 million
per quarter, or $4.0 million annually, as a result of this action.
On May 14, 1999, the Company signed a new $40.0 million loan agreement with
Foothill Capital Corporation ("New Loan Agreement"). Under provisions of the New
Loan Agreement, the Company received an immediate cash infusion of $6.3 million.
Furthermore, financial covenants and formulas in the the New Loan Agreement were
restructured to be less restrictive to the Company (refer to Note 5, "Long-Term
Debt" for additional information).
Descriptions of current quarter and fiscal year-to-date results as compared to
the corresponding periods of the previous fiscal year are included below.
Results of Operations
The following table sets forth selected consolidated financial data stated as a
percentage of total revenues (unaudited):
- 13 -
<PAGE>
Three months ended Nine months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Net product sales 71.2% 77.4% 67.8% 75.3%
Service revenue 26.2 19.2 28.0 19.7
Other revenue 2.6 3.4 4.2 5.0
---- ---- ---- ----
100.0 100.0 100.0 100.0
Costs and expenses:
Cost of revenues 55.6 51.2 54.8 51.8
Amortization of capitalized
software development costs 7.1 6.1 7.4 6.2
Selling, general and
administrative 34.3 37.1 37.2 38.9
Research and product
development 15.1 15.4 17.2 16.9
Restructuring of operations -- -- 1.6 1.7
------- ------- ------- ------
Operating loss (12.1) (9.8) (18.2) (15.5)
------- ------- ------- -------
Net loss (16.7)% (13.1)% (15.1)% (18.8)%
======= ======= ======= =======
Summary comments are as follows: (1) quarter and year-to-date product sales
declined, offset in part with growth in service revenue (refer to "Revenues"
caption below for further discussion); as a result, product revenue represents a
reduced percentage of total revenue, while service revenue represents an
increased percentage of total revenue; (2) other revenue also represents a lower
percentage of total revenue reflecting a reduction in royalty revenue
attributable to the Company's TAG division being sold in December 1998 (refer to
Note 8 for details); (3) quarter and year-to-date cost of revenues, measured as
a percent of revenue, increased from the prior year reflecting the combined
impact of (lower margin) service revenue representing a higher percentage of
total revenue, reduced amounts of (higher margin) royalty revenue attributable
to the sale of TAG, and some product margin erosion; (4) year-to-date operating
expenses (excluding restructuring charges) are down when measured as a percent
of revenue, despite lower revenue bases in fiscal 1999; this reflects the impact
of the Company's restructuring and cost reduction actions, which have reduced
operating expenses by $13.5 million, or 16.8%, as compared to the first nine
months of fiscal 1998; (5) the year-to-date net loss was reduced reflecting the
net impact of reduced revenues, the positive results of implemented cost
reductions and a gain of $9.0 million from the sale of TAG.
Revenues
Three months ended Nine months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenues $42,369 $48,031 $123,565 $144,581
Percent change (11.8)% -- (14.5)% --
- 14 -
<PAGE>
Revenues in the quarter ended June 30, 1999 decreased $5.7 million, or 11.8%,
compared to the prior year, reflecting a product revenue decline of $7.0
million, or 18.8%, offset in part with service revenue growth of $1.9 million,
or 20.5%; other revenue was down $0.6 million from the prior year, reflecting a
reduction in royalty revenue attributable to the sale of the TAG division in
December 1998 (refer to Note 8 for details). The entire product revenue decline
occurred in the Broadband Systems Division, whose revenues were down $7.2
million, or 33%; the Division's older legacy internetworking product line
accounted for most ($5.2 million) of the reduction. Geographically, the
Broadband Systems Division revenue loss was experienced in Central America,
Latin America and Asia. The Network Access Division experienced modest revenue
growth of $0.2 million.
The VITAL Network Services business unit's revenue growth of $1.9 million, or
20.5%, reflects an increase in its third-party service business, including
VITAL's new partnership with Olicom, Inc. (refer to Note 6 for details),
partially offset with a decline in services related to the installed base of
GDC's legacy products.
Geographically, international revenues accounted for 44% of total consolidated
revenues for the quarter ended June 30, 1999 as compared to 48% for the
comparable period one year ago, principally reflecting the revenue loss
experienced in Central America, Latin America and Asia.
Year-to-date: Revenues for the nine months ended June 30, 1999 decreased by
$21.0 million, or 14.5%, as compared to the prior year, reflecting a product
revenue decline of $25.1 million, or 23.1%, offset in part with service revenue
growth of $6.2 million, or 21.7%; other revenue was down $2.1 million from the
prior year, primarily reflecting the sale of TAG referenced above. Both the
Broadband Systems Division (down $19.9 million, or 33%) and Network Access
Division (down $5.2 million, or 11%) contributed to the year-to-date product
revenue decline. A significant portion of the Broadband Systems Division's
revenue decline ($14.4 million) was attributable to the division's older legacy
internetworking product line. The division's ATM revenue decline amounted to
$5.5 million on a year-to-date basis. Geographically, most of the Broadband
Systems Division's revenue loss occurred in Central America, Latin America and
Asia. The Network Access Division's revenue loss was principally experienced in
the domestic (Telco) marketplace; internationally, strong revenue growth in
Canada offset reductions in Central America, Latin America and Europe.
The above discussion regarding VITAL's third-party revenue growth also applies
to the $6.2 million, or 21.7%, revenue growth which VITAL Network Services has
achieved on a year-to-date basis.
Geographically, international revenues accounted for 46% and 49% of total
consolidated revenues for the nine-month periods ended June 30, 1999 and 1998,
respectively, again reflecting reduced revenue levels in Central America, Latin
America and Asia.
- 15 -
<PAGE>
Cost of Revenues:
Three months ended Nine months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Cost of revenues $23,575 $24,614 $67,654 $74,909
As a percent of revenues 55.6% 51.2% 54.8% 51.8%
Amortization of capitalized
software development costs $3,000 $2,921 $9,172 $8,893
As a percent of revenues 7.1% 6.1% 7.4% 6.2%
Cost of revenues, measured as a percent of revenues, for the quarter ended June
30, 1999 increased by 4.4 points as compared to the same quarter one year ago.
The margin loss is attributable to revenue mix and some product margin erosion
in the domestic marketplace. Regarding revenue mix, high margin royalty revenues
are down as a result of the sale of TAG; separately, service revenue, which
generates lower margin than product sales, accounted for approximately 26% of
total revenue in the current quarter as compared to 19% of total revenue in the
same quarter one year ago. Service margins are up 0.9 points from the same
quarter one year ago, reflecting the division's increased revenue base.
Year-to-date: Cost of revenue, measured as a percent of revenue, for the first
nine months of fiscal 1999 increased by 3.0 percentage points as compared to the
corresponding period of fiscal 1998. Most of the year-to-date margin loss is
attributable to the revenue mix issues discussed above. Year-to-date service
margins are up 1.4 points from the prior year, again reflecting the division's
increased revenue base.
Amortization of capitalized software development costs did not change materially
from the prior year. However, due to the lower revenues, such costs represented
a higher percentage of revenue in both the three- and nine-month periods ended
June 30, 1999 as compared to the corresponding periods of fiscal 1998.
High technology products in particular are subject to sales price pressures as
competition grows and sales cycles reach maturity. The Company continues to
partially offset the effect of such sales price pressures with the negotiation
of reduced material component prices, improvements in manufacturing costs and
efficiencies, and the introduction of new generation products which generally
provide higher margins.
- 16 -
<PAGE>
Selling, General and Administrative Expenses
Three months ended Nine months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Selling, general, and
administrative expenses $14,514 $17,788 $45,967 $56,208
Percent change (18.4)% -- (18.2)% --
As a percent of revenues 34.3% 37.0% 37.2% 38.9%
The Company's cost reduction plans (refer to Note 7, "Restructuring of
Operations") have been effective in reducing selling, general and administrative
expenses. Selling, general and administrative expenses are down $3.3 million, or
18.4%, for the quarter ended June 30, 1999 and $10.2 million, or 18.2%, for the
nine-month period ended June 30, 1999 as compared to the corresponding periods
of fiscal 1998. Cost reductions were achieved in both domestic and international
operations despite ongoing salary merit increases and other inflationary
increases. The cost reductions are comprised of reduced compensation, fringe
benefit and travel costs, a more effectively managed promotion and advertising
program, and a reduced level of capital spending and related depreciation
expense resulting from effective management of the Company's capital investment
program. Despite a significantly reduced revenue base, year-to-date selling,
general and administrative expenses were also down 1.7 percentage points when
measured as a percent of revenue.
Research and Product Development Costs
Three months ended Nine months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Gross expenditures $9,402 $10,737 $30,757 $33,857
Percent change (12.4)% -- (9.2)% --
As percent of revenues 22.2 % 22.4% 24.9% 23.4%
- -------------------------------------------------------------------------------
Capitalized software costs $3,000 $3,341 $ 9,534 $9,354
As a percent of gross expenditures 31.9% 31.1% 31.0% 27.6%
- -------------------------------------------------------------------------------
Net research and product
development costs $6,402 $7,396 $21,223 $24,503
Percent change (13.4)% -- (13.4)% --
As a percent of revenues 15.1 % 15.4% 17.2% 16.9%
- 17 -
<PAGE>
The Company continues to prioritize the magnitude of investments in research and
product development in fiscal 1999, with gross spending for the first nine
months approximating an annual rate of $41.0 million, or 25% of revenue. Such
spending is, however, being closely monitored by the Network Access Division's
and Broadband Systems Division's management teams. The strategy of both business
units has been to significantly reduce or eliminate development activities
targeted at sustaining legacy products and, more importantly, to limit the
investment of new funds into projects considered to have only the highest
likelihood of success. As a result, positions were eliminated as part of the
December 1998 restructuring process. Furthermore, the Divisions' management has
been careful to replace only critical, high value-added positions as employee
attrition occurs; use of outside development engineers has also increased in an
effort to assure focused development efforts and improve productivity.
Gross spending for the quarter ended June 30, 1999 was down $1.3 million, or
12.4%, as compared to the quarter ended June 30, 1998. Year-to-date gross
spending follows a similar pattern, down $3.1 million, or 9.2%, from the same
nine-month period one year ago. The spending reductions are principally
attributable to lower compensation costs (resulting from a reduction in
worldwide engineering headcount), and were achieved despite ongoing salary merit
increases and other inflationary increases. Outside research and development
service costs were up slightly from the prior year.
Spending in the ATM area by the Broadband Systems business unit accounted for
71% and 54% of total product development spending for the quarters ended June
30, 1999 and 1998, respectively, and 67% and 54% of total product development
spending for the nine-month periods ended June 30, 1999 and 1998, respectively.
The complexity of the ATM technology has in the past demanded, and will continue
to demand, significant research and product development investment.
Capitalized software development costs, measured as a percentage of gross
spending, were higher than the previous year for both the three- and nine-month
periods ended June 30, 1999, indicating that software development activities
represent a greater proportion of total research and product development
spending.
The Company has been conducting research and product development activities at
four locations, with the largest pool of resource located in Middlebury,
Connecticut, and remote facilities located in Boston, Montreal and England. As
noted in the preceding General Summary Discussion, the Company has recently
decided to suspend product development activities in the U.K. Advanced Research
Centre. All documentation and intellectual property will be transferred to the
U.S. research and development operation. Research and development expense will
be reduced by approximately $1.0 million per quarter, or $4.0 million annually,
as a result of this action.
Restructuring of Operations
- ---------------------------
Results for the nine-month periods ended June 30, 1999 and 1998 include
restructuring charges of $2.0 million and $2.5 million, respectively. Refer to
Note 7, "Restructuring of Operations," for more detailed discussion. The
restructuring effort executed in December 1998 involved the creation of two new
and distinct business units, the Network Access Division and the Broadband
Systems Division. In an effort
- 18 -
<PAGE>
to improve product line focus and overall operational productivity, each
business unit is comprised of a dedicated general manager and dedicated sales,
marketing, product development and financial support functions. During the
previous quarter ended March 31, 1999, the new business units made significant
progress in defining their business strategies, organizational structures and
operating procedures, and further progress was achieved this quarter. The
Company anticipates productivity improvements across all operational areas from
each business unit going forward. Both business units posted sequential quarter
revenue growth in the quarter ended June 30, 1999.
Interest and Other Income and Expense
- -------------------------------------
Net interest expense amounted to $1.8 million and $1.5 million for the quarters
ended June 30, 1999 and 1998, respectively. On a year-to-date basis, net
interest expense amounted to $5.0 million and $4.3 million for the nine months
ended June 30, 1999 and 1998, respectively. The increases are attributable to
increased borrowing levels, reduced amounts of cash available for investment
(and a corresponding reduction in interest income) and the amortization of new
loan origination costs incurred to execute the new $40.0 million loan and
security agreement with Foothill Capital Corporation.
The nine months ended June 30, 1999 includes a $9.0 million gain from the sale
of the Company's Technology Alliance Group division. Refer to Note 8, "Sale of
Technology Alliance Group Division," for further discussion.
Separately, refer to "Foreign Currency Risk" below for discussion of foreign
currency exchange activity included in other income and expense.
Income Tax Provisions
- ---------------------
Tax provisions recorded by the Company, principally for foreign income and
domestic state taxes, amounted to $200,000 and $100,000 in the quarters ended
June 30, 1999 and 1998, respectively, and $700,000 and $600,000 for the
nine-month periods ended June 30, 1999 and 1998, respectively. The Company has
significant federal net operating loss carryforwards available to offset future
liabilities. However, based on the Company's past financial performance and the
uncertainty of ultimate realization of such carryforwards, no net deferred tax
asset (or related deferred tax benefit) has been recorded in the Company's
financial statements.
Foreign Currency Risk
- ---------------------
The Company's foreign subsidiaries are exposed to foreign currency fluctuation
since they are invoicing customers in local currencies while liabilities for
product purchases from the parent Company are transacted in U.S. dollars. The
impact of foreign currency fluctuations on these U.S. dollar-denominated
liabilities are recorded as a component of "Other Income and Expense" in the
Company's consolidated statements of operations; such activity resulted in a net
currency exchange gain or (loss) of $42,000 and $168,000 for the quarters ended
June 30, 1999 and 1998, respectively, and $311,000 and $(142,000) for the
nine-month periods ended June 30, 1999 and 1998, respectively.
- 19 -
<PAGE>
The introduction of the Euro as a common currency for members of the European
Monetary Union is scheduled to take place in the Company's fiscal year 1999. The
Company has not determined what impact, if any, the Euro will have on foreign
exchange exposure. However, no individual foreign subsidiary comprises 10
percent or more of consolidated revenue or assets, and most subsidiary
operations represent less than 5 percent of consolidated revenue or assets. See
"Market Risk" below for further discussion of foreign currency risk.
As a result of lower inflation in Mexico, the Company was required to change its
method of translating the financial statements of its Mexican subsidiary to
reflect the designation of Mexican peso as the functional currency effective
January 1, 1999. Previously the U.S. dollar had been the designated functional
currency. This change did not have a material impact on current quarter or
year-to-date financial results, and the Company does not expect this change to
have a material impact on future financial results.
Market Risk
- -----------
The Company is exposed to various market risks, including potential losses
arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. The Company historically has not entered
into derivatives, forward exchange contacts or other financial instruments for
trading, speculation or hedging purposes.
Interest Risk
- -------------
For discussion applicable to interest risk, reference is made to Form 10-K filed
with the Securities and Exchange Commission for the year ended September 30,
1998, Item 7, Management's Discussion and Analysis of Results of Operations and
Financial Condition, under the caption "Interest Risk."
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's cash and cash equivalents amounted to $3.6 million at June 30,
1999, as compared to $3.8 million at September 30, 1998. Future cash
requirements are planned to be satisfied from a combination of existing cash
balances, additional borrowings under its revolving credit facility ($11.7
million of additional borrowings available at June 30, 1999) and from alternate
financing sources. These alternate sources are targeted to include the sale of
assets, technologies and/or interests in existing businesses or operations which
make sense from a strategic standpoint. (For example, in December 1998 the
Company completed the sale of its Technology Alliance Group division and
received approximately $12.0 million of net proceeds, after related selling
costs. Refer to Note 8, "Sale of Technology Alliance Group Division," for
further discussion.) Other alternative sources could also include the issuance
of new debt instruments, debt arrangements and/or equity securities.
In addition, on December 18, 1998, the Company announced a restructuring of its
business into three primary operating units and the intent to sell or partner
certain other operations. The purpose of the restructuring was to reorganize
into autonomous business units with product focus to deliver higher revenues and
a lower, more efficient cost structure. Refer to Note 7, "Restructuring of
Operations," for further discussion of the business restructuring.
- 20 -
<PAGE>
Through May 14, 1999, the Company had a loan and security agreement (the "Loan
Agreement") in place which provided the Company with a five-year term loan
(approximately $8.7 million owed on May 14, 1999), and an additional $25.0
million (maximum value) revolving line of credit for a three-year period ending
in October 2000, subject to extension. Availability of the revolving line of
credit funds was subject to satisfying a borrowing base formula related to
levels of certain accounts receivable and inventories and the satisfaction of
other financial covenants.
On May 14, 1999, the Company entered into a new three-year $40.0 million loan
and security agreement (the "New Loan Agreement") with Foothill Capital
Corporation to provide additional funds for operations and replace the Company's
existing bank group. Under provisions of the New Loan Agreement, the Company's
cash availability increased by $6.3 million (before related closing costs
incurred), as a result of the refinancing of the existing term loan, which had
an outstanding balance of $8.7 million, with $15.0 million in new term loans.
Furthermore, financial covenants and formulas in the New Loan Agreement were
restructured to be less restrictive to the Company.
Refer to Note 5, "Long-Term Debt," for additional discussion, including
effective interest rates and principal payment due dates.
Under the revolving line of credit portion of the New Loan Agreement,
availability is subject to satisfying a borrowing base formula related to levels
of certain accounts receivable and inventories and the satisfaction of other
financial covenants. Most assets of the Company, including accounts receivable,
inventories and property, plant and equipment are pledged as collateral. Maximum
funds available for borrowing under the New Loan Agreement revolving credit
facility amounted to $25.0 million at June 30, 1999; maximum funds available for
borrowing under the previous Loan Agreement revolving credit facility amounted
to $25.0 million at September 30, 1998. Outstanding revolving line of credit
borrowings amounted to $13.0 million and $1.6 million at June 30, 1999 and
September 30, 1998, respectively. Letters of credit also reduce the availability
of funds under the revolving line. Letters of credit in the amount of $253,000
and $763,000 were outstanding at June 30, 1999 and September 30, 1998,
respectively.
Financial covenants of the New Loan Agreement require that the Company's
reported stockholders' equity, excluding the impact of any foreign currency
translation adjustments occurring subsequent to March 31, 1999, equal or exceed
$18.1 million (such stockholders' equity, as defined, amounted to $25.6 million
at June 30, 1999). Financial covenants also limit annual capital equipment
expenditures to $12.0 million. The New Loan Agreement's covenants may, if
violated, limit access to future borrowings and may accelerate payment
requirements on outstanding borrowings under both the New Loan Agreement and
other outstanding loans.
Since the Company realized losses of $33.4 million for total fiscal 1998 and
$18.7 million for the nine months ended June 30, 1999, a combination of revenue
growth and cost reductions will be required in the remainder of fiscal 1999 and
in fiscal 2000 to maintain compliance with the minimum equity balance covenant
requirement. Alternatively, the Company could pursue an equity financing to
satisfy the equity covenant. In the event of non-compliance with financial or
other covenants, the Company would have to obtain a waiver or amendment from the
lender, and there is no assurance that the lender would grant such
- 21 -
<PAGE>
a waiver or amendment. Management has implemented and is committed to execute
further cost reduction (or other) actions as necessary to improve the Company's
operating results and maintain compliance with the New Loan Agreement.
In the past the Company has relied on its ability to offer for sale its common
stock, preferred stock, convertible debentures and/or warrants as viable
alternative sources of financing. The availability and terms of such offerings
in the future will depend on such items as the Company's future financial
performance, the Company's ability to authorize additional shares of its common
stock and/or market demand for the Company's technologies and/or security
offerings. As a result, these sources may not be available, or may be available
on less favorable terms, in the future. The Company's inability to have access
to the New Loan Agreement funds and/or alternative financing sources would have
a material adverse effect on the Company's financial condition.
Reference is made to the Company's consolidated financial statements and related
notes thereto and exhibits filed with Form 10-K for the year ended September 30,
1998 for further disclosures applicable to all other outstanding indebtedness of
the Corporation.
Total outstanding debt amounted to $68.5 million at June 30, 1999, as
compared to $60.8 million at September 30, 1998. The net increase of $7.7
million is comprised of $11.4 million of new (net) borrowings under the
Company's revolving line of credit, $0.9 million of incremental (net) term loan
borrowings and other miscellaneous borrowings of $0.3 million, less $4.9 million
of principal payments made to reduce other outstanding borrowings.
Operating
Net cash used in operating activities amounted to $2.5 million in the nine
months ended June 30, 1999, as compared to positive cash flow from operating
activities of $1.1 million for the nine months ended June 30, 1998.
Non-debt working capital, excluding cash and cash equivalents, amounted to $22.1
million and $29.5 million at June 30, 1999 and September 30, 1998, respectively.
The $7.4 million reduction is principally comprised of an increase in trade
accounts payable and other accrued expenses related to the timing of purchases
and other obligations.
Investing
Investment in property, plant and equipment amounted to $6.3 million and $5.2
million in the nine-month periods ended June 30, 1999 and 1998, respectively.
Approximately $600,000 of fiscal 1999 capital investments are applicable to
VITAL Network Services' purchase of Olicom assets, for use in servicing Olicom
customers (refer to Note 6, "VITAL Network Services, L.L.C. Expanded Partnership
With Olicom, Inc." for further discussion). The Company continues to closely
monitor all capital spending in an effort to preserve cash and limit such
investment to instances which appear to offer the greatest return on investment.
Investments in capitalized software amounted to $9.5 million and $9.4 million
for the nine-month periods ended June 30, 1999 and 1998, respectively.
- 22 -
<PAGE>
Financing
Net cash provided by financing activities in the nine-month period ended June
30, 1999 amounted to $18.3 million, comprised of $12.0 million of proceeds
received from the sale of TAG, $7.2 million of net debt borrowings, $0.4 million
of proceeds received from the issuance of common stock pursuant to employee
stock programs and the payment of $1.3 million in preferred stock dividends.
This compares to $3.0 million of net cash proceeds generated in the nine months
ended June 30, 1998, reflecting $3.8 million of net debt borrowings, $0.5
million of proceeds received from the issuance of common stock pursuant to
employee stock programs and the payment of $1.3 million in preferred stock
dividends.
Reference is made to Note 5 on page 7 for a condensed summary of outstanding
long-term debt as of June 30, 1999 and September 30, 1998, including a new
three-year $40.0 million loan and security agreement entered into with Foothill
Capital Corporation on May 14, 1999, which provided the Company with an
immediate cash infusion of $6.3 million. Separately, reference is made to the
consolidated financial statements, Notes 6 and 9, filed with Form 10-K for the
year ended September 30, 1998 for further disclosures applicable to outstanding
long-term debt and the conversion terms applicable to $25.0 million of 7 3/4%
convertible senior subordinated debentures (Note 6) and $20.0 million of
convertible preferred stock (Note 9), both of which were outstanding as of June
30, 1999 and September 30, 1998.
Future Adoption Of New Accounting Statements
- --------------------------------------------
Reference is made to the consolidated financial statements filed with Form 10-K
for the year ended September 30, 1998, Note 1, for discussion regarding future
adoption of new accounting pronouncements.
Year 2000 Compliance
- --------------------
Reference is made to Form 10-K filed with the Securities and Exchange Commission
for the year ended September 30, 1998, Item 7, Management's Discussion and
Analysis of Results of Operations and Financial Condition, under the caption
"Year 2000 Compliance" for year 2000 compliance related discussion. The
referenced discussion remains current as of June 30, 1999.
CERTAIN RISK FACTORS
- --------------------
Continuing Losses: The Company has sustained net losses for the past 19
quarters ended June 30, 1999. There can be no assurance as to when the Company
will achieve net income.
Credit Availability: As noted above, the Company's New Loan Agreement requires
compliance with specific financial covenants, including the requirement that
reported stockholders' equity, as defined, equal or exceed $18.1 million (such
stockholders' equity, as defined, amounted to $25.6 million at June 30, 1999).
If the Company fails to comply with the required covenants, fails to provide
subordinate mortgages on certain real estate for which consent has not been
provided to date by the first mortgage holder, or fails to comply with any other
provisions of the New Loan Agreement which would result in default, and a waiver
or amendment is not obtained, the Company may be unable to borrow funds under
such agreement. In such case the Company would be required to seek other
financing to fund its operations, and there can be no assurance the Company will
be able to obtain such financing or, if
- 23 -
<PAGE>
obtained, on terms deemed favorable by the Company. Furthermore, in the event
the Company does default on its $40.0 million New Loan Agreement obligation,
such default may result in a requirement to accelerate the due dates and payment
of other outstanding indebtedness.
Volatility of Stock Price: The trading price of the Company's Common Stock has
fluctuated widely in response to quarter-to-quarter operating results, industry
conditions, awards of orders to the Company or its competitors, new product or
product development announcements by the Company or its competitors, and changes
in earnings estimates by analysts. Any shortfall in revenue or earnings from
expected levels could have an immediate and significant adverse effect on the
trading price of the Company's Common Stock in any given period.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Portions of the foregoing discussion include descriptions of the Company's
expectations regarding future trends affecting its business. The forward-looking
statements made in this document, as well as all other forward-looking
statements or information provided by the Company or its employees, whether
written or oral, are made in reliance upon the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements and
future results are subject to, and should be considered in light of risks,
uncertainties, and other factors which may affect future results including, but
not limited to, competition, rapid changing technology, regulatory requirements
and uncertainties of international trade. Examples of risks and uncertainties
include, among other things: (i) the Company's ability to maintain compliance
with the covenant requirements of its New Loan Agreement and all other financing
arrangements, including, if necessary, the ability to achieve amendments and/or
waivers thereto to maintain compliance with the terms of all outstanding
indebtedness; (ii) the possibility that the additional indebtedness permitted to
be incurred under the revolving credit facility portion of the New Loan
Agreement may not be sufficient to maintain the Company's operations; (iii) the
Company's ability to satisfy its financial obligations and to obtain additional
indebtedness, if required; (iv) the Company's ability to effectively restructure
its operations and achieve profitability; (v) the Company's ability to retain
customers; (vi) the Company's ability to maintain existing supply arrangements
and terms; and (vii) the Company's ability to retain key employees.
Readers are cautioned not to place undue reliance on such forward-looking
statements, which reflect management's analysis only as of the date hereof. The
Company undertakes no obligation and does not intend to update these
forward-looking statements to reflect events or circumstances that arise after
the date hereof.
- 24 -
<PAGE>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On June 18, 1999, at the Special Meeting of Stockholders of
the Corporation, the stockholders voted to:
1. Increase the authorized shares of Common Stock by
15,000,000 shares from 35,000,000 shares to 50,000,000
shares and decrease the authorized shares of Class B stock
by 25,000,000 shares from 35,000,000 shares to 10,000,000
shares:
Number of votes cast for: 15,997,460
Number of votes against: 3,413,890
Number of votes abstained: 82,828
Item 6. Exhibits and Reports on Form 8-K
(a) Index of Exhibits
3.1 Form of Restated Certificate of Incorporation of
the Corporation
3.2 Amended By-Laws of the Corporation
(b) Reports on Form 8-K:
A Form 8-K dated May 14, 1999, was filed on May 27,
1999, to summarize the terms of the Company's New Loan
Agreement; the actual New Loan Agreement was attached
as an exhibit to the Form 8-K.
- 25 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL DATACOMM INDUSTRIES, INC.
(Registrant)
/S/ WILLIAM G. HENRY
------------------------------
William G. Henry
Vice President, Finance and
Principal Financial Officer
Dated: August 16, 1999
- 26 -
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
AS AMENDED
OF
GENERAL DATACOMM INDUSTRIES, INC.
It is hereby certified that:
The present name of the corporation (hereinafter called the
"corporation") is General DataComm Industries, Inc., which is the name under
which the corporation was originally incorporated; and the date of filing the
original certificate of incorporation of the corporation with the Secretary of
State of the State of Delaware is January 28, 1969.
The provisions of the certificate of incorporation of the
corporation as heretofore amended and/or supplemented, are hereby restated and
integrated into the single instrument which is hereinafter set forth, and which
is entitled Restated Certificate of Incorporation of General DataComm
Industries, Inc., without further amendment and without any discrepancy between
the provisions of the certificate of incorporation as heretofore amended and
supplemented and the provisions of the said single instrument hereinafter set
forth.
The Board of Directors of the corporation has duly adopted
this Restated Certificate of Incorporation pursuant to the provisions of Section
245 of the General Corporation Law of the State of Delaware in the form set
forth as follows:
RESTATED CERTIFICATE OF INCORPORATION
OF
GENERAL DATACOMM INDUSTRIES, INC
FIRST: The name of the corporation (hereinafter called the
"corporation") is
General DataComm Industries, Inc.
<PAGE>
SECOND: The address, including street, number, city, and
county, of the registered office of the corporation in the State of Delaware is
229 South State Street, City of Dover, County of Kent; and the name of the
registered agent of the corporation in the State of Delaware at such address is
The Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business and of the purposes to be
conducted and promoted by the corporation, which shall be in addition to the
authority of the corporation to conduct any lawful business, to promote any
lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware, is as follows:
To act as consultants and engage, on its own behalf
or for others, in research, appraisal, development and other activities relating
to the application, structure, manufacture, fabrication, installation,
construction, maintenance, operation, repair, functioning, use and other
services relating to electronic data processing systems and components of
electronic data processing and computing machines of every kind, nature and
description, and in connection therewith, but not by way of limitation, prepare
and submit analyses, interpretations, evaluations and recommendations in the
fields of electronic data processing and computer system technology and
programming techniques.
To construct, conduct, maintain and operate offices,
sites, centers, laboratories and facilities for research with respect to
electronic data processing systems, computer machines, computing and programming
procedures, and other related fields, either for itself or others.
To design, invent, develop, devise, manufacture,
fabricate, assemble, install, service, maintain, repair, alter, buy, sell,
import, export, license as licensor or licensee, lease as lessor or lessee,
distribute, job, enter into, negotiate, execute, acquire, receive, obtain, hold,
grant, assign and transfer contracts, selling rights, licensing arrangements,
options, franchises and other rights in respect of, and generally deal in and
with, at wholesale and retail, as principal, agent, representative, broker,
factor, merchant, distributor, jobber, advisor, or in any other lawful capacity,
goods, wares, merchandise, commodities and unimproved, improved, finished,
processed, and other real, personal and mixed property of any and all kinds, and
without limiting the generality of the foregoing, any and all kinds of
computers, electronic data processing apparatus, information
2
<PAGE>
analyses devices, electronic and other mechanical devices, machines,
contrivances, appliances, accessories, equipment and supplies for assembling,
processing, analyzing and handling data and reporting the findings and
conclusions required therefrom, together with the components, resultants and
by-products thereof; and to acquire by purchase or otherwise own, hold, lease,
mortgage, sell or otherwise dispose of, erect, construct, make, alter, enlarge,
improve and to aid or subscribe toward the construction, acquisition or
improvement of any laboratories, research and experimental centers and
facilities, factories, shops, storehouses, buildings and commercial and retail
establishments of every character, including all equipment, fixtures, machinery,
implements and supplies necessary, or incidental to, or connected with, any of
the purposes or business of the corporation; and generally to perform any and
all acts connected therewith or arising therefrom or incidental thereto, and all
acts proper or necessary for the purpose of the business.
To purchase, receive, take by grant, gift, devise,
bequest or otherwise, lease, or otherwise acquire, own, hold, improve, employ,
use and otherwise deal in and with real or personal property, or any interest
therein, wherever situated, and to sell, convey, lease, exchange, transfer or
otherwise dispose of, or mortgage or pledge, all or any of its property and
assets, or any interest therein, wherever situated.
To engage generally in the real estate business as
principal, agent, broker, and in any lawful capacity, and generally to take,
lease, purchase, or otherwise acquire, and to own, use, hold, sell, convey,
exchange, lease, mortgage, work, clear, improve, develop, divide, and otherwise
handle, manage, operate, deal in and dispose of real estate, real property,
lands, multiple-dwelling structures, houses, buildings and other works and any
interest or right therein; to take, lease, purchase or otherwise acquire, and to
own, use, hold, sell, convey, exchange, hire, lease, pledge, mortgage, and
otherwise handle, and deal in and dispose of, as principal, agent, broker, and
in any lawful capacity, such personal property, chattels, chattels real, rights,
easements, privileges, choses in action, notes, bonds, mortgages, and securities
as may lawfully be acquired, held, or disposed of; and to acquire, purchase,
sell, assign, transfer, dispose of, and generally deal in and with, as
principal, agent, broker, and in any lawful capacity, mortgages and other
interests in real, personal,
3
<PAGE>
and mixed properties; to carry on a general construction, contracting, building,
and realty management business as principal, agent, representative, contractor,
subcontractor, and in any other lawful capacity.
To carry on a general mercantile, industrial,
investing, and trading business in all its branches; to devise, invent,
manufacture, fabricate, assemble, install, service, maintain, alter, buy, sell,
import, export, license as licensor or licensee, lease as lessor or lessee,
distribute, job, enter into, negotiate, execute, acquire and assign contracts in
respect of, acquire, receive, grant, and assign licensing arrangements, options,
franchises, and other rights in respect of, and generally deal in and with, at
wholesale and retail, as principal, and as sales, business, special, or general
agent, representative, broker, factor, merchant, distributor, jobber, advisor,
and in any other lawful capacity, goods, wares, merchandise, commodities, and
unimproved, improved, finished, processed, and other real, personal, and mixed
property of any and all kinds, together with the components, resultants, and
by-products thereof.
To apply for, register, obtain, purchase, lease, take
licenses in respect of or otherwise acquire, and to hold, own, use, operate,
develop, enjoy, turn to account, grant licenses and immunities in respect of,
manufacture under and to introduce, sell, assign, mortgage, pledge or otherwise
dispose of, and, in any manner deal with and contract with reference to:
(a) inventions, devices, formulae, processes and
any improvements and modifications thereof;
(b) letters patent, patent rights, patented
processes, copyrights, designs, and similar rights, trade-marks, trade names,
trade symbols and other indications of origin and ownership granted by or
recognized under the laws of the United States of America, the District of
Columbia, any state or subdivision thereof, and any commonwealth, territory,
possession, dependency, colony, possession, agency or instrumentality of the
United States of America and of any foreign country, and all rights connected
therewith or appertaining thereunto;
(c) franchises, licenses, grants and concessions.
4
<PAGE>
To guarantee, purchase, take, receive, subscribe for,
and otherwise acquire, own, hold, use, and otherwise employ, sell, lease,
exchange, transfer, and otherwise dispose of, mortgage, lend, pledge, and
otherwise deal in and with, securities (which term, for the purpose of this
Article THIRD, includes, without limitation of the generality thereof, any
shares of stock, bonds, debentures, notes, mortgages, other obligations, and any
certificates, receipts or other instruments representing rights to receive,
purchase or subscribe for the same, or representing any other rights or
interests therein or in any property or assets) of any persons, domestic and
foreign firms, associations, and corporations, and by any government or agency
or instrumentality thereof; to make payment therefor in any lawful manner; and,
while owner of any such securities, to exercise any and all rights, powers and
privileges in respect thereof, including the right to vote.
To make, enter into, perform and carry out contracts
of every kind and description with any person, firm, association, corporation or
government or agency or instrumentality thereof.
To acquire by purchase, exchange or otherwise, all,
or any part of, or any interest in, the properties, assets, business and good
will of any one or more persons, firms, associations or corporations heretofore
or hereafter engaged in any business for which a corporation may now or
hereafter be organized under the laws of the State of Delaware; to pay for the
same in cash, property or its own or other securities; to hold, operate,
reorganize, liquidate, sell or in any manner dispose of the whole or any part
thereof; and in connection therewith, to assume or guarantee performance of any
liabilities, obligations or contracts of such persons, firms, associations or
corporations, and to conduct the whole or any part of any business thus
acquired.
To lend money in furtherance of its corporate
purposes and to invest and reinvest its funds from time to time to such extent,
to such persons, firms, associations, corporations, governments or agencies or
instrumentalities thereof, and on such terms and on such security, if any, as
the Board of Directors of the corporation may determine.
To make contracts of guaranty and suretyship of all
kinds and endorse or guarantee the payment of principal, interest or
5
<PAGE>
dividends upon, and to guarantee the performance of sinking fund or other
obligations of, any securities, and to guarantee in any way permitted by law the
performance of any of the contracts or other undertakings in which the
corporation may otherwise be or become interested, of any persons, firm,
association, corporation, government or agency or instrumentality thereof, or of
any other combination, organization or entity whatsoever.
To borrow money without limit as to amount and at
such rates of interest as it may determine; from time to time to issue and sell
its own securities, including its shares of stock, notes, bonds, debentures, and
other obligations, in such amounts, on such terms and conditions, for such
purposes and for such prices, now or hereafter permitted by the laws of the
State of Delaware and by this certificate of incorporation, as the Board of
Directors of the corporation may determine; and to secure any of its obligations
by mortgage, pledge or other encumbrance of all or any of its property,
franchises and income.
To be a promoter or manager of other corporations of
any type or kind; and to participate with others in any corporation,
partnership, limited partnership, joint venture, or other association of any
kind, or in any transaction, undertaking or arrangement which the corporation
would have power to conduct by itself, whether or not such participation
involves sharing or delegation of control with or to others.
To draw, make, accept, endorse, discount, execute,
and issue promissory notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or transferable instruments and evidences of
indebtedness whether secured by mortgage or otherwise, as well as to secure the
same by mortgage or otherwise so far as may be permitted by the laws of the
State of Delaware.
To purchase, receive, take, reacquire or otherwise
acquire, own and hold, sell, lend, exchange, reissue, transfer or otherwise
dispose of, pledge, use, cancel, and otherwise deal in and with its own shares
and its other securities from time to time to such an extent and in such manner
and upon such terms as the Board of Directors of the corporation shall
determine, provided that the corporation shall not use its funds or property for
the purchase of its own shares of capital stock when its capital is
6
<PAGE>
impaired or when such use would cause any impairment of its capital, except to
the extent permitted by law.
To organize, as an incorporator or cause to be
organized under the laws of the State of Delaware, or of any other State of the
United States of America, or of the District of Columbia, or of any
commonwealth, territory, dependency, colony, possession, agency, or
instrumentality of the United States of America, or of any foreign country, a
corporation or corporations for the purpose of conducting and promoting any
business or purpose for which corporations may be organized, and to dissolve,
wind up, liquidate, merge or consolidate any such corporation or corporations or
to cause the same to be dissolved, wound up, liquidated, merged or consolidated.
To conduct its business, promote its purposes, and
carry on its operations in any and all of its branches and maintain offices both
within and without the State of Delaware, in any and all States of the United
States of America, in the District of Columbia, and in any or all commonwealths,
territories, dependencies, colonies, possessions, agencies, or instrumentalities
of the United States of America and of foreign governments.
To promote and exercise all or any part of the
foregoing purposes and powers in any and all parts of the world, and to conduct
its business in all or any of its branches as principal, agent, broker, factor,
contractor, and in any other lawful capacity either alone or through or in
conjunction with any corporations, associations, partnerships, firms, trustees,
syndicates, individuals, organizations, and other entities in any part of the
world, and, in conducting its business and promoting any of its purposes, to
maintain offices, branches and agencies in any part of the world, to make and
perform any contracts and to do any acts and things, and to carry on any
business, and to exercise any powers and privileges suitable, convenient, or
proper for the conduct, promotion, and attainment of any of the business and
purposes herein specified or which at any time may be incidental thereto or may
appear conducive to or expedient for the accomplishment of any of such business
and purposes and which might be engaged in or carried on by a corporation
incorporated or organized under the General Corporation Law of the State of
Delaware, and to have and exercise all of the powers conferred
7
<PAGE>
by the laws of the State of Delaware upon corporations incorporated or organized
under the General Corporation Law of the State of Delaware.
The foregoing provisions of this Article THIRD shall be
construed both as purposes and powers and each as an independent purpose and
power. The foregoing enumeration of specific purposes and powers shall not be
held to limit or restrict in any manner the purposes and powers of the
corporation, and the purposes and powers herein specified shall, except when
otherwise provided in this Article THIRD, be in no wise limited or restricted by
reference to, or inference from, the terms of any provision of this or any other
Article of this certificate of incorporation; provided, that the corporation
shall not conduct any business, promote any purpose, or exercise any power or
privilege within or without the State of Delaware which, under the laws thereof,
the corporation may not lawfully conduct, promote, or exercise.
FOURTH: The aggregate number of shares of stock of all classes
which the Corporation shall have authority to issue is 63,000,000, consisting of
50,000,000 shares of Common Stock having a par value of $.10 per share,
10,000,000 shares of Class B Stock having a par value of $.10 per share and
3,000,000 shares of Preferred Stock having a par value of $1.00 per share.
The powers preferences and the relative, participating,
optional and other rights and the qualifications, limitations and restrictions
thereof, of each class of stock, and the express grant of authority to the Board
of Directors to fix by resolution the designations and the powers, preferences
and rights of each share of Preferred Stock and the qualifications, limitations
and restrictions thereof which are not fixed by this Certificate of
Incorporation, are as follows:
A. COMMON STOCK AND CLASS B STOCK
I. Dividends, etc. Subject to the rights of the holders of
Preferred Stock, and subject to any other provisions of this Certificate of
Incorporation, as amended from time to time, holders of Common Stock and Class B
Stock shall be entitled to receive such dividends and other distributions in
cash, stock or property of the Corporation as may be declared thereon by the
Board of Directors from time to time out of assets or funds of the Corporation
legally available therefor, provided that in the case of cash dividends, if at
any time a cash dividend is paid on the Common Stock, a cash dividend will also
be paid on the Class B Stock in an amount per share of Class B Stock equal to
90% of the amount of the cash dividends paid on each share of the Common Stock
(rounded down, if necessary, to the nearest one-hundredth of a cent), and
provided, further, that in the case of dividends or other distributions payable
in stock of the Corporation other than Preferred Stock, including distributions
pursuant to stock splits or divisions of stock of the Corporation other than
Preferred Stock, which occur
8
<PAGE>
after the initial issuance of shares of Class B Stock by the Corporation, only
shares of Common Stock shall be distributed with respect to Common Stock and
only shares of Class B Stock in an amount per share equal to the amount per
share paid with respect to the Common Stock shall be distributed with respect to
Class B Stock, and that, in the case of any combination or reclassification of
the Common Stock, the shares of Class B Stock shall also be combined or
reclassified so that the number of shares of Class B Stock outstanding
immediately following such combination or reclassification shall bear the same
relationship to the number of shares outstanding immediately prior to such
combination or reclassification as the number of shares of Common Stock
outstanding immediately following such combination or reclassification bears to
the number of shares of Common Stock outstanding immediately prior to such
combination or reclassification.
II. Voting: (a) At every meeting of the stockholders
every holder of Common Stock shall be entitled to one (1) vote in person or by
proxy for each share of Common Stock, standing in his name on the transfer books
of the Corporation and every holder of Class B Stock shall be entitled to one
(1) vote in person or by proxy for each share of Class B Stock standing in his
name on the transfer books of the Corporation, except that each holder of Class
B Stock shall be entitled to ten (10) votes per share on the election of any
directors at any stockholders meeting (i) if more than 15% of the shares of
Common Stock outstanding on the record date for such meeting are beneficially
owned by a person or group of persons acting in concert (unless such person or
group is also the beneficial owner of a majority of the shares of Class B Stock
on such record date), or (ii) if a nomination for the Board of Directors is made
by a person or group of persons acting in concert (other than the Board of
Directors), provided that such nomination is not made by one or more holders of
Class B Stock, acting in concert with each other, who beneficially own more than
15% of the shares of Class B Stock outstanding on such record date.
(b) The provisions of this Certificate of Incorporation shall
not be modified, revised, altered or amended, repealed or rescinded in whole or
in part, without the affirmative vote of the holders of a majority of the shares
of the Common Stock and of a voting majority of the shares of the Class B Stock,
each voting separately as a class.
(c) The Corporation may not effect or consummate:
(1) any merger or consolidation of the Corporation with or
into any other corporation;
(2) any sale, lease, exchange or other disposition of all or
substantially all of the assets of the Corporation to or with any other person;
or
9
<PAGE>
(3) any dissolution of the Corporation,
unless and until such transaction is authorized by the vote, if any, required by
Articles EIGHTH and THIRTEENTH of this Certificate of Incorporation and by
Delaware law; and unless and until such transaction is authorized by a majority
of the voting power of the shares of Common Stock and of Class B Stock entitled
to vote, each voting separately as a class, but the foregoing shall not apply to
any merger or other transaction described in the preceding subparagraphs (1) and
(2) if the other party to the merger or other transaction is a Subsidiary of the
Corporation.
For purposes of this paragraph (c) a "Subsidiary" is any
corporation more than 50% of the voting securities of which are owned directly
or indirectly by the Corporation; and a "person" is an individual, partnership,
corporation or entity.
(d) Following the initial issuance of shares of
Class B Stock, the Corporation may not effect the issuance of any additional
shares of Class B Stock (except in connection with stock splits and stock
dividends) unless and until such issuance is authorized by the holders of a
majority of the voting power of the shares of Common Stock and of Class B Stock
entitled to vote, each voting separately as a class.
(e) Every reference in this Certificate of
Incorporation to a majority or other proportion of shares of stock shall refer
to such majority or other proportion of the votes of such shares of stock.
(f) Except as may be otherwise required by law or
by this Article FOURTH, the holders of Common Stock and Class B Stock shall vote
together as a single class, subject to any voting rights which may be granted to
holders of Preferred Stock.
III. Transfer.
(a) No person holding shares of Class B Stock of
record (hereinafter called a "Class B Holder") may transfer, and the Corporation
shall not register the transfer of, such shares of Class B Stock, as Class B
Stock, whether by sale, assignment, gift, bequest, appointment or otherwise,
except to a Permitted Transferee and any attempted transfer of shares not
permitted hereunder shall be converted into Common Stock as provided by
subsection (d) of this Section III. A Permitted Transferee shall mean, with
respect to each person from time to time shown as the record holder of shares of
Class B Stock:
(i) In the case of a Class B Holder who is a natural
person;
10
<PAGE>
(A) The spouse of such Class B Holder and any lineal ancestor
and descendant of such spouse, any lineal ancestor or descendant of such Class B
Holder's parents, including adopted children and any spouse of such lineal
descendant or ancestor and such spouse's lineal ancestors and descendants (which
ancestors and descendants, their spouses and any lineal ancestors and
descendants of such spouse, the Class B Holder, and his or her spouse are herein
collectively referred to as "Class B Holder's Family Members");
(B) The trustee of a trust (including a voting trust)
principally for the benefit of such Class B Holder, such Class B Holder's Family
Members and/or one or more of his or her other Permitted Transferees described
in each subclause of this clause (i) other than this subclause (B), provided
that such trust may also grant a general or special power of appointment to one
or more of such Class B Holder's Family members and may permit trust assets to
be used to pay taxes, legacies and other obligations of the trust or of the
estates of one or more of such Class B Holder's Family Members payable by reason
of the death of any of such Family Members;
(C) A corporation if a majority of the beneficial ownership of
outstanding capital stock of such corporation which is entitled to vote for the
election of directors is owned by, or a partnership if a majority of the
beneficial ownership of the partnership is held by, the Class B Holder or his or
her Permitted Transferees determined under this clause (i), proved that if by
reason of any change in the ownership of such stock or partnership interests,
such corporation or partnership would no longer qualify as a Permitted
Transferee, all shares of Class B Stock then held by such corporation or
partnership shall, upon the election of the Corporation given by written notice
to such corporation or partnership, without further act on anyone's part, be
converted into shares of Common Stock effective upon the date of the giving of
such notice, and stock certificates formerly representing such shares of Class B
Stock shall thereupon and thereafter be deemed to represent the like number of
shares of Common Stock; and
(D) The estate of such Class B Holder.
(ii) In the case of a Class B Holder holding the shares of
Class B Stock in question as trustee pursuant to a trust (other than a trust
described in clause (iii) below), "Permitted Transferee" means (A) any person
transferring Class B Stock to such trust and (B) any Permitted Transferee of any
such transferor determined pursuant to clause (i) above.
(iii) In the case of a Class B Holder holding the shares of
Class B Stock in question as trustee pursuant to a trust which was irrevocable
on the record date (hereinafter in this Section III called the "Record Date")
for determining the persons to whom the Class B Stock is first issued by the
Corporation, "Permitted Transferee" means (A) any person to whom or for whose
benefit principal may be distributed either
11
<PAGE>
during or at the end of the term of such trust whether by power of appointment
or otherwise and (B) any Permitted Transferee of any such person determined
pursuant to clause (i) above.
(iv) In the case of a Class B Holder which is a corporation or
partnership acquiring record and beneficial ownership of the shares of Class B
Stock in question upon its initial issuance by the Corporation, "Permitted
Transferee" means (A) any partner of such partnership, or stockholder of such
corporation, on the Record Date, (B) any person transferring such shares of
Class B Stock to such corporation or partnership, and (C) any Permitted
Transferee of any such person, partner, or stockholder referred to in subclauses
(A) and (B) of this clause (iv), determined under clause (i) above.
(v) In the case of a Class B Holder which is a corporation or
partnership (other than a corporation or partnership described in clause (iv)
above) holding record and beneficial ownership of the shares of Class B Stock in
question, "Permitted Transferee" means (A) any person transferring such shares
of Class B Stock to such corporation or partnership and (B) any Permitted
Transferee of any such transferor determined under clause (i) above.
(vi) In the case of a Class B Holder which is the estate of a
deceased Class B Holder, or which is the estate of a bankrupt or insolvent Class
B Holder, which holds record and beneficial ownership of the shares of Class B
Stock in question, "Permitted Transferee" means a Permitted Transferee of such
deceased, bankrupt or insolvent Class B Holder as determined pursuant to clause
(i), (ii), (iii), (iv) or (v) above, as the case may be.
(b) Notwithstanding anything to the contrary set forth herein,
any Class B Holder may pledge such Holder's share of Class B Stock to a pledgee
pursuant to a bona fide pledge of such shares as collateral security for
indebtedness due to the pledgee, provided that such shares shall not be
transferred to or registered in the name of the pledgee and shall remain subject
to the provisions of this Section III. In the event of foreclosure or other
similar action by the pledgee, such pledged shares of Class B Stock may only be
transferred to a Permitted Transferee of the pledgor or converted into shares of
Common Stock, as the pledgee may elect.
(c) For purposes of this Section III:
(i) The relationship of any person that is derived by or
through legal adoption shall be considered a natural one.
(ii) Each joint owner of shares of Class B Stock shall be
considered a "Class B Holder" of such shares.
12
<PAGE>
(iii) A minor for whom shares of Class B Stock are held
pursuant to a Uniform Gifts to Minors Act or similar law shall be considered a
Class B Holder of such shares.
(iv) Unless otherwise specified, the term "person" means both
natural persons and legal entities.
(v) Without derogating from the election conferred upon the
Corporation pursuant to subclause (D) of clause (i) above, each reference to a
corporation shall include any successor corporation resulting from merger or
consolidation and each reference to a partnership shall include any successor
partnership resulting from the death or withdrawal of a partner.
(d) Any transfer of shares of Class B Stock not permitted
hereunder shall result in the conversion of the transferee's shares of Class B
Stock into shares of Common Stock, effective the date on which certificates
representing such shares are presented for transfer on the books of the
Corporation. The Corporation may, in connection with preparing a list of
stockholders entitled to vote at any meeting of stockholders, or as a condition
to the transfer or the registration of shares of Class B Stock on the
Corporation's books, require the furnishing of such affidavits or other proof as
it deems necessary to establish that any person is the beneficial owner of
shares of Class B Stock or is a Permitted Transferee.
(e) At any time when the number of outstanding shares of Class
B Stock as reflected on the stock transfer books of the Corporation falls below
5% of the aggregate number of the issued and outstanding shares of the Common
Stock and Class B Stock of the Corporation, or the Board of Directors and the
holders of a majority of the outstanding shares of Class B Stock approve the
conversion of all of the Class B Stock into Common Stock, then, immediately upon
the occurrence of either such event, the outstanding shares of Class B Stock
shall be converted into shares of Common Stock. In the event of such a
conversion, certificates formerly representing outstanding shares of Class B
Stock shall thereupon and thereafter be deemed to represent the like number of
shares of Common Stock.
(f) Shares of Class B Stock shall be registered in the names
of the beneficial owners thereof and not in "street" or "nominee" name. For this
purpose, a "beneficial owner" of any shares of Class B Stock shall mean a person
who, or an entity which, possesses the power, either singly or jointly, to
direct the voting or disposition of such shares. The Corporation shall note on
the certificates for shares of Class B Stock the restrictions on transfer and
registration of transfer imposed by this Section III.
13
<PAGE>
IV. Conversion Rights.
(a) Subject to the terms and conditions of this Section IV,
each share of Class B Stock shall be convertible at any time or from time to
time, at the option of the respective holder thereof, at the office of any
transfer agent for Class B Stock, and at such other place or places, if any, as
the Board of Directors may designate, or if the Board of Directors shall fail so
to designate, at the principal office of the Corporation (attention of the
Secretary of the Corporation), into one (1) fully paid and nonassessable share
of Common Stock, Upon conversion, the Corporation shall make no payment or
adjustment on account of dividends accrued or in arrears on Class B Stock
surrendered for conversion or on account of any dividends on the Common Stock
issuable on such conversion. Before any holder of Class B Stock shall be
entitled to convert the same into Common Stock, he shall surrender the
certificate or certificates for such Class B Stock at the office of said
transfer agent (or other place as provided above), which certificate or
certificates, if the Corporation shall so request, shall be duly endorsed to the
Corporation or in blank or accompanied by proper instruments of transfer to the
Corporation or in blank) (such endorsements or instruments of transfer to be in
form satisfactory to the Corporation), and shall give written notice to the
Corporation at said office that he elects so to convert said Class B Stock in
accordance with the terms of this Section IV, and shall state in writing therein
the name or names in which he wishes the certificates or certificates for Common
Stock to be issued. Every such notice of election to convert shall constitute a
contract between the holder of such Class B Stock and the Corporation, whereby
the holder of such Class B Stock shall be deemed to subscribe for the amount of
Common Stock which he shall be entitled to receive upon such conversion, and, in
satisfaction of such subscription, to deposit the Class B Stock to be converted
and to release the Corporation from all liability thereunder, and thereby the
Corporation shall be deemed to agree that the surrender of the certificate or
certificates therefor and the extinguishment of liability thereon shall
constitute full payment of such subscription for Common Stock to be issued upon
such conversion. The Corporation will as soon as practicable after such deposit
of a certificate or certificates for Class B Stock, accompanied by the written
notice and the statement above prescribed, issue and deliver at the office of
said transfer agent (or other place as provided above) to the person for whose
account such Class B Stock was so surrendered, or to his nominee or nominees, a
certificate or certificates for the number of full shares of Common Stock to
which he shall be entitled as aforesaid. Subject to the provisions of subsection
(c) of this Section IV, such conversion shall be deemed to have been made as of
the date of such surrender of the Class B Stock to be converted; and the person
or persons entitled to receive the Common Stock issuable upon conversion of such
Class B Stock shall be treated for all purposes as the record holder or holders
of such Common Stock on such date.
(b) The issuance of certificates for shares of Common Stock
upon conversion of shares of Class B Stock shall be made without charge for any
stamp or other similar tax in respect of such issuance. However, if any such
certificate is to be issued in a name other than that of the holder of the share
14
<PAGE>
or shares of Class B Stock converted, the person or persons requesting the
issuance thereof shall pay to the Corporation the amount of any tax which may be
payable in respect of any transfer involved in such issuance or shall establish
to the satisfaction of the Corporation that such tax has been paid.
(c) The Corporation shall not be required to convert Class B
Stock, and no surrender of Class B Stock shall be effective for that purpose,
while the stock transfer books of the Corporation are closed for any purpose;
but the surrender of Class B Stock for conversion during any period while such
books are so closed shall become effective for conversion immediately upon the
reopening of such books, as if the conversion had been made on the date such
Class B Stock was surrendered.
(d) The Corporation covenants that it will at all times
reserve and keep available, solely for the purpose of issue upon conversion of
the outstanding shares of Class B Stock, such number of shares of Common Stock
as shall be issuable upon the conversion of all such outstanding shares,
provided that nothing contained herein shall be construed to preclude the
Corporation from satisfying its obligations in respect of the conversion of the
outstanding shares of Class B Stock by delivery of shares of Common Stock which
are held in the treasury of the Corporation. The Corporation covenants that if
any shares of Common Stock, required to be reserved for purposes of conversion
hereunder, require registration with or approval of any governmental authority
under any federal or state law before such shares of Common Stock may be issued
upon conversion, the Corporation will use its best efforts to cause such shares
to be duly registered or approved, as the case may be. The Corporation will
endeavor to list the shares of Common Stock required to be delivered upon
conversion prior to such delivery upon each national securities exchange, if
any, upon which the outstanding Common Stock is listed at the time of such
delivery. The Corporation covenants that all shares of Common Stock which shall
be issued upon conversion of the shares of Class B Stock, will, upon issue, be
fully paid and nonassessable and not entitled to any preemptive rights.
V. Liquidation Rights. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, whether voluntary
or involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation, the holders of each series of Preferred Stock
shall be entitled to receive, out of the net assets of the Corporation, an
amount for each share equal to the amount fixed and determined by the Board of
Directors in any resolution or resolutions providing for the issuance of any
particular series of Preferred Stock, plus an amount equal to all dividends
accrued and unpaid on shares of such series to the date fixed for distribution
or paid over to the holders of Common Stock. After payment in full of said
amounts to the holders of Preferred Stock of all series, the remaining assets
and funds of the Corporation shall be divided among and paid ratably to the
holders of Common Stock, and Class B Stock (considered for this purpose as one
class). If, upon such dissolution, liquidation or winding up, the assets of the
15
<PAGE>
Corporation distributable as aforesaid among the holders of Preferred Stock of
all series shall be insufficient to permit full payment to them of said
preferential amounts, then such assets shall be distributed among such holders,
first in the order of their respective preferences, and second, as to such
holders who are next entitled to such assets and who rank equally with regard to
such assets, ratably in proportion to the respective total amounts which they
shall be entitled to receive as provided in this Section V. A merger or
consolidation of the Corporation with or into any other corporation or a sale or
conveyance of all or any part of the assets of the Corporation (which shall not
in fact result in the liquidation of the Corporation and the distribution of
assets to stockholders) shall not be deemed to be a voluntary or involuntary
liquidation or dissolution or winding up of the Corporation within the meaning
of this Section V.
B. Preferred Stock.
The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this Article FOURTH, to
provide for the issuance of the preferred shares in series, and by filing a
certificate pursuant to the General Corporation Law of Delaware, to establish
the number of shares to be included in each such series, and to fix the
designations, relative rights, preferences and limitations of the shares of each
such series. The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
(a) The number of shares constituting that series
and the distinctive designations of that series;
(b) The dividend rate on the shares of that series,
whether dividends shall be cumulative and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on shares of
that series;
(c) Whether that series shall have voting rights, in
addition to the voting rights provided by law and, if so, the terms of such
voting rights;
(d) Whether that series shall have conversion
privileges and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(e) Whether or not the shares of that series shall
be redeemable and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they
16
<PAGE>
shall be redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different redemption
dates;
(f) Whether that series shall have a sinking fund
for the redemption or purchase of shares of that series and, if so, the terms
and amount of such sinking fund;
(g) The rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series;
(h) Any other relative rights, preferences and
limitations of that series.
Dividends on outstanding preferred shares shall be
declared and paid, or set apart for payment, before any dividends shall be
declared and paid, or set apart for payment, on the common shares with respect
to the dividend period.
Any and all such shares issued, and for which the
full consideration has been paid or delivered shall be deemed fully paid stock
and the holder of such shares shall not be liable for any further call or
assessment or any other payment thereon.
C. Authorized Shares of Capital Stock.
Except as may be Provided in the terms and conditions
fixed by the Board of Directors for any series of Preferred Stock, and in
addition to any other vote that may be required by statute, stock exchange
regulations, this Certificate of Incorporation or any amendment hereof, the
number of authorized shares of any class or classes of stock of the Corporation
may be increased or decreased by the affirmative vote of the holders of a
majority of the outstanding shares of stock of the Corporation entitled to vote.
FIFTH: The name and the mailing address of the incorporator
are as follows:
NAME MAILING ADDRESS
R. G. Dickerson 229 South State Street
Dover, Delaware
17
<PAGE>
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or between
this corporation and its stockholder or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this corporation
under the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders of class or stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH: For the management of the business and for the conduct
of the affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. Directors shall be divided into three classes, each class
to be determined by the directors prior to the election of a particular class.
In the event that at any time or from time to time the number of directors is
increased, the newly created directorships resulting therefrom shall be filled
by a vote of the majority of the directors in office immediately prior to such
increase, and directors so elected shall serve until the term of the class to
which they are assigned expires. Vacancies in any class of directors shall be
filled by the vote of the remaining directors, and directors so elected shall
serve until the term of such class expires. At the 1986 Annual Meeting of
Stockholders, First Class directors shall be elected to a term of one year,
Second Class directors to a term of two years, and Third Class directors to a
term of three years, and at each subsequent annual meeting, the successors to
directors whose terms shall expire that year shall be elected to a term of three
years.
2. The original By-Laws of the corporation shall be
adopted by the incorporator unless the certificate of incorporation shall name
the initial Board of Directors therein. Thereafter, the power to make, alter, or
repeal the By-Laws, and to adopt any new By-Law, except a By-Law classifying
18
<PAGE>
directors for election for staggered terms, shall be vested in the Board of
Directors.
3. Whenever the corporation shall be authorized to issue only
one class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever the
corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting power under the
provisions of the certificate of incorporation shall entitle the holder thereof
to notice of, and the right to vote, at any meeting of stockholders except as
the provisions of paragraph (d) (2) of section 242 of the General Corporation
Law and of sections 251, 251, and 253 of the General Corporation Law shall
otherwise require; provided, that no share of any such class which is otherwise
denied voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
4. Except as otherwise provided with respect to any series of
preferred stock, any action required or permitted to be taken by the holders of
issued and outstanding stock of the Corporation may be effected solely at an
annual or special meeting of stockholders duly called and held in accordance
with law and this Certificate of Incorporation.
5. The affirmative vote of two-thirds (2/3) of the outstanding
stock entitled to vote in elections of directors (considered for this purpose as
one class) shall be required for any merger or consolidation to which the
Corporation is a party or any sale or other disposition by the Corporation of
all or substantially all of its assets.
6. The Board of Directors shall consist of such number of
persons fixed from time to time by the Board of Directors pursuant to resolution
adopted by a majority of directors then in office. Subject to the rights of
holders of any series of preferred stock, any vacancy in the Board of Directors
caused by death, resignation, removal, retirement, disqualification or any other
cause (including an increase in the number of directors) may be filled solely by
resolution adopted by the affirmative vote of a majority of the directors then
in office, whether or not such majority constitutes less than a quorum, or by a
sole remaining director. Any new directors elected to fill a vacancy on the
Board of Directors will serve for the remainder of the full term of that
director for which the vacancy occurred. No decrease in the size of the Board
shall have effect of shortening the term of any incumbent director.
7. Subject to the rights of holders of a class or series
of preferred stock to elect directors or to remove directors so elected, a duly
elected director of the Corporation may be removed from such position, with or
without cause, only by the affirmative vote of the holders of at least eighty
(80) percent in voting power of the outstanding capital stock of the Corporation
entitled to vote in the election of directors, voting as a single class. A
19
<PAGE>
special meeting of stockholders may be called by holders of shares outstanding
entitled to exercise a majority of the voting power of the Corporation in the
election of directors, solely for the purpose of removing a director or
directors. A meeting called by stockholders for the removal of a director or
directors shall be called upon the request in writing to the Chairman, President
or Secretary, sent by registered mail or delivered to the officer in person, by
a holder or holders of shares outstanding entitled to exercise a majority of the
voting power of the Corporation in the election of directors. Such officer
forthwith shall cause notice to be given to the stockholders entitled to vote
that a meeting will be held at a time, fixed by such officer, not less than 30
and not more than 60 days after the receipt of the request. If the notice is not
given with 20 days after the date of delivery, or the date of the mailing, of
the request, the person or persons calling the meeting may fix the time of
meeting and give the notice in the manner provided herein.
Nothing contained in this subdivision 7 shall be construed as limiting, fixing
or affecting the time or date when a special meeting of the stockholders called
by action of the Chairman, the President or the Board of Directors may be held.
NINTH: No contract or transaction between the corporation and
one or more of its directors or officers, or between the corporation and any
other corporation, partnership, association, or other organization in which one
or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors or a committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if:
(1) The material facts as to his interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board or Committee in good faith authorizes the
contract or transaction by a vote sufficient for such purpose without counting
the vote of the interested director or directors; or
(2) The material facts as to his interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified, by the Board
of Directors, a committee thereof, or the stockholders.
20
<PAGE>
(4) Common or interested directors may be counted
in determining the presence of a quorum at a meeting of the Board of Directors
or of a committee which authorizes the contract or transaction.
TENTH: (a) The corporation shall have power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall have power to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
21
<PAGE>
(c) To the extent that a director, officer, employee or agent
of the corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in paragraphs (a) and (b), or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in paragraphs (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board of
Directors in the specific case upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this Article.
(f) The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
(g) The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article.
22
<PAGE>
ELEVENTH: From time to time any of the provisions of this
certificate of incorporation may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the corporation by
this certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
TWELFTH: In addition to any other vote that may be required by
statute, Stock Exchange regulations, this certificate of incorporation or any
amendment hereof, or the by-laws of the corporation, the vote of the holders of
two-thirds of all classes of stock of the Corporation entitled to vote in
elections of directors (considered for this purpose as one class) shall be
required to amend, alter, change or repeal Article EIGHTH, Subdivision 5 or this
Article TWELFTH of this certificate of incorporation.
THIRTEENTH: The following provisions shall apply in addition
to any other affirmative vote required by law or this certificate of
incorporation:
SECTION 1
CERTAIN BUSINESS COMBINATIONS
The affirmative vote of the holders of not less than
four-fifths of the outstanding shares of Voting Stock (as hereinafter defined)
held by stockholders other than the Acquiring Person (as hereinafter defined)
with which or by or on whose behalf, directly or indirectly, a Business
Combination (as hereinafter defined) is proposed, voting as a single class,
shall be required for the approval or authorization of such Business
Combination. Notwithstanding the foregoing, the four-fifths voting requirement
shall not be applicable if such Business Combination is approved by the
Corporation's Board of Directors prior to the Acquiring Person becoming such or
if the cash or fair market value of the property, securities or other
consideration to be received per share by holders of shares of each class of
Voting Stock in such Business Combination as of the date of consummation thereof
is an amount not less than the higher of (a) the Highest Per Share Price or the
Highest Equivalent Price (as these terms are hereinafter defined) paid by such
Acquiring Person in acquiring any of its holdings of Voting Stock, and (b) the
Fair Market Price (as hereinafter defined) of such class of Voting Stock
determined on the date the proposal for such Business Combination was first
publicly announced, and such consideration shall be in the same form and of the
same kind as the consideration paid by such Acquiring Person in acquiring the
shares of Voting Stock already acquired by it. If the Acquiring Person had paid
for shares of Voting Stock with varying forms of consideration, the form of
consideration to be received by the holders of Voting Stock shall be the form
used to acquire the largest number of shares of Voting Stock acquired by such
Acquiring Person.
23
<PAGE>
SECTION II
DEFINITIONS
For purposes of this Article THIRTEENTH:
1. Business Combination. The term "Business Combination" shall
mean (a) any merger or consolidation of the Corporation or a subsidiary of the
Corporation with or into an Acquiring Person, (b) any sale, lease, exchange,
transfer or other disposition, including, without limitation, a mortgage or any
other security device, in a single transaction or related series of
transactions, of all or any Substantial Part (as hereinafter defined) of the
assets either of the Corporation (including without limitation any voting
securities of a subsidiary) or of a subsidiary of the Corporation to an
Acquiring Person, (c) any merger or consolidation of an Acquiring Person with or
into the Corporation or a subsidiary of the Corporation, (d) any sale, lease,
exchange, transfer or other disposition, including without limitation a mortgage
or other security device, in a single transaction or related series of
transactions, of all or any Substantial Part of the assets of an Acquiring
Person to the Corporation or a subsidiary of the Corporation, (e) the issuance
of any securities of the Corporation or a subsidiary of the Corporation to an
Acquiring Person, (f) any recapitalization, merger or consolidation that would
have the effect of increasing the voting power of an Acquiring Person, (g) the
adoption of any plan or proposal for the liquidation or dissolution of the
Corporation proposed, directly or indirectly, by or on behalf of an Acquiring
Person, (h) any merger or consolidation of the Corporation with a subsidiary of
the Corporation proposed by or on behalf of an Acquiring Person, unless the
surviving or consolidated corporation, as the case may be, has a provision in
its certificate of incorporation substantially identical to this Article
THIRTEENTH, (i) any agreement, contract or other arrangement providing for any
of the transactions described in this definition of Business Combination, and
(j) any other transaction with an Acquiring Person which requires the approval
of the stockholders of the Corporation under the General Corporation Law of
Delaware. A person who is an Acquiring Person as of (x) the time any definitive
agreement relating to a Business Combination is entered into, (y) the record
date for the determination of stockholders entitled to notice of and to vote on
a Business Combination, or (z) immediately prior to the consummation of a
Business Combination, shall be deemed an Acquiring Person for purposes of this
Definition.
2. Acquiring Person. The term "Acquiring Person" shall mean
and include any individual, corporation (other than the Corporation),
partnership or other person or entity which, together with its Affiliates and
Associates (as defined in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934 as in effect at December 16, 1983,
collectively, and as so in effect, the "Exchange Act"), and with any other
individual, corporation (other than the Corporation), partnership or other
person or entity with which it or they have any agreement,
24
<PAGE>
arrangement or understanding with respect to acquiring, holding, voting or
disposing of Voting Stock, Beneficially Owns (as defined in Rule 13d-3 of the
Exchange Act) in the aggregate 5% or more of the outstanding Voting Stock of the
Corporation. A person or entity, its Affiliates and Associates and all such
other persons or entities with whom they have any such agreement, arrangement or
understanding shall be deemed a single Acquiring Person for purposes of this
Article THIRTEENTH. For purposes of this Article, the Board of Directors shall
have the power to determine, on the basis of information known to the Board, if
and when there is an Acquiring Person. Any such determination shall be
conclusive and binding for all purposes of this Article.
3. Substantial Part. The term "Substantial Part" shall mean an
amount equal to more than 10% of the fair market value of the total consolidated
assets of the Corporation and its subsidiaries taken as a whole as of the end of
its most recent fiscal year ended prior to the time the determination is being
made.
4. Rights to Acquire. Without limitation, any share of Voting
Stock of the Corporation that any Acquiring Person has the right to acquire at
any time (notwithstanding that Rule 13d-3 of the Exchange Act deems such shares
to be beneficially owned only if such right may be exercised within 60 days)
pursuant to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, shall be deemed to be Beneficially Owned by the Acquiring
Person and to be outstanding for purposes of Paragraph 2 of this Section II.
5. Other Consideration to be Received. For the purposes of
Section I of this Article THIRTEENTH, the term "other consideration to be
received" shall include, without limitation, Common Stock, Preferred Stock or
other capital of the Corporation retained by its existing stockholders other
than the Acquiring Person with which or by or on whose behalf, directly or
indirectly, a Business Combination has been proposed or other parties to such
Business Combination in the event of a Business Combination in which the
Corporation is the surviving corporation.
6. Voting Stock. The term "Voting Stock" shall mean all of the
outstanding shares of capital stock of the Corporation entitled to vote in
elections of directors (considered for this purpose as one class), and each
reference to a percentage of shares of Voting Stock shall refer to such
percentage of the votes entitled to be cast by such shares.
7. Time of Acquisition. An Acquiring Person shall be deemed to
have acquired shares of the Voting Stock of the Corporation at the time when
such Acquiring Person became the Beneficial Owner thereof. The price paid by an
Acquiring Person for such shares held by a person or entity at the time it
became part of such Acquiring Person shall be deemed to be the higher of
25
<PAGE>
(a) the price paid upon the acquisition thereof by such person or entity and (b)
the market price of the shares in question at the time when such person or
entity became part of such Acquiring Person.
8. Highest Per Share Price; Highest Equivalent Price. The
terms "Highest Per Share Price" and "Highest Equivalent Price" as used in this
Article THIRTEENTH shall mean the following: If there is only one class of
capital stock of the Corporation issued and outstanding, the Highest Per Share
Price shall mean the highest per share price that can be determined to have been
paid at any time by the Acquiring Person by or on whose behalf, directly or
indirectly, the Business Combination has been proposed for any share or shares
of that class of capital stock. If there is more than one class of capital stock
of the Corporation issued and outstanding, the Highest Equivalent Price shall
mean, with respect to each class and series of capital stock of the Corporation,
the highest per share price equivalent of the highest price that can be
determined to have been paid at any time by such Acquiring Person for any share
or shares of any class or series of capital stock of the Corporation. In
determining the Highest Per Share Price and Highest Equivalent Price, all
purchases by an Acquiring Person shall be taken into account regardless of
whether the shares were purchased before or after the Acquiring Person became an
Acquiring Person. Also, the Highest Per Share Price and the Highest Equivalent
Price shall include any brokerage commissions, transfer taxes and soliciting
dealers' fees paid by the Acquiring Person with respect to the shares of capital
stock of the Corporation acquired by the Acquiring Person. The Highest Per Share
Price and the Highest Equivalent Price shall be appropriately adjusted to take
into account stock dividends, subdivisions, combinations and reclassifications.
9. Fair Market Price. The term "Fair Market Price" shall mean
for any class of Voting Stock the highest closing sale price during the 30-day
period immediately preceding the date in question of a share of such class of
Voting Stock on the Composite Tape for New York Stock Exchange-listed stocks,
or, if such class of Voting Stock is not quoted on the Composite Tape, on the
New York Stock Exchange, or, if such class of Voting Stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which such class of Voting Stock is
listed, or, if such class of Voting Stock is not listed on any such exchange,
the highest closing bid quotation with respect to a share of such class of
Voting Stock during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations System or
any system then in use, or if no such quotations are available, the fair market
value on the date in question of a share of such stock.
26
<PAGE>
SECTION III
AMENDMENT
The provisions set forth in this Article THIRTEENTH may not be
amended, altered, changed or repealed in any respect unless such action is
approved by the affirmative vote of the holders of not less than four-fifths of
the outstanding shares of Voting Stock of the Corporation at a meeting of the
stockholders duly called for the consideration of such amendment, alteration,
change or repeal, provided, however, that if such action has been proposed,
directly or indirectly, on behalf of an Acquiring Person, it must also be
approved by the affirmative vote of the holders of not less than four-fifths of
the outstanding shares of Voting Stock held by the stockholders other than such
Acquiring Person.
SECTION IV
NON-EXCLUSIVE
The provisions set forth in this Article THIRTEENTH are in
addition to the provisions set forth in Article EIGHTH, subdivision 5 of this
certificate of incorporation.
FOURTEENTH: In addition to any other vote that may be required
by statute, stock exchange regulations, this Certificate of Incorporation or any
amendment hereof, the vote of the holders of four-fifths of all classes of stock
of the Corporation entitled to vote in elections of directors (considered for
this purpose as one class) shall be required to amend, alter, change or repeal
Article EIGHTH, subdivisions one, two, four, six and seven or this Article
FOURTEENTH of this Certificate of Incorporation.
FIFTEENTH: No director shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that the foregoing shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omission not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction for which the director derived an improper personal benefit. The
foregoing shall not eliminate or limit the liability of a director for any act
or omission occurring prior to the date this Article becomes effective.
27
<PAGE>
Signed and attested to on
August ____, 1999
-----------------------------
Charles P. Johnson
Chairman of the Board
Attest:
- ------------------------------
Howard S. Modlin, Secretary
AMENDED BY-LAWS
OF
GENERAL DATACOMM INDUSTRIES, INC.
(A Delaware Corporation)
As of July 22, 1999
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate signed by, or in the name
of, the corporation by the Chairman or Vice-Chairman of the Board of Directors,
if any, or by the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
corporation certifying the number of shares owned by him in the corporation. If
such certificate is countersigned by a transfer agent other than the corporation
or its employee or by a registrar other than the corporation or its employee,
any other signature on the certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more
than one class of stock or more than one series of any class of stock, and
whenever the corporation shall issue any shares of its stock as partly paid
stock, the certificates representing shares of any such class or series or
of any such partly paid stock shall set forth thereon the statements
prescribed by the General Corporation Law. Any restrictions on the transfer
or registration of transfer of any shares of stock of any class or series
shall be noted conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock in
place of any certificate theretofore issued by it, alleged to have been
lost, stolen, or destroyed, and the Board of Directors may require the owner
of any lost, stolen, or destroyed certificate, or his legal representative,
to give the corporation a bond sufficient to indemnify the corporation
against any claim that may be made against it on account of the alleged
loss, theft, or destruction of any such certificate or the issuance of any
such new certificate.
2. FRACTIONAL SHARE INTERESTS. The corporation may, but shall
not be required to, issue fractions of a share. In lieu thereof it shall
either pay in cash the fair value of fractions of a share, as determined by
the Board of Directors, to those entitled thereto or issue scrip or
fractional warrants in registered or bearer form over the manual or
facsimile signature of an officer of the corporation or of its agent,
<PAGE>
exchangeable as therein provided for full shares, but such scrip or
fractional warrants shall not entitle the holder to any rights of a
stockholder except as therein provided. Such scrip or fractional warrants
may be issued subject to the condition that the same shall become void if
not exchanged for certificates representing full shares of stock before a
specified date, or subject to the condition that the shares of stock for
which such scrip or fractional warrants are exchangeable may be sold by the
corporation and the proceeds thereof distributed to the holders of such
scrip or fractional warrants, or subject to any other conditions which the
Board of Directors may determine.
3. STOCK TRANSFERS. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if
any, transfers or registration of transfers of shares of stock of the
corporation shall be made only on the stock ledger of the corporation by the
registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary of the corporation or
with a transfer agent or a registrar, if any, and on surrender of the
certificate or certificates for such shares of stock properly endorsed and
the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS. For the purpose of
determining the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or for the purpose of
determining stockholders entitled to receive payment of any dividend or
other distribution or the allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion, or exchange of stock, or
for the purpose of any other lawful action, the directors may fix, in
advance, a date as the record date for any such determination of
stockholders. Such date shall not be more than sixty days nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. If no record date is fixed, the record date for the
determination of stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding
the day on which notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held; the
record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. When a determination of stockholders of record
entitled to notice of or to vote at any meeting of stockholders has been
made as provided in this paragraph, such determination shall apply to any
adjournment thereof; provided, however, that the Board of Directors may fix
a new record date for the adjourned meeting.
5. MEANING OF CERTAIN TERMS. As used herein in respect of
the right to notice of a meeting of stockholders or a waiver thereof or to
participate or vote thereat, as the case may be, the term "share" or
"shares" or "share of stock" or "shares of stock" or "stockholder" or
"stockholders" refers to an outstanding share or shares of stock and to a
holder or holders of record of outstanding shares of stock when the
corporation is authorized to issue only one class of shares of stock, and
said reference is also intended to include any outstanding share or shares
of stock and any holder or holders of record of outstanding shares of stock
of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or
2
<PAGE>
more classes or series of shares of stock or upon which or upon whom the General
Corporation Law confers such rights notwithstanding that the certificate of
incorporation may provide for more than one class or series of shares of stock,
one or more of which are limited or denied such rights thereunder; provided,
however, that no such right shall vest in the event of an increase or a decrease
in the authorized number of shares of stock of any class or series which is
otherwise denied voting rights under the provisions of the certificate of
incorporation.
6. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and
at the time fixed, from time to time, by the directors. A special meeting
shall be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be
held at such place, within or without the State of Delaware, as the
directors may, from time to time fix. Whenever the directors shall fail to
fix such place, the meeting shall be held at the registered office of the
corporation in the State of Delaware.
- CALL. Annual meetings and special meetings may be
called by the directors or by any officer instructed by the directors to
call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all
meetings shall be given, stating the place, date, and hour of the meeting
and stating the place within the city or other municipality or community at
which the list of stockholders of the corporation may be examined. The
notice of an annual meeting shall state that the meeting is called for the
election of directors and for the transaction of other business which may
properly come before the meeting, and shall, (if any other action which
could be taken at a special meeting is to be taken at such annual meeting)
state the purpose or purposes. The notice of a special meeting shall in all
instances state the purpose or purposes for which the meeting is called. If
any action is proposed to be taken which would, if taken, entitle
stockholders to receive payment for their shares of stock, the notice shall
include a statement of that purpose and to that effect. Except as otherwise
provided by the General Corporation Law, a copy of the notice of any meeting
shall be given, personally or by mail, not less than ten days nor more than
sixty days before the date of the meeting, unless the lapse of the
prescribed period of time shall have been waived, and directed to each
stockholder at his record address or at such other address which he may have
furnished by request in writing to the Secretary of the corporation. Notice
by mail shall be deemed to be given when deposited, with postage thereon
prepaid, in the United States mail. If a meeting is adjourned to another
time, not more than thirty days hence, and/or to another place, and if an
announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned
meeting. Notice need not be given to any stockholder who submits a written
waiver of notice by him before or after the time stated therein. Attendance
of a person at a meeting of stockholders shall constitute a waiver of notice
of such meeting, except when the stockholder attends a meeting for the
3
<PAGE>
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any
written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten
days prior to the meeting, either at a place within the city or other
municipality or community where the meeting is to be held, which place shall
be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The list shall also be produced and
kept at the time and place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
The stock ledger shall be the only evidence as to who are the stockholders
entitled to examine the stock ledger, the list required by this section or
the books of the corporation, or to vote at any meeting of stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and
if present and acting - the Chairman of the Board, if any, the Vice-Chairman
of the Board, if any, the President, a Vice-President, or, if none of the
foregoing is in office and present and acting, by a chairman to be chosen by
the stockholders. The Secretary of the corporation, or in his absence, an
Assistant Secretary, shall act as secretary of every meeting, but if neither
the Secretary nor an Assistant Secretary is present the Chairman of the
meeting shall appoint a secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize
another person or persons to act for him by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or
dissent without a meeting. Every proxy must be signed by the stockholder or
by his attorney-in-fact. No proxy shall be voted or acted upon after three
years from its date unless such proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and,
if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A proxy may be made irrevocable regardless of
whether the interest with which it is coupled is an interest in the stock
itself or an interest in the corporation generally.
4
<PAGE>
- INSPECTORS AND JUDGES. The directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any
adjournment thereof. If an inspector or inspectors or judge or judges are
not appointed, the person presiding at the meeting may, but need not,
appoint one or more inspectors or judges. In case any person who may be
appointed as an inspector or judge fails to appear or act, the vacancy may
be filled by appointment made by the directors in advance of the meeting or
at the meeting by the person presiding thereat. Each inspector or judge, if
any, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector or judge at such
meeting with strict impartiality and according to the best of his ability.
The inspectors or judges, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right
to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the
meeting, the inspector or inspectors or judge or judges, if any, shall make
a report in writing of any challenge, question or matter determined by him
or them and execute a certificate of any fact found by him or them.
- QUORUM. The holders of a majority of the outstanding shares
of stock shall constitute a quorum at a meeting of stockholders for the
transaction of any business. The stockholders present may adjourn the
meeting despite the absence of a quorum.
- VOTING. Except as may otherwise be provided by the
certificate of incorporation, each share of stock shall entitle the holder
thereof to one vote. In the election of directors, a plurality of the votes
cast shall elect. Except where a greater vote is required by the General
Corporation Law or the certificate of incorporation or By-Laws of the
corporation, any proposal submitted by a stockholder in accordance with the
rules and regulations of the Securities and Exchange Commission or otherwise
shall be authorized by a majority of the outstanding shares of stock of the
corporation entitled to vote. Any other action shall be authorized by a
majority of the votes cast except where the General Corporation Law or the
certificate of incorporation or By-Laws of the corporation prescribes a
different percentage of votes and/or a different exercise of voting power.
In the election of directors, voting need not be by ballot. Voting by ballot
shall not be required for any other corporate action except as otherwise
provided by the General Corporation Law.
5
<PAGE>
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business of the
corporation shall be managed by the Board of Directors of the corporation.
The use of the phrase "whole board" herein refers to the total number of
directors which the corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The property, affairs and business of the corporation shall be
managed by its Board of Directors. Directors shall be divided into three
classes, each class to be determined by the directors prior to the election
of a particular class. In the event that at any time or from time to time
the number of directors is increased, the newly created directorships
resulting therefrom shall be filled by a vote of the majority of the
directors in office immediately prior to such increase and directors so
elected shall serve until the term of the class to which they are assigned
expires. Vacancies in any class of directors shall be filled by the vote of
the remaining directors, and directors so elected shall serve until the term
of such class expires. The number of directors may be fixed from time to
time by action of a majority of the directors. The number of directors may
be increased or decreased by action of the majority of the directors then in
office.
3. ELECTION AND TERM. Any director may resign at any time
upon written notice to the corporation. The Board of Directors shall consist
of such number of persons fixed from time to time by the Board of Directors
pursuant to resolution adopted by a majority of directors then in office.
Subject to the rights of holders of any series of preferred stock, any
vacancy in the Board of Directors caused by death, resignation, removal,
retirement, disqualification or any other cause (including an increase in
the number of directors) may be filled solely by resolution adopted by the
affirmative vote of a majority of the directors then in office, whether or
not such majority constitutes less than a quorum, or by a sole remaining
director. Any new directors elected to fill a vacancy on the Board of
Directors will serve for the remainder of the full term of that director for
which the vacancy occurred. No decease in the size of the Board shall have
effect of shortening the term of any incumbent director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall
fix, except that the first meeting of a newly elected Board shall be held as
soon after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or
without the State of Delaware as shall be fixed by the Board.
6
<PAGE>
- CALL. No call shall be required for regular meetings for
which the time and place have been fixed. Special meetings may be called by or
at the direction of the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, of the President or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be
given for special meetings in sufficient time for the convenient assembly of
the directors thereat. The notice of any meeting need not specify the
purpose of the meeting. Any requirement of furnishing a notice shall be
waived by any director who signs a written waiver of such notice before or
after the time stated therein.
- QUORUM AND ACTION. A majority of the whole Board shall
constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum, provided, that such majority shall constitute at least one-third of
the whole Board. A majority of the directors present, whether or not a
quorum is present, may adjourn a meeting to another time and place. Except
as herein otherwise provided, and except as otherwise provided by the
General Corporation Law, the act of the Board shall be the act by vote of a
majority of the directors present at a meeting, a quorum being present. The
quorum and voting provisions herein stated shall not be construed as
conflicting with any provisions of the General Corporation Law and these
By-Laws which govern a meeting of directors held to fill vacancies and newly
created directorships in the Board.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if
any and if present and acting, shall preside at all meetings. Otherwise,
the Vice-Chairman of the Board, if any and if present and acting, or the
President, if present and acting, or any other director chosen by the Board,
shall preside.
5. REMOVAL OF DIRECTORS. Subject to the rights of holders of a
class or series of preferred stock to elect directors or to remove directors
so elected, a duly elected director of the corporation may be removed from
such position, with or without cause, only by the affirmative vote of the
holders of at least eighty (80) percent in voting power of the outstanding
capital stock of the corporation entitled to vote in the election of
directors, voting as a single class. A special meeting of stockholders may
be called by holders of shares outstanding entitled to exercise a majority
of the voting power of the corporation in the election of directors, solely
for the purpose of removing a director or directors. A meeting called by
stockholders for the removal of a director or directors shall be called upon
the request in writing to the Chairman, President or Secretary, sent by
registered mail or delivered to the officer in person, by a holder or
holders of shares outstanding entitled to exercise a majority of the voting
power of the corporation in the election of directors. Such officer
forthwith shall cause notice to be given to the stockholders entitled to
vote that a meeting will be held at a time, fixed by such officer, not less
than 30 and not more than 60 days after the receipt of the request. If the
7
<PAGE>
notice is not given within 20 days after the date of delivery, or the date
of the mailing, of the request, the person or persons calling the meeting
may fix the time of meeting and give the notice in the manner provided
herein.
6. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to
all papers which may require it. In the absence or disqualification of any
member of any such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he
or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
7. ACTION IN WRITING. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
The directors shall elect a President, a Secretary, and a
Treasurer, and may elect a Chairman of the Board of Directors, a
Vice-Chairman thereof, and one or more Vice-Presidents, Assistant
Secretaries, and Assistant Treasurers, and may elect or appoint such other
officers and agents as are desired. The President may but need not be a
director. Any number of offices may be held by the same person.
Unless otherwise provided in the resolution of election or
appointment, each officer shall hold office until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor has been elected and qualified. Any officer may resign at any time
upon written notice.
Officers shall have the powers and duties defined in the
resolutions appointing them; provided, that the Secretary shall record all
proceedings of the meetings or of the written actions of the directors, and
any committee thereof in a book to be kept for that purpose.
The Board of Directors may remove any officer for cause or
without cause.
8
<PAGE>
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of
Directors shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall
be subject to change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BY-LAWS
The power to amend, alter, and repeal these By-Laws and to
adopt new By-Laws shall be vested in the Board of Directors; provided, that
the Board of Directors may delegate such power, in whole or in part, to the
stockholders.
ARTICLE VII
BY-LAW VOTED BY PLURALITY VOTE AT ANNUAL MEETING OF
STOCKHOLDERS HELD ON FEBRUARY 4, 1999 (The Board of Directors has reserved
the right to challenge or repeal this By-Law on the grounds of illegality
under Delaware law and other reasons, as well as the status of the proponent
as a stockholder).
OPTION REPRICING. The Company shall not reprice any stock
options already issued and outstanding to a lower strike price at any time
during the term of such option, without the prior approval of shareholders.
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,580
<SECURITIES> 0
<RECEIVABLES> 26,871
<ALLOWANCES> 1,720
<INVENTORY> 30,309
<CURRENT-ASSETS> 72,574
<PP&E> 149,521
<DEPRECIATION> 112,316
<TOTAL-ASSETS> 144,287
<CURRENT-LIABILITIES> 51,259
<BONDS> 64,131
0
800
<COMMON> 2,225
<OTHER-SE> 22,501
<TOTAL-LIABILITY-AND-EQUITY> 144,287
<SALES> 83,779
<TOTAL-REVENUES> 123,565
<CGS> 52,134
<TOTAL-COSTS> 76,826
<OTHER-EXPENSES> 59,741
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,999)
<INCOME-PRETAX> (18,001)
<INCOME-TAX> 700
<INCOME-CONTINUING> (18,701)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,701)
<EPS-BASIC> (0.92)
<EPS-DILUTED> (0.92)
</TABLE>
