U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934 For the quarterly period ended: SEPTEMBER 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act
For the transition period from ______________ to ________________
COMMISSION FILE NUMBER 0-1298
ADVANCED TECHNICAL PRODUCTS, INC.
(Exact name of Small Business Issuer as Specified in Its Charter)
DELAWARE 11-1581582
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3353 Peachtree Road, Suite 920, Atlanta, Georgia 30326
(Address of Principal Executive Offices)
(404) 231-7272
(Issuer's Telephone Number, Including Area Code)
LUNN INDUSTRIES, INC.
(Former name, if changed since last report)
1 Garvies Point Road, Glen Cove, New York 11542-2828
(Former Address of Principal Executive Offices)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 of 15(d) of the Securities Exchange Act during the past 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 [ ]
The aggregate number of shares of Common Stock outstanding as of October 30,
1997 was 12,767,293.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
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ADVANCED TECHNICAL PRODUCTS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..........................................1
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations.........................................6
Financial Condition...........................................7
Subsequent Events.............................................8
Recent Accounting Pronouncements..............................9
Forward Looking Statements - Cautionary Factors...............9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................10
Item 6. Exhibits and Reports on Form 8-K.............................10
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
SEPTEMBER 30,
1997
-----------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalent ...................................... $ 18,011
Accounts Receivable - trade, net of allowance for doubtful
accounts of approximately $120,721 ......................... 3,548,536
Inventories ................................................... 4,893,466
Prepaid expense and other current assets ...................... 742,531
-----------
TOTAL CURRENT ASSETS ....................................... 9,202,544
-----------
Property and equipment - net of accumulated
depreciation of $5,879,139 .................................... 12,715,504
-----------
Other Assets:
Security deposits and other assets ............................ 262,847
Goodwill and other intangibles, net of accumulated
amortization of $139,756 .................................... 383,309
-----------
Total other assets .............................................. 646,156
TOTAL ASSETS ............................................ $22,564,204
===========
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LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30,
1997
------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft .............................................. $ 245,059
Accounts Payable - trade .................................... 1,005,434
Accrued Liabilities ......................................... 592,183
Capital Lease Obligations .................................... 98,624
------------
TOTAL CURRENT LIABILITIES ............................... 1,941,300
------------
LONG-TERM LIABILITIES:
Long-term debt .............................................. 7,701,678
Obligation under capital lease net of current portion ....... 215,851
------------
TOTAL LONG TERM LIABILITIES ............................. 7,917,529
------------
TOTAL LIABILITIES ................................... 9,858,829
------------
STOCKHOLDERS' EQUITY:
Preferred stock $.01 par value; authorized 1,000,000
shares; no shares issued and outstanding ................. --
Common stock: par value $.01 per share; authorized
30,000,000 shares; issued and outstanding 12,767,293 ..... 127,673
Additional paid-in capital .................................... 14,441,033
Accumulated deficit ........................................... (1,862,994)
------------
12,705,712
Less treasury stock (150 shares) .............................. (337)
------------
TOTAL STOCKHOLDERS' EQUITY .................................... 12,705,375
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............... $ 22,564,204
============
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LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES .................................................. $ 6,124,015 $ 4,508,480 $ 16,849,585 $ 13,363,484
Cost of sales .............................................. 4,462,871 3,473,256 12,701,401 10,415,876
------------ ------------ ------------ ------------
Gross income ............................................... 1,661,144 1,035,224 4,148,184 2,947,608
Selling, general and administrative expenses ............... 1,066,554 720,124 2,695,400 2,114,909
------------ ------------ ------------ ------------
Operating income ........................................... 594,590 315,100 1,452,784 832,699
Other income (expenses):
Interest expense, net .................................... (147,042) (126,349) (379,839) (374,040)
Other income, net ........................................ 371,041 (13,085) 394,449 11,865
------------ ------------ ------------ ------------
223,999 (139,434) 14,610 (362,175)
Income before provision for income taxes ................... 818,589 175,666 1,467,394 470,524
Provision for income taxes ................................. 0 0 1,000 0
------------ ------------ ------------ ------------
NET INCOME ................................................. $ 818,589 $ 175,666 $ 1,466,394 $ 470,524
============ ============ ============ ============
Weighted average number of common shares outstanding ....... 13,680,884 13,159,823 13,490,257 9,974,298
Income per share ........................................... $ 0.06 $ 0.01 $ 0.11 $ 0.05
============ ============ ============ ============
</TABLE>
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LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ...................................... $ 1,466,394 $ 470,524
Adjustments to reconcile net income
Provided by operating activities:
Depreciation and amortization ................... 1,105,212 898,264
Allowance for doubtful accounts ................. (56,167) 86,373
Expenses paid through issuance of stock ......... 18,000 71,800
Debt paid through issuance of stock ............. -- 46,666
Changes in assets & liabilities:
Accounts receivable ............................ (475,731) (1,212,148)
Inventory ...................................... (127,649) (662,239)
Prepaid exp & other assets ..................... (385,393) (140,885)
Accounts payable ............................... (339,649) (335,988)
Accrued liabilities ............................ 50,031 156,000
Customer advances .............................. 117,085
----------- -----------
Net cash provided by (used in) operating activities 1,255,048 (504,548)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of land and building .................... (2,351,556)
Purchase of plant and equipment .................. (2,172,645) (1,122,814)
Leasehold improvements ........................... (11,395) (32,194)
Other Investments - Tubus Bauer .................. (99,167)
----------- -----------
Net cash used in investing activities .............. (4,634,763) (1,155,008)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash overdraft .................................. 120,130 --
Repayment of debt ............................... (15,000) (990,889)
Proceeds from long-term debt, net of repayments . 529,379 925,649
Proceeds from IDA Bond Issue .................... 2,653,176
Proceeds from issuance of common stock .......... -- 1,294,350
Proceeds from exercise of warrants & options .... 176,783
Payment/Increase on capital lease obligations ... (71,918) 231,652
----------- -----------
Net cash provided by financing activities .......... 3,392,550 1,460,762
Net increase (decrease) in cash .................... 12,835 (198,794)
Cash balance - beginning ........................... 5,176 206,075
----------- -----------
Cash balance - ending .............................. $ 18,011 $ 7,281
=========== ===========
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LUNN INDUSTRIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
CONDENSED STATEMENTS
NOTE 1 - CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The information contained in the consolidated condensed financial
statements for the period ended September 30, 1997 is unaudited, but includes
all adjustments, consisting of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods.
These financial statements and notes are presented as permitted by Form
10-QSB, and do not contain certain information included in the Company's annual
financial statements and notes. These financial statements should be read in
conjunction with the Company's annual financial statements as reported in its
most recent Annual Report on Form 10-KSB.
The unaudited results of operations for the period ended September 30,
1997 are not necessarily indicative of the results to be expected for the full
year.
NOTE 2 - BOND FINANCING:
During May and July, 1997 the Company completed financing arrangements
with the State of Maryland and Harford County, Maryland to finance the purchase,
expansion and rehabilitation of the Company's Belcamp, Maryland honeycomb
manufacturing facility. The financing arrangement included the issuance on May
14, 1997 of $2.6 million in fifteen-year tax-exempt industrial development
bonds. Additionally, on July 7, 1997, the Company received a 10-year $810
thousand loan from the Maryland Industrial and Commercial Redevelopment Fund
(MICRF), plus a five-year $60 thousand loan and three year $30 thousand tax
credit from Harford County, Maryland.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The company continues to report profitable operating results for the third
quarter ended September 30, 1997. Consolidated net income for the quarter ended
September 30, 1997 rose to $819 thousand, or $.06 a share, up from $176
thousand, or $.01 per share, an increase of 366% over the same period last year.
Consolidated net income for the first nine months of 1997 was $1,466 thousand,
or $.11 per share, an increase of 212%, compared to $471 thousand or $ .05 per
share during the first nine months of 1996.
Consolidated sales during the third quarter of 1997 were $6.1 million compared
to $4.5 million in the third quarter of 1996, an increase of 36%. Consolidated
sales for the first nine months of 1997 were $16.8 million compared to $13.4
million in 1996, an increase of 26%. Quarterly and nine months sales increases
were reflected across the aluminum honeycomb and bonding segments with a slight
decrease in the composite segment. This is due primarily to increase demand for
commercial and military aircraft and aerospace materials and assemblies and a
flatness in the demand for military composites.
Sales for the aluminum honeycomb segment for the third quarter and first nine
months of 1997 increased to $4.4 and $11.5 million, respectively, compared to
$2.8 and $8.9 million, respectively during similar periods in 1996. Increased
honeycomb sales continued, due to results from a number of factors, including
startup and full production rate on engine nacelle honeycomb assemblies for the
C-17 program and honeycomb control surfaces for the 767 and 757 Boeing programs.
General overall aircraft build rate increases further added to the increased
sales volume.
Sales for the bonding/composite segments for the third quarter and first nine
months of 1997 were $1.7 million and $ 5.3 million, respectively, compared to
$1.7 and $ 4.5 million for 1996. Improved bonding/composite sales resulted
primarily from bonded assemblies for military and commercial aircraft, space and
other aerospace applications.
The backlog of customer orders as of September 30, 1997 increased to
approximately $32 million, an increase of $12.4 million or 63% compared to a
backlog of $19.6 million at the end of the third quarter of 1996.
Consolidated operating income for the third quarter 1997 was $595 thousand
compared to $315 thousand in the third quarter of 1997, an increase of 89%.
Consolidated operating income for the first nine months of 1997 was
approximately $1.5 million compared to $833 thousand in 1996, an increase of
75%. Operating income for the aluminum honeycomb segment for the third quarter
and first nine months of 1997 increased to $524 thousand and $1.2 million,
respectively, compared to $175 thousand and $663 thousand respectively during
similar periods in 1996. Operating income for the bonding/composite segment for
the third quarter of 1997 decreased to $71 thousand compared to $140 thousand
during similar period in 1996. Operating income for the bonding/composite
segment for the first nine months of 1997 increased to $300 thousand, compared
to $170 thousand during similar period in 1996. The overall improvement in
consolidated operating income for 1997
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resulted from higher sales and increased productivity from larger long-term
contracts and improved gross margin (24.6% vs. 22.1%).
Interest expense for the third quarter 1997 was $147 thousand compared to $126
thousand in the third quarter of 1996. Interest expense for the first nine
months of 1997 was $380 thousand on $7.7 million loans outstanding, compared to
$374 thousand on $4.0 million loans outstanding in 1996. The interest rate in
1996 was prime plus 2-1/2% (10-1/2%) vs. 8.65% in 1997.
The expansion and rehabilitation of the Belcamp, Maryland facility are scheduled
for completion during the fourth quarter of 1997 and will support expanding
production requirements for engine nacelle honeycomb for the military C-17
aircraft program and honeycomb control surfaces for Boeing 767 and 757 aircraft
programs.
On August 1, 1997, the Company's wholly-owned subsidiary, Alcore, entered into a
technology license agreement with Showa Aircraft Industry Co., Ltd. of Japan
("Showa") for an initial term of ten years with an additional five year term
upon the consent of Alcore and Showa. The agreement calls for Alcore to supply
Showa all appropriate and necessary technical documentation, processes and
production know-how to enable Showa to manufacture and sell PAA (phosphoric acid
anodized) aluminum honeycomb exclusively in Japan, Asia and the Pacific Rim
countries. The agreement also provides that Cytec Engineered Materials, Inc.
("Cytec"), Alcore's exclusive supplier of certain proprietary primer and
adhesive materials for PAA honeycomb, to offer the same primer and adhesive
materials to Showa for the duration of the term of the exclusive agreement
between Alcore and Cytec. In the interim, period before Showa establishes full
PAA honeycomb manufacturing capability, including the capability to PAA anodize
and prime aluminum foil, the agreement calls for the Alcore to supply Showa PAA
anodized and primed foil for use by Showa in the manufacture of PAA honeycomb.
Additionally, the agreement called for Alcore to support Showa's efforts to
secure full PAA honeycomb qualification by Boeing and other aircraft
manufacturers on an expedited basis. In return for the technology transfer,
Showa paid Alcore $500 thousand plus $100 thousand additional to be paid at the
time Showa begins full PAA honeycomb production utilizing Showa PAA anodized and
primed aluminum foil. Additionally, Showa will pay royalties of 4% for a period
of five years on sales of all Showa produced PAA honeycomb utilizing Showa PAA
anodized and primed aluminum foil.
FINANCIAL CONDITION
Net cash provided from operations during the first nine months of 1997 was
$1,225 thousand, compared to $505 thousand cash used in operations during the
same period in 1996. Net cash provided during the first nine months of 1997 was
comprised of $1,466 thousand net income plus $1,067 thousand in non-cash items,
primarily depreciation, offset by $1,308 thousand in changes in assets and
liabilities. Net cash used in operations during the first nine months of 1996
consisted of $504 thousand net income, plus $1,103 thousand in non-cash items,
again primarily depreciation, offset by $2,078 thousand in changes in assets and
liabilities.
Net cash used in investing activities during the first nine months of 1997 was
$4.6 million. This was primarily comprised of $2.4 million utilized for the
purchase of the Company's aluminum
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honeycomb manufacturing facility located in Belcamp, MD, $.6 million for the
purchase of new machinery and equipment and $1.6 million for construction in
progress at the Company's facilities located in Belcamp, Maryland and Glen Cove,
New York.
Net cash provided by financing activities was approximately $3.4 million,
comprised primarily of $2.7 million proceeds from the State of Maryland
Industrial Development Bonds, $.2 million proceeds from the exercise of warrants
and options, and $.5 million in increased borrowing against the Company's
revolving credit facility.
On May 14, 1997, the Company entered into a financing agreement with the State
of Maryland to provide $2.6 million in 15 year tax-exempt industrial development
bonds bearing interest at a variable rate adjusted weekly to finance the
purchase of the Company's Belcamp, Maryland honeycomb manufacturing facility and
an adjacent 3.2 acre parcel of land. Previously, on April 17, 1997, the Company
entered into an interest rate hedge agreement with First Union Bank of Maryland
to fix the interest rate on the tax exempt bonds at 5.07% through the year 2012.
Additionally, on July 7, 1997, in conjunction with the tax exempt bond financing
noted above, the Company entered into a ten-year $810 thousand Maryland
Industrial and Commercial Redevelopment Fund (MICRF) loan agreement with
interest set at a fixed rate of 5.1% annually, plus a five-year $60 thousand
loan from Harford County, Maryland with interest set at a fixed rate of 5.5% and
a $30 thousand Harford County, Maryland three year tax credit. The proceeds of
these loans are intended to finance the expansion and rehabilitation of the
Belcamp, Maryland honeycomb facility.
The Company believes it has sufficient capital resources to operate successfully
over the next twelve months. Capital expenditure projects are being implemented
in accordance with the Company's 1997 capital plan to ensure adequate capacity,
facilities and support are available to meet anticipated increased demand for
the Company's products. The Company believes that, based on current quarter and
nine-month results, operating cash flow together with credit availability under
the Company's revolving credit line will be sufficient to support its working
capital needs. However, should circumstances arise affecting cash flow or
requiring additional capital expenditures beyond those anticipated, there can be
no assurances that such funds will be available. (See "Forward-Looking
Statements - Cautionary Factors.")
SUBSEQUENT EVENTS
On October 31, 1997, TPG Holdings, Inc., a privately held Delaware corporation
headquartered in Atlanta, Georgia ("TPG"), merged with and into the Company,
with the Company being the surviving corporation under the name "Advanced
Technical Products, Inc.," in accordance with the terms of an Acquisition
Agreement and Plan of Merger dated June 6, 1997 by and between TPG and the
Company, as amended on August 22, 1997. TPG was formed in 1995 to acquire the
assets of three operating units of the Brunswick Technical Group of Brunswick
Corporation. TPG has been a major supplier of advanced composite material
products to the aerospace, defense and commercial markets. TPG's products
include radomes, aircraft components, engine components, rocket motor cases,
missile and satellite composite structures, pressure vessels, relocatable
shelters, missile launch
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tubes, torque shafts and fuel tanks, as well as a wide range of integrated
defense systems, including electro-optical systems, chemical detection systems,
ordinance delivery systems and lightweight camouflage systems.
Upon consummation of the merger, each outstanding share of the common stock of
the Company was converted into 0.1 share of the common stock of the combined
company and each outstanding share of the common stock of TPG was converted into
8.3028 shares of the common stock of the combined company. The combined company
succeeded to and assumed all of the rights and obligations of TPG and the
Company. In addition, the combined company assumed all TPG options, the Company
options and the Company warrants, each such option and warrant to become
exercisable for the number of whole shares of the combined company's common
stock equal to the number of shares of TPG common stock or Company common stock
covered thereby immediately prior to the merger multiplied by 0.1 and 8.3028,
respectively.
On June 25, 1997 the Company filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission covering the securities issuable by the
combined company pursuant to the merger, which was declared effective on
September 26, 1997. The merger was approved at the Annual Meeting of the
Stockholders of the Company on October 30, 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Statements of an
Enterprise and Related Information" (Statement 131). Statement 131 establishes
standards to report information about operating segments and related discussions
about products and services, geographic areas and major customers. Statement 131
is effective for financial statements for the period beginning after December
15, 1997. The statement permits early application and requires restatements of
all prior periods. The Company is currently evaluating the requirements of
Statement 131, but does not believe that the adoption of Statement 131 will have
a material effect on previously reported segment information.
FORWARD LOOKING STATEMENTS - CAUTIONARY FACTORS
Except for the historical information and statements contained in this Report,
the matters and items set forth in this Report are forward looking statements
that involve uncertainties and risks, some of which are discussed at appropriate
points in the Report and are also summarized as follows:
The U.S. Government is a significant customer of the Company. Prime contracts
represent 7% of its revenues for the nine months ended September 30, 1997. With
the continuing pressure to reduce government spending, in addition to the
worldwide political climate creating an environment of less visible military
threats to the United States, the de-emphasis in military spending is expected
to continue. This could potentially have a material adverse effect on future
projects upon which the Company's backlog is based and upon programs the Company
is pursuing.
Vendor prices for production materials such as aluminum foil, resins, liquid and
film adhesives, reinforcing fiber materials and other materials and supplies
could increase as demand for aircraft
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parts and assemblies increase to match higher build rates for commercial
aircraft. Higher material prices and demand for lower aircraft part and assembly
prices could place increasing pressure on the Company's operating margins and
net income.
The Company currently sells honeycomb and bonded panel products to the
commercial aircraft industry. Future planning for the Company anticipates
continuing increases in demand for these products over the next several years.
To the extent these increases fail to materialize or fall significantly below
projections, the Company's business could be materially affected.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SIANA PISANI ROMANIELLO V. LUNN INDUSTRIES, INC. AND NORFIELD CORPORATION. As
previously reported in the Company's Annual Report on Form 10-KSB, in June 1995,
the Company was served with a complaint filed in the U.S. District Court
(Connecticut District) by the plaintiff, Diana Pisani Romaniello, individually,
and on behalf of the U.S. Government. In September 1997, the Company and the
plaintiff settled this matter whereby the Company agreed to pay the plaintiff
$45,000 in montly installments of $15,000. To date, the Company has paid the
plaintiff an aggregate of $30,000.
ITEM 6. EXHIBITS AND REPORTS
(a) Exhibits
3 Amended and Restated Certificate of Incorporation.
27 Financial Data Schedules.
(b) Reports on Form 8-K.
No Form 8-K's were filed during the three months ended September 30,
1997.
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ADVANCED TECHNICAL PRODUCTS, INC.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCED TECHNICAL PRODUCTS, INC.
Dated: November 14, 1997
By: /S/ GARRETT L. DOMINY
Gary L. Dominy
Executive Vice President, Chief Financial and
Accounting Officer, Treasurer and Assistant
Secretary
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EXHIBIT INDEX
3 Amended and Restated Certificate of Incorporation.
27 Financial Data Schedule.
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EXHIBIT 3
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ADVANCED TECHNICAL PRODUCTS, INC.
ARTICLE I
The name of the Corporation is Advanced Technical Products, Inc.
ARTICLE II
The registered office of the Corporation in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, County
of New Castle. The name of the Corporation's registered agent is The Corporation
Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
A. AUTHORIZED SHARES.
The total number of shares of all classes of stock that the Corporation
shall have the authority to issue is 32,000,000 shares, of which 2,000,000
shares shall be Preferred Stock, having a par value of $1.00 per share
("Preferred Stock"), and 30,000,000 shall be Common Stock, having a par value of
$0.01 per share ("Common Stock"). The Board of Directors is expressly authorized
to provide for the classification and reclassification of any unissued shares of
Preferred Stock or Common Stock and issuance thereof in one or more classes or
series without the approval of the stockholders of the Corporation.
B. COMMON STOCK.
1. Relative Rights.
The Common Stock shall be subject to all of the rights, privileges,
preferences and priorities of the Preferred Stock as set forth in the
certificate or certificates of designation filed to establish the respective
series of Preferred Stock. Each share of Common Stock shall have the same
relative rights as and be identical in all respects to all the other shares of
Common Stock.
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2. Voting Rights.
Each holder of shares of Common Stock shall be entitled to attend all
special and annual meetings of the stockholders of the Corporation and, share
for share and without regard to class, together with the holders of all other
classes of stock entitled to attend such meetings and to vote (except any class
or series of stock having special voting rights), to cast one vote for each
outstanding share of Common Stock so held upon any matter or thing (including,
without limitation, the election of one or more directors) properly considered
and acted upon by the stockholders, except as otherwise provided in this
Certificate of Incorporation or by applicable law.
3. Dividends.
Whenever there shall have been paid or declared and set aside for payment,
to the holders of shares of any class of stock having preference over the Common
Stock as to the payment of dividends, the full amount of dividends and of
sinking fund or retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then the holders of
record of the Common Stock and any class or series of stock entitled to
participate therewith as to dividends, shall be entitled to receive dividends,
when, as, and if declared by the Board of Directors, out of any assets legally
available for the payment of dividends thereon.
4. Dissolution, Liquidation, Winding Up.
In the event of any dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of record of the
Common Stock then outstanding, and all holders of any class or series of stock
entitled to participate therewith in whole or in part, as to distribution of
assets, shall become entitled to participate in the distribution of any assets
of the Corporation remaining after the Corporation shall have paid, or set aside
for payment, to the holders of any class of stock having preference over the
Common Stock in the event of dissolution, liquidation or winding up, the full
preferential amounts (if any) to which they are entitled, and shall have paid or
provided for payment of all debts and liabilities of the Corporation.
C. PREFERRED STOCK.
1. 8% Cumulative Redeemable Preferred Stock
Of the Preferred Stock, 1,000,000 shares shall be designated as 8%
Cumulative Redeemable Preferred Stock, $1.00 par value ("8% REDEEMABLE
PREFERRED"). The 8% Redeemable Preferred shall have the following preferences,
relative, participating, optional and other special rights and qualifications,
limitations and restrictions:
(a) PRIORITY. The 8% Redeemable Preferred shall, upon liquidation,
dissolution, or winding up, rank senior and prior to the Common Stock and
any other stock issued by the Corporation and designated as junior to the
8% Redeemable Preferred (collectively, the "JUNIOR SECURITIES"). The
Corporation shall not issue any stock that is ranked senior to or PARI
PASSU with the 8% Redeemable Preferred with respect to the payment of
dividends or upon liquidation, dissolution, or winding up.
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(b) DIVIDENDS.
(1) The holders of shares of 8% Redeemable Preferred shall be
entitled to receive when, as, and if declared by the Board of
Directors or a duly authorized committee thereof (an "AUTHORIZED
BOARD COMMITTEE"), cumulative dividends out of funds legally
available therefor, at the annual rate of $0.08 per share, and no
more, in preference to dividends on shares of the Junior Securities.
Such dividends shall be payable semi-annually on June 30 and
December 31 of each year (each of such dates being a "DIVIDEND
PAYMENT DATE," and each period between such dates (or the date of
issue, if earlier) being a "DIVIDEND PERIOD,"), to stockholders of
record of the 8% Redeemable Preferred on the respective date, not
exceeding 60 days preceding such Dividend Payment Date, as shall be
fixed for this purpose by the Board of Directors or an Authorized
Board Committee in advance of payment of each particular dividend.
Dividends payable on the 8% Redeemable Preferred for the initial
Dividend Period and for any period less than a full period shall be
computed on the basis of the actual number of days elapsed in a year
of 365 days.
(2) Dividends on shares of 8% Redeemable Preferred shall be
fully cumulative and shall accumulate (whether or not declared) from
the date of issuance. Accumulated unpaid dividends for any past
Dividend Periods may be declared by the Board of Directors or an
Authorized Board Committee and paid on any date fixed by the Board
of Directors or an Authorized Board Committee, whether or not a
regular Dividend Payment Date, to holders of record on the books of
the Corporation on such record date as may be fixed by the Board of
Directors or an Authorized Board Committee. Holders of 8% Redeemable
Preferred will not be entitled to any dividends in excess of full
cumulative dividends. No interest or sum of money in lieu of
interest shall be payable in respect of any accumulated unpaid
dividends.
(3) So long as any shares of the 8% Redeemable Preferred are
outstanding, the Corporation shall not (i) declare, pay, or set
apart for payment any dividend or distribution on any Junior
Securities (other than in shares of Junior Securities) or (ii) make
any payment on account of, or set apart for payment money for, a
sinking or similar fund for the purchase, redemption, retirement, or
other acquisition for value of any of, or redeem, purchase, retire,
or otherwise acquire for value any of, the Junior Securities or any
warrants, rights, calls or options exercisable for or convertible
into any of the Junior Securities (except by conversion into or
exchange for shares of Junior Securities), unless in each case
before or concurrently with such declaration, payment, setting apart
for payment, purchase, redemption, retirement, or other acquisition
for value, as the case may be, all accumulated and unpaid dividends,
if any, on the shares of the 8% Redeemable Preferred have been paid.
(4) Subject to the foregoing provisions of this SUBPARAGRAPH
(B), the Board of Directors may declare, and the Corporation may pay
or set apart for payment, dividends and other distributions on any
of the Junior Securities and may purchase or otherwise acquire any
of the Junior Securities or any warrants, rights,
3
<PAGE>
calls, or options exercisable for any of the Junior Securities, and
the holders of the shares of the 8% Redeemable Preferred are not
entitled to share therein.
(c) LIQUIDATION PREFERENCE.
(1) Upon any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation, before
any distribution or payment may be made to the holders of any Junior
Securities, and subject to the rights of creditors and holders of
shares of stock ranking senior to the 8% Redeemable Preferred, the
holders of the 8% Redeemable Preferred then outstanding shall be
entitled to be paid out of the assets of the Corporation available
for distribution to its stockholders in an amount in cash of $1.00
per share, plus any accumulated and unpaid dividends thereon to the
date fixed for payment of such distribution (collectively, the
"LIQUIDATION PREFERENCE"). Except as provided in this SUBPARAGRAPH
(C), holders of 8% Redeemable Preferred shall not be entitled to any
distribution in the event of liquidation, dissolution or winding up
of the affairs of the Corporation. Neither the sale of all or
substantially all of the property or business of the Corporation,
the merger or consolidation of the Corporation into or with any
other corporation, nor the merger or consolidation of any other
corporation with or into the Corporation shall be deemed to be a
dissolution, liquidation, or winding up, voluntary or involuntary,
for purposes of this SUBPARAGRAPH (C).
(2) Upon any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation, the
holders of 8% Redeemable Preferred then outstanding shall be
entitled to receive payment of the Liquidation Preference only after
the holders of Senior Securities outstanding at the time have
received fully the amount to which they are entitled. If the assets
of the Corporation available for distribution to stockholders shall
be insufficient to permit the payment of the full liquidation
preferences to which the holders of 8% Redeemable Preferred and the
holders of any shares of capital stock of the Corporation ranking
equal to or on a parity with the 8% Redeemable Preferred with
respect to the distribution of assets in liquidation are entitled,
then all of such assets of the Corporation shall be distributed
ratably among the holders of the 8% Redeemable Preferred and the
holders of any such other class of capital stock of the Corporation
then outstanding and ranking equal to or on a parity with the 8%
Redeemable Preferred in proportion to the respective amounts of
their full liquidation preferences.
(3) After payment in full to the holders of the 8% Redeemable
Preferred of the amounts distributable to them as described in this
Subparagraph, the holders of the Common Stock and any other Junior
Securities in respect of such distributable amounts shall be
entitled, to the exclusion of the holders of the 8% Redeemable
Preferred, to share ratably in the remaining assets of the
Corporation in accordance with their respective rights.
4
<PAGE>
(d) REDEMPTION.
(1) To the extent the Corporation shall have funds legally
available for such redemption, the Corporation, at its option, may
redeem the whole or any part of the outstanding shares of 8%
Redeemable Preferred, at any time or from time to time, at a per
share redemption price equal to the Liquidation Preference. If less
than all shares of 8% Redeemable Preferred are to be redeemed, the
shares to be redeemed shall be selected pro rata (based on the
number of shares of 8% Redeemable Preferred held by each holder
thereof).
(2) Subject to the provisions of this Subparagraph and to
applicable law, shares of 8% Redeemable Preferred shall be subject
to mandatory redemption at a per share redemption price equal to the
Liquidation Preference on the earlier of (i) the sixth anniversary
of the date of issuance of the 8% Redeemable Preferred (the "STOCK
ISSUANCE DATE"), and (ii) the date on which occurs a change in the
ownership of 50% or more of the assets or the common stock of the
Corporation or Technical Products Group, Inc. from the ownership of
such assets and common stock on the Stock Issuance Date.
(3) The Corporation shall cause to be mailed to each holder of
8% Redeemable Preferred, by overnight courier service or by first
class mail, postage prepaid, mailed not less than 30 days nor more
than 60 days prior to the date of any redemption pursuant to
SUBPARAGRAPH (D)(1) (the "REDEMPTION DATE"), at such holder's
address as the same appears on the records of the Corporation, a
notice (the "REDEMPTION NOTICE") stating the date on which such
redemption is to take place. Each such notice shall specify (i) the
Redemption Date, (ii) the number of shares to be redeemed, and if
fewer than all shares held by such holder are to be redeemed, the
number of such shares to be redeemed from such holder, (iii) the
consideration payable with respect to such redemption, and (iv) the
place or places where certificates for such shares are to be
surrendered for payment of such consideration. If less than all
shares of 8% Redeemable Preferred represented by any certificate are
redeemed, a new certificate representing the unredeemed shares shall
be issued to the holder thereof.
(4) If any such notice of redemption shall have been duly
given and if on the Redemption Date all funds necessary for such
redemption shall have been set aside and shall continue to be
available for payment on and after the Redemption Date upon
surrender of the certificates for the shares of 8% Redeemable
Preferred so called for redemption, then notwithstanding that any
certificate for shares so called for redemption shall not have been
surrendered for cancellation, the shares so called for redemption
shall on and after such Redemption Date no longer be deemed to be
outstanding, and all rights with respect to such shares shall
forthwith cease and terminate, except only the right of the holders
of the certificates therefor, upon surrender thereof, to receive the
amount payable on redemption thereof, without interest.
5
<PAGE>
(5) Any funds set aside as provided in the immediately
preceding SUBPARAGRAPH (D)(4) and unclaimed at the end of six years
from such Redemption Date shall be released to the Corporation, to
be held for the benefit of such holder, after which the holders of
the shares so called for redemption shall look only to the
Corporation for the payment thereof.
(6) Shares of 8% Redeemable Preferred redeemed, purchased, or
otherwise acquired by the Corporation shall be deemed retired and
may not under any circumstances thereafter be reissued or otherwise
disposed of by the Corporation, and the Corporation shall from time
to time, and at least once each year, cause all such shares to be
canceled in the manner provided by applicable law.
(7) Notwithstanding anything contained herein to the contrary,
no redemption payment on shares of 8% Redeemable Preferred shall be
declared by the Board or paid or set apart for payment by the
Corporation if any required redemption payment with respect to
securities of the Corporation that are senior in rank to the 8%
Redeemable Preferred shall not have been made by the Corporation or
at such time as the terms and provisions of any credit agreement or
note (as such agreements or notes may be amended or supplemented
from time to time) entered into by the Corporation or any of its
subsidiaries prohibit such redemption payment or setting apart for
payment or provide that such redemption payment or setting apart for
payment would constitute a breach thereof or a default thereunder.
(e) VOTING RIGHTS. Except as expressly required by applicable law,
the holders of shares of 8% Redeemable Preferred shall not have any voting
rights with respect to such shares.
2. Undesignated Preferred Stock
(a) ISSUANCE, DESIGNATIONS, POWERS, ETC.
The Board of Directors expressly is authorized, subject to limitations
prescribed by the Delaware General Corporation Law and the provisions of this
Certificate of Incorporation, to provide, by resolution and by filing a
certificate of designations pursuant to the Delaware General Corporation Law,
for the issuance from time to time of the shares of Preferred Stock not
otherwise designated herein in one or more series, to establish from time to
time the number of shares to be included in each series, and to fix the
designation, powers, preferences and other rights of the shares of each such
series and to fix the qualifications, limitations and restrictions thereon,
including but without limiting the generality of the foregoing, the following:
(1) the number of shares constituting that series and the
distinctive designation of that series;
(2) 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;
6
<PAGE>
(3) whether that series shall have voting rights, in addition to
voting rights provided by law, and, if so, the terms of such voting
rights;
(4) whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provisions for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(5) whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(6) 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;
(7) 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; and
(8) any other relative powers, preferences and rights of that
series, and qualifications, limitations or restrictions on that series.
(b) Dissolution, Liquidation, Winding Up.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of Preferred Stock of
each series shall be entitled to receive only such amount or amounts as shall
have been fixed by the certificate of designations or by the resolution or
resolutions of the Board of Directors providing for the issuance of such series.
ARTICLE V
A. CLASSIFICATION.
Except as may be provided in the certificate of designations relating to
the rights of the holders of any class or series of Preferred Stock, voting
separately by class or series, to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be as fixed from
time to time by or pursuant to the By-laws of the Corporation. The directors,
other than those who may be elected by the holders of any class or series of
Preferred Stock voting separately by class or series, shall be classified, with
respect to the time for which they severally hold office, into three classes,
Class I, Class II and Class III, which shall be as nearly equal in number as
possible. Each initial director in Class I shall hold office for a term expiring
at the 1997 annual meeting of stockholders, each initial director in Class II
shall hold office initially for a term expiring at the 1998 annual meeting of
stockholders, and each initial director in Class III shall hold office for a
term expiring at the 1999 annual meeting of stockholders. Notwithstanding the
foregoing provisions of Section A, each director shall serve until such
director's successor is duly elected and qualified or until such director's
earlier death, resignation or removal. At each annual meeting of
7
<PAGE>
stockholders, the successors to the class of directors whose term expires at the
meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election but in any event until any such director's successor has been duly
elected and qualified or until any such director's earlier death, resignation or
removal.
B. REMOVAL.
1. Except as may be provided in a certificate of designations relating to
the rights of the holders of any class or series of Preferred Stock, voting
separately by class or series, to elect directors under specified circumstances,
any director or directors may be removed from office at any time, but only for
cause (as defined in Section B(2) hereof) and only by the affirmative vote, at
an annual meeting of the stockholders or a special meeting of the stockholders
called for such purpose, of not less than two-thirds of the total number of
votes of the then outstanding shares of stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class,
and, in the case of a removal proposed at a special meeting, only if notice of
the proposal was contained in the notice of the meeting. The person proposing
the removal of a director shall provide written notice to the director of the
proposal and of the facts alleged to constitute cause for the removal. In the
event that the stockholders are provided with at least 40 days' notice of the
meeting, the written notice to the director shall be delivered at least 30 days
before the meeting. In the event that the stockholders are provided with less
than 40 days' notice of the meeting, the written notice to the director shall be
delivered no later than 10 days after the stockholders are provided with written
notice of the meeting. Any vacancy in the Board of Directors resulting from any
such removal or otherwise shall be filed only by vote of a majority of the
directors then in office, although less than a quorum, and any director so
chosen shall hold office until the next election of the class for which such
director shall have been chosen and until such director's successor shall be
elected and qualified or until such director's earlier death, resignation or
removal.
2. For purposes of this Section B(2), "cause" shall mean (i) conduct as a
director of the Corporation or any subsidiary involving dishonesty of a material
nature; (ii) willful conduct by the director that is demonstrably or materially
injurious to the Corporation, monetarily or otherwise; or (iii) conduct by the
director that results in a felony conviction, including a conviction resulting
from a plea of NOLO CONTENDERE. No act, or failure to act, on the director's
part shall be deemed "willful" unless done, or omitted to be done, by the
director not in good faith and without reasonable belief that the director's
action or omission was in the best interest of the Corporation.
C. CHANGE OF AUTHORIZED NUMBER.
In the event of any increase or decrease in the authorized number of
directors, the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to maintain such classes as nearly equal as
possible. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
8
<PAGE>
ARTICLE VI
Unless and except to the extent that the By-laws of the Corporation shall
so require, the election of directors of the Corporation need not be by written
ballot.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware, the Board of Directors is expressly authorized and
empowered to make, alter and repeal the By-laws of the Corporation, subject to
the power of the stockholders of the Corporation to alter or repeal any By-law
made by the Board of Directors. In order for the stockholders of the Corporation
to exercise their power to alter or repeal any By-law made by the Board of
Directors, the action must be approved by the holders of at least two-thirds of
the issued and outstanding shares of the Corporation's Common Stock.
ARTICLE VIII
A director of this Corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended.
Any repeal or modification of the foregoing paragraph shall not adversely
affect any right or protection of a director of the Corporation existing
hereunder with respect to any act or omissions occurring prior to such repeal or
modification.
ARTICLE IX
The Corporation shall indemnify to the full extent permitted by law (such
as it presently exists or may hereafter be amended) any person made, or
threatened to be made, a defendant or witness to any action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that he is or was a director of officer of the Corporation or by reason of the
fact that such director or officer, at the request of the Corporation, is or was
serving any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, in any capacity.
Any repeal or modification of the foregoing paragraph shall not adversely
affect any right to indemnification provided hereunder with respect to any act
or omission occurring prior to such repeal or modification.
ARTICLE X
Subject to any affirmative vote required by law, the affirmative vote of
not less than eighty percent of the Voting Stock (as hereinafter defined) shall
be required for the adoption or authorization of a Business Combination (as
hereinafter defined), unless:
(1) Two-thirds of the Disinterested Directors (as hereinafter defined)
determine that:
9
<PAGE>
(i) The Interested Stockholder (as hereinafter defined) is the
beneficial owner (as hereinafter defined) of not less than eighty percent of the
Voting Stock and has declared its intention to vote in favor of or approve such
Business Combination; or
(ii) (A) The fair market value of the consideration per share to be
received or retained by the holders of each class or series of stock of the
Corporation in the Business Combination is equal to the highest price per share
(including brokerage commissions, transfer taxes and soliciting dealer's fees)
paid by such Interested Stockholder for any shares of such class of stock
previously within the two-year period prior to the Business Combination, whether
before or after the Interested Stockholder became an Interested Stockholder, and
(B) the Interested Stockholder shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance provided by the Corporation,
whether in anticipation of or in connection with Business Combination or
otherwise; or
(2) The Business Combination has been approved by two-thirds of the
Disinterested Directors.
In the event any vote of the holders of Voting Stock is required for the
adoption or approval of any Business Combination, a proxy or information
statement describing the Business Combination and complying with the
requirements of the 1934 Act (as hereinafter defined) shall be mailed at a date
determined by the Disinterested Directors to all stockholders of the Corporation
whether or not such statement is required under the 1934 Act. The statement
shall contain any recommendations as to the advisability (or inadvisability) of
the Business combination which the Disinterested Directors, or any of them, may
choose to state and, if deemed advisable by the Disinterested Directors, an
opinion of a reputable national investment banking firm as to the fairness of
the terms of such Business Combination. Such firm shall be selected by
two-thirds of the Disinterested Directors and paid a reasonable fee for its
services by the Corporation as approved by the Disinterested Directors.
For purposes of this Article:
(i) "Affiliate" and "beneficial owner" are used herein as defined in
Rule 12b-2 and Rule 13d-3, respectively, under the Securities and Exchange Act
of 1934, as amended, as in effect on March 16, 1987 ("1934 Act"). The term
"Affiliate" as used herein shall exclude the Corporation, but shall include the
definition of "Associate" as contained in said Rule 12b-2.
(ii) An "Interested Stockholder" is a Person (as hereinafter
defined) other than the Corporation or any subsidiary who is (A) the beneficial
owner, directly or indirectly of ten percent or more of the capital stock of the
Corporation entitled to vote generally for the election of directors ("Voting
Stock"), or (B) an Affiliate of the Corporation and either (1) at any time
within a two-year period prior to the record date to vote on a Business
Combination was the beneficial owner, directly or indirectly of ten percent or
more of the Voting Stock, or (2) at the completion of the Business Combination
will be the beneficial owner of ten percent or more of the Voting Stock.
10
<PAGE>
(iii) A "Person" is a natural person or a legal entity of any kind,
together with an Affiliate of such person or entity, or any person or entity
with whom such person, entity or an Affiliate has any agreement or understanding
relating to acquiring, voting or holding Voting Stock.
(iv) A "Disinterested Director" is a member of the Board of
Directors of the Corporation (other than the Interested Stockholder) who was a
director prior to the time the Interested Stockholder became an Interested
Stockholder, or any director who was recommended for election by the
Disinterested Directors. Any action to be taken by the Disinterested Directors
shall require the affirmative vote of at least two-thirds of the Disinterested
Directors.
(v) A "Business Combination" is (A) a merger of consolidation of the
Corporation or any of its subsidiaries with or into an Interested Stockholder;
(B) the sale, lease, exchange, pledge, transfer or other disposition (1) by the
Corporation or any of its subsidiaries of all or a Substantial Part of the
Corporation's Assets to an Interested Stockholder, or (2) by an Interested
Stockholder of any of its assets, except in the ordinary course of business, to
the Corporation or any of its subsidiaries; (C) the issuance of stock or other
securities of the Corporation or any of its subsidiaries to an Interested
Stockholder, other than on a pro rate basis to all holders of Voting Stock of
the same class held by the Interested Stockholder pursuant to a stock split,
stock dividend or distribution of warrants or rights; (D) the adoption of any
plan or proposal for the liquidation or dissolution of the Corporation proposed
by or on behalf of an Interested Stockholder; (E) any reclassification of
securities, recapitalization, merger or consolidation or other transaction which
has the effect, directly or indirectly, of increasing the proportionate share of
any Voting Stock beneficially owned by an Interested Stockholder; or (F) any
agreement, contract or other arrangement providing for any of the foregoing
transactions.
(vi) A "Substantial Part of the Corporation's Assets" shall mean
assets of the Corporation or any of its subsidiaries in an amount equal to 50
percent or more of the fair market value, as determined by the Disinterested
Directors, 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 made.
ARTICLE XI
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of the
stockholders, and may not be effected by any consent in writing by such
stockholder, unless such consent in unanimous.
11
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