SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required]
For the fiscal year ended December 31, 1997
|_| Transition Report Pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from _____________ to _____________
Commission file number 0-12362
BERGER HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2160077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
805 Pennsylvania Boulevard, Feasterville, PA 19053
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 215-355-1200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Title of each class
Common Stock, $.01 par value
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 periods 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 by check mark if disclosure of delinquent files pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
<PAGE>
As of March 30, 1998, 5,361,973 shares of Common Stock of the registrant
were outstanding and the aggregate market value of the Common Stock (based upon
the average of high and low bid prices of the Common Stock on the National
Association of Securities Dealers Automatic Quotation System on March 31, 1998)
of the registrant, held by nonaffiliates was approximately $17,400,000.(1)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes |X| No |_|
Documents Incorporated By Reference: None
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(1) Such figure excludes the shares of Common Stock held by the Company's
executive officers and directors. The information provided shall in no way be
construed as an admission that any person whose holdings are excluded from the
figure is not an affiliate or that any person whose holdings are included is an
affiliate and any such admission is hereby disclaimed.
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<PAGE>
PART I
Item 1. Business
Background
Berger Holdings, Ltd. collectively with its subsidiaries, (the "Company")
was incorporated in the Commonwealth of Pennsylvania on August 28, 1979. Prior
to 1983, the Company operated under the name "Life Care Communities Corporation"
as a private concern, which developed life care communities on a fee basis for
non-profit entities. During 1983, the Company successfully completed a public
offering in which funds were raised for the principal purpose of developing and
constructing proprietary life care facilities.
During 1987, the Company conducted an assessment of its business and the
life care industry, in general. As a result of such assessment, the management
of the Company recommended, and on May 5, 1988 the shareholders approved, the
Company's withdrawal from the life care industry in order to seek alternate
investment opportunities. This withdrawal was effectuated through the sale of
the Company's minority interests in certain joint ventures. Subsequent to these
transactions the Company had assets consisting solely of cash and minimal
liabilities.
The Company identified Berger Bros Company ("Berger") as a favorable
candidate for acquisition, and on May 30, 1989 acquired approximately 85% of the
common stock of Berger, through a plan of reorganization (the "1989 Plan of
Reorganization"), in exchange for shares of the Company's common stock (the
"Common Stock") representing approximately 29% of the outstanding Common Stock
after the effective date of the 1989 Plan of Reorganization. Subsequently during
1989, the Company acquired an additional 15% of the common stock of Berger and
issued, in exchange therefor, shares of the Common Stock representing
approximately an additional 5% of the outstanding Common Stock at the time of
such subsequent acquisition. In connection with such acquisitions, the Company
changed its name to Inovex Industries, Inc.
In 1990, the Company changed its name to Berger Holdings, Ltd. so as to
identify the Company more closely with its principal operating subsidiary.
On December 6, 1991, the Company filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Eastern District of Pennsylvania (the "Bankruptcy Court").
On December 29, 1992, the Bankruptcy Court entered an order confirming the
Third Amended Joint Plan of Reorganization (the "Plan of Reorganization) subject
to approval of a settlement agreement (the "Settlement Agreement") between the
Company and its primary secured lender. The Settlement Agreement was entered
into on February 19, 1993 and approved by the Bankruptcy Court on April 1, 1993.
The effective date of the Plan of Reorganization was April 13, 1993. The Chapter
11 case was closed February 28, 1994.
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<PAGE>
In connection with the bankruptcy proceedings, certain unsecured creditors
of the Company elected to convert their debt into shares of the Common Stock. An
aggregate of 390,540 shares of Common Stock was issued to such creditors. In
addition, holders of the common stock of Graywood Products Company, Inc.
("Graywood") and holders of the Company's then outstanding Preferred Stock
converted such stock into shares of the Common Stock.
On August 21, 1997, the Company's wholly-owned subsidiary, Berger Financial
Corp., a Delaware Corporation ("Berger Financial") refinanced its existing
working capital and term loans with loans from Summit Bank, N.A. (the "Bank").
The working capital loan (the "Working Capital Loan") obtained from the Bank was
increased to $3,500,000, which is secured by the Company's accounts receivable
and inventory. The working capital loan bears interest at the Bank's base rate
of interest plus one-half percent. Concurrently, the Company borrowed from the
Bank $1,300,000 (the "Additional Loan"), which is repayable over 36 months with
interest at the Bank's base rate of interest plus one percent. The Additional
Loan is secured by equipment of the Company. The refinancing resulted in an
interest rate reduction of in excess of 250 basis points when compared to the
former Credit Facility.
On January 2, 1998 the term of the Working Capital Loan was extended for an
additional three years to December 31, 2000. Also on such date, the Working
Capital Loan was increased to $7,000,000 to help fund the Obdyke Acquisition (as
described below) in January 1998. The Additional Loan was also increased to
$1,960,000 at such time.
Product Lines
The Company is principally engaged in the manufacture and distribution of
metal roof drainage products ("RDP"). Since 1993, Berger has also engaged in a
program of internal development and product expansion. Internal development has
been characterized chiefly by the modernization and modification of production
facilities, machinery and equipment and the expansion of existing product lines
to emphasize copper-based RDP. External development has been directed
principally towards increasing the sales volume and market penetration of the
Company's products through the Obdyke Acquisition (as described below) and an
expanded product line which now includes Real-Tool Snow Guards (as defined
below) for metal standing seam roofs.
The Company's RDP product line, consisting of gutters, downspouts, snow
guards, trim coil and associated accessories and fittings, is manufactured by
the Company at its two suburban Philadelphia facilities. The Company sells RDP
through its sales and telemarketing representatives principally to wholesale
distributors who sell directly to roofing and general contractors for use in the
repair and replacement of roof drainage systems in existing buildings, primarily
residential.
The raw materials used in manufacturing RDP are aluminum, steel and copper.
Supplies of these materials, in either coil, sheet or bar form, are procured by
the Company from various domestic and foreign suppliers. Although the Company
believes that adequate available sources of supply exist at customarily accepted
market prices, trade restrictions, work stoppages or adverse weather or
political conditions may affect the prices and availability of these materials.
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<PAGE>
Rapid increases in prices of raw materials would be expected to adversely affect
the operations of the Company because the cost of raw materials constitutes the
largest single element of the Company's cost of sales.
The Company is largely dependent for its raw material requirements for its
RDP products on the following three suppliers: Commonwealth (aluminum); Revere
(copper); and Coilplus-Pennsylvania, Inc. (galvanized and painted steel). The
remaining raw materials are provided by a large number of small suppliers. All
raw materials procured by the Company, as well as finished products, are
strictly scrutinized for quality control using industry and internal guidelines
and standards.
Acquisitions
On January 2, 1998, the Company consummated the acquisition (the "Obdyke
Acquisition") of the Roof Drainage Division (the "Acquired Division") of its
main competitor, Benjamin Obdyke, Inc. ("Obdyke"). Sales for the Acquired
Division totaled $19,700,000 in 1997. The total cost of this acquisition was
$11,379,000, of which $10,000,000 was paid in cash at closing. The balance was
satisfied by issuing 125,000 shares of the Common Stock and an $879,000 note
which is repayable over a two-year period. In addition, the Company issued to
the seller a warrant to purchase 50,000 shares of the Common Stock. These
warrants can be exercised over a one-year period at a price of $4.25 per share.
The assets purchased from Obdyke included $1,402,000 of equipment and $2,392,000
of inventory. The remaining balance of $7,585,000 has been assigned to
intangible assets, which include non-compete agreements, customer lists and
goodwill. This acquisition was funded in part through the issuance of 40,000
shares of the Company's Series A Convertible Preferred Stock at $100 per share,
$2,500,000 of 12.25% debentures due quarterly and an increase in the credit
facility with Summit Bank by $4,160,000. A portion of the proceeds from these
financings was also used for other corporate purposes.
On February 7, 1997, the Company consummated the purchase of all of the
outstanding shares of the Common Stock of Real-Tool, Inc., a Virginia
corporation. As consideration, the Company paid $900,618 in cash on the closing
date, issued 100,000 Common Shares, and issued a note for $750,000 payable in
quarterly installments over the next year ending January 15, 1998. Concurrent
with the purchase, the Company entered into a royalty agreement with the sole
shareholder of Real-Tool, Inc. Under this agreement, which expires in 2012, the
Company is required to pay royalties of 6% of revenues with a minimum of $75,000
annually, through 2002.
Subsequent to 2002, the Company has the option to increase the percentage
of royalties paid to this individual and eliminate the minimum payment
requirement.
Competition
The Company's business is highly competitive. In general, the building
products market is highly fragmented. The Company competes with numerous small
and large manufacturers and fabricators. Some of the Company's competitors have
substantially greater resources than the Company. The Company competes primarily
in the Northeast/Mid-Atlantic region. During the past two years, the Company has
implemented an advertising and marketing program to expand its geographic range
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<PAGE>
of operations to a more national level. Competition is primarily based upon
product quality, completeness of product lines, service and price.
Geographic Market
The Company's products are principally sold throughout the states in the
Northeast/Mid-Atlantic region. Approximately 85% of the Company's products are
used in the renovation of existing houses in the Northeast/Mid-Atlantic region.
Sales to this region are particularly important for RDP sales, because of the
large concentration of older homes located within this region.
Major Customers
During 1997, no individual customer accounted for more than 10% of the
Company's sales. However, one customer accounted for 7.3% of sales. The Company
has no ongoing contracts for sales of RDP, but rather services customers on a
per-order basis.
Seasonal Nature of the Business
The building products industry is seasonal, particularly in the
Northeast/Mid-Atlantic region of the United States where inclement weather
during the winter months usually reduces the level of building activity in both
the home-building and home improvement markets. Typically, the Company's sales
volume is lowest during the months of December, January and February.
Inventory Practices
The Company's policy is to obtain, fabricate and/or manufacture inventory
in sufficient volume in order to provide a reasonable inventory level to support
minimum and maximum levels based on customers historical demand. Because of the
nature of the RDP market, in which an order generally must be filled within 48
to 72 hours of placement, the Company does not have any substantial backlog.
Employees
As of December 31, 1997, the Company employed 94 individuals, of whom 14
were employed in sales and marketing; 68 were employed in manufacturing and
delivery; and 12 were employed in administration. Approximately 60 of the
Company's employees are represented by one of two labor unions. The Company's
labor contract with The International Brotherhood of Teamsters, Chauffeurs,
Warehousemen and Helpers of America, Local 169 expires December 31, 2001. The
Company also has a contract with the Teamsters Local Union 107, which also
expires December 31, 2001. The Company believes that its employee relations are
good.
Government Regulation
The Company is subject to numerous federal and state regulations relating
to, among other things, the operations of its manufacturing facilities,
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<PAGE>
the storage and disposal of environmentally sensitive materials, the control of
emission levels, employee safety and health, employee wages and general
environmental matters. The Company believes that these regulations are complied
with properly. There are no outstanding notices from federal or state regulatory
bodies or agencies indicating a failure to comply with any of these regulations.
Year 2000
The Company has conducted, and is continuing to conduct, an assessment of
the effect that the "Year 2000" problem may have upon the operations of the
Company. Although the Company is not totally Year 2000 compliant, the Company is
working towards correcting this problem. The Company does not consider any
issues discovered at this time likely to result in a material effect on
the Company, its business or financial results.
Item 2. Properties
The Company owns a 115,000 square foot operating facility in Feasterville,
Pennsylvania. The corporate and sales offices occupy space at the same location.
Due to the need for more space in connection with the Obdyke Acquisition, the
Company has entered into a lease agreement on a 90,000 square foot manufacturing
facility in Southampton, PA.
The Company has a mortgage liability on the Feasterville facility in the
principal amount of approximately $1,612,000 at December 31, 1997. The mortgage
is being repaid in monthly installments of approximately $17,400 with a maturity
date of May 2016. The mortgagee retains the right to declare the remaining
balance due at any time after April 23, 2001, with 60 days prior notice.
Item 3. Legal Proceedings
As of the date hereof, there are no legal proceedings presently pending
against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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<PAGE>
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
The Company's Common Stock is traded in the over-the-counter market and is
included for quotation on the Nasdaq SmallCap Market operated by the Nasdaq
Stock Market, Inc. under the symbol "BGRH."
The following table sets forth certain information with respect to the high
and low bid prices of the Company's Common Stock during 1996 and 1997. These
quotations reflect inter-dealer prices, without retail mark-ups, mark-downs or
commissions and may not represent actual transactions.
High Low
1996
First Quarter $ 1 1/8 $ 13/16
Second Quarter 1 9/16 7/8
Third Quarter 1 13/16 1 1/4
Fourth Quarter 2 1/4 1 9/16
1997
First Quarter 4 3/8 1 53/64
Second Quarter 4 1/16 3
Third Quarter 3 7/8 3
Fourth Quarter 4 1/4 3 1/4
On December 31, 1997, there were approximately 1,346 holders of record of
shares of Common Stock.
On December 31, 1997 the Registrant consummated the sale of 25,000 shares
of its Series A Convertible Preferred Stock to Tandem Capital, the consideration
for such shares was $2,500,000. Such shares are convertible into shares of the
Common Stock in accordance with the conversion ratio set forth in the Statement
with Respect to Shares of the Registrant attached hereto as Exhibit 3(f). The
sale of such shares was exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 4(2) thereof.
Dividend Policy
The Company has not paid any cash dividends on its Common Stock to date,
and does not anticipate paying cash dividends in the foreseeable future.
The Company will pay out a 10% dividend quarterly beginning May 1, 1998 on
40,000 preferred shares, with a face value of $4,000,000, issued in connection
with the acquisition.
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<PAGE>
Item 6. Selected Financial Data
<TABLE>
Selected Financial Data For Berger Holdings, Ltd. and Subsidiary
<CAPTION>
Year Ended December 31
-----------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales $20,748,017 $19,745,890 $15,653,321 $16,595,918 $11,938,804
Cost of Sales 16,196,776 15,587,221 13,738,061 14,413,877 10,495,647
----------- ----------- ----------- ----------- -----------
Gross Profit 4,551,241 4,158,669 1,915,260 2,182,041 1,443,157
----------- ----------- ----------- ----------- -----------
Selling, Administrative
and General Expenses 2,963,614 2,389,285 2,225,685 2,119,700 1,629,681
----------- ----------- ----------- ----------- -----------
Income (Loss) from 1,587,627 1,769,384 (310,425) 62,341 (186,524)
Operations
Interest Expense (581,624) (619,178) (570,420) (520,908) (480,535)
Other Income (Expense) 14,374 4,295 30,984 (2,084) -
----------- ----------- ----------- ----------- -----------
Income (Loss) from Continuing
Operations before Extraordinary
& Reorganization Items
and Income Tax Benefit $ 1,020,377 $ 1,154,501 ($849,861) ($460,651) ($667,059)
Income Tax Benefit 1,000,000 500,000 - - -
Reorganization Items - - - - (110,408)
----------- ----------- ---------- ----------- -----------
Income (Loss) before
Extraordinary Item $ 2,020,377 $ 1,654,501 ($849,861) ($460,651) ($777,467)
Extraordinary Item - - - 948,207 1,151,270
----------- ----------- ---------- ---------- -----------
Net Income (Loss) $ 2,020,377 $ 1,654,501 ($849,861) $487,556 $373,803
=========== =========== ========== ========== ===========
BASIC EARNINGS (LOSS)
PER COMMON SHARE:
Income (Loss) before
Extraordinary Item $0.40 $0.44 ($0.26) ($0.15) ($0.33)
Extraordinary Item 0.00 0.00 0.00 0.32 0.49
----------- ----------- ---------- ----------- -----------
Net Income (Loss) $0.40 $0.44 ($0.26) $0.17 $0.16
=========== =========== ========== =========== ===========
TOTAL ASSETS $19,751,213 $12,292,861 $9,885,339 $10,352,762 $10,054,125
----------- ----------- ---------- ----------- -----------
LONG TERM DEBT AND
REDEEMABLE PREFERRED STOCK $6,022,147* $3,721,719 $1,676,713 $3,873,299 $4,982,501
----------- ----------- ---------- ----------- -----------
SHAREHOLDERS' EQUITY $12,493,271 $ 7,655,336 $4,635,369 $5,171,321 $3,849,600
=========== =========== ========== =========== ===========
<FN>
* Long-Term Debt includes a $2,000,000
debenture used for the Obdyke Acquisition
and at December 31, 1997 was in our cash
account.
</FN>
</TABLE>
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The Company's results of operations for the years ended December 31, 1997,
1996 and 1995 represent the consolidated operations of the Company and its
subsidiaries, Berger Financial and Berger.
Net sales increased to $20,748,017 in 1997 from $19,745,890 in 1996 and
from $15,653,321 in 1995. The Company's acquisition of Real Tool is the major
factor contributing to the increase in revenues from 1996 to 1997. The increase
in 1996 over 1995 is primarily due to a stronger economy and a more aggressive
advertising program.
The Company's gross profit, as a percentage of revenues, was 21.9% in 1997,
21.1% in 1996 and 12.2% in 1995. The changes in the Company's gross profit
percentages are related to changes in the sales level and the Company's ability
to absorb fixed overhead. The increase in 1997 of the gross profit percentage is
attributable to the increased sales volume and production efficiencies. In 1995,
the gross profit percentage was down primarily due to the decrease in sales and
the inability to absorb overhead effectively.
Selling, administrative and general expenses, as a percentage of net sales,
increased to 14.3% in 1997 from 12.1% in 1996 and 14.2% in 1995. The 1997
increase is primarily due to the advertising of the newly acquired Real Tool
product line and national advertising of its copper products.
The income from operations was $1,587,627 in 1997 compared to $1,769,384 in
1996 and a loss from operations of $310,425 in 1995. The 1997 decrease in income
was primarily due to costs associated with an extensive marketing and
advertising campaign designed to promote its products on a national level.
Interest expense decreased to $581,624 in 1997 compared to $619,178 in 1996
and $570,420 in 1995. The decrease in interest expense for 1997 was a result of
lower interest rates.
Due to the factors described above, income from continuing operations
decreased to $1,020,377 in 1997 from $1,154,501 in 1996, mainly as a result of
the introduction cost of the Real Tool product line. The improvement from 1995
to 1996 levels was the result of increased sales and improved profit margins.
The net income was $2,020,377 in 1997 as compared to $1,654,501 in 1996 and
a net loss of $849,861 in 1995. The Company recognized a deferred tax asset,
which improved net income by $1,000,000 in 1997 and $500,000 in 1996.
During the first quarter of 1998, which historically is the slowest period,
the Company will report record revenues, due to the Obdyke Acquisition. However,
first quarter net income will be adversely affected by start up costs relating
to the Obdyke Acquisition.
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<PAGE>
Future Capital Expenditures
Along with operating cash flow anticipated to be received from operations
in 1998, the proceeds of recent financing obtained from Summit Bank, and through
the sale of the preferred stock and debentures to Tandem Capital and Argosy
Investment Partners, all as discussed below, are anticipated to be sufficient to
cover the Company's capital expenditure needs for 1998.
The Company anticipates that it may, in the future, need to obtain
additional financing to accomplish the following: the redemption of the
preferred stock issued to Tandem Capital and Argosy Investment Partnership, and
the satisfaction of the debentures issued to Tandem Capital and Argosy
Investment Partners. Specifically with respect to the preferred stock and
debentures, the Company anticipates redeeming such instruments before the
interest due and dividend payable, respectively, under such instruments
increases substantially. Such substantial increases will occur on December 31,
2002 and January 2, 2003 with respect to the preferred stock issued to Tandem
Capital and Argosy Investment Partners, respectively and on January 2, 2001 with
respect to the debentures issued to both Tandem Capital and Argosy Investment
Partners.
Liquidity and Capital Resources
At December 31, 1997, the working capital of the Company was $8,656,066
(resulting in a ratio of current assets to current liability of 8.0 to 1),
compared to $4,428,272 (5.8 to 1) at December 31, 1996. The increase in working
capital is primarily from $4,381,413 of proceeds received from Tandem Capital
prior to December 31, 1997, earmarked for, among other purposes, the acquisition
of Obdyke's metal roof drainage division on January 2, 1998.
At December 31, 1997, current liabilities totalled $1,235,795 primarily
consisting of $713,116 of accounts payable and accrued expenses and $522,679 of
current maturities of long-term debt. Current liabilities increased $319,989 as
compared to 1996. The change in current liabilities is primarily the result of
an increase of $274,962 in current maturities of long-term debt. Accounts
payable increased $140,226 and accrued expenses decreased $95,199 in 1997.
At December 31, 1997 obligations to Summit Bank totaled $2,661,007 compared
to the obligations under the prior credit facility for December 31, 1996 and
1995 which totaled $2,220,051 and $2,010,754, respectively.
In 1997, the Company raised $187,875 of additional capital through the
exercise of 188,500 stock warrants and options, issued through previous private
placements and employee stock option grants.
Cash flow used in operating activities for the year ended December 31, 1997
was $464,917 as compared to $20,622 provided by operating activities for the
year ended December 31, 1996. The cash used in operating activities increased
due to the construction of new office space, which was financed from working
capital.
Net cash used in investing activities totaled $1,553,333 for the year ended
December 31, 1997, primarily as a result of the acquisition of Real Tool as
compared to net cash used in investing activities of $444,706 for the year ended
December 31, 1996.
Net cash provided by financing activities totaled $5,192,888 for the year
ended December 31, 1997, as compared to $1,489,361 provided by financing
activities in the year ended December 31, 1996. This difference was primarily
the result of proceeds received from the issuance of preferred stock, debentures
and the exercise of stock warrants and options. No known negative impacts will
result from the financing for the acquisitions for Real Tool and Obdyke.
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<PAGE>
Item 8. Financial Statement and Supplementary Data
Attached at pages F-1 through F-24 are the financial statements and
financial statement schedules identified in Item 14 hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following are the Executive Officers and Directors of the Company as of
the date of this report. The Company's By-Laws, as amended in 1993, provide for
the classification of Directors into three classes, as nearly equal in numbers
as possible, with one class being elected at each annual meeting for a term of
three years. The terms of Class I directors will expire in 2000, the terms of
Class II directors in 1998 and the terms of Class III directors in 1999. Francis
E. Wellock, Jr. is the son-in-law of Joseph F. Weiderman; otherwise, there is no
family relationship among any of the Company's officers or directors. The
current directors of the Company will serve until their terms expire and until
their successors in office are elected or appointed and qualified.
EXECUTIVE OFFICERS AND DIRECTORS
Name Age Position(s)
Theodore A. Schwartz 68 Chairman of the Board of Directors,
(Class III) Chief Executive Officer (Principal
Executive Officer)
Joseph F. Weiderman 56 President, Chief Operating Officer,
(Class III) Secretary, Treasurer and Director
Paul L. Spiese, III 46 Vice President and Director
(Class II)
Francis E. Wellock, Jr. 33 Chief Financial Officer (Principal Financial and
Accounting Officer)
Jacob I. Haft, M.D. 61 Director
(Class III)
Dr. Irving Kraut 80 Director
(Class I)
Larry Falcon 58 Director
(Class II)
Jay Seid 37 Director
(Class I)
John Paul Kirwin 42 Director
(Class III)
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<PAGE>
THEODORE A. SCHWARTZ was elected a Director of the Company effective June
1987 and served as President of the Company from May 5, 1988 to May 30, 1989 and
from July 17, 1990 to January 15, 1991. From May 30, 1989 to present, Mr.
Schwartz has served as Chairman of the Board of Directors and Chief Executive
Officer of the Company. Mr. Schwartz holds a B.S. in Economics from the Wharton
School of Business and spent 35 years in the investment field prior to joining
Berger.
JOSEPH F. WEIDERMAN was elected a Director of the Company on June 1, 1990,
served as Chief Financial Officer, Secretary and Treasurer of the Company since
February 1990, and was elected President of the Company on January 15, 1991. Mr.
Weiderman holds a Bachelor of Science Degree in Accounting and a Master of
Business Administration Degree in Finance from LaSalle University. Prior to his
joining the Company, Mr. Weiderman had served for over fourteen years as the
Chief Financial Officer of Harry Levin, Inc., a multi-store retailer of major
appliances and furniture.
PAUL L. SPIESE, III was elected a Director of the Company on March 30,
1991. Mr. Spiese joined Berger as Plant Manager in 1985 and was named Vice
President - Manufacturing of the Company in July 1990. Previously, he was
employed by Hurst Performance, Inc. as a Plant Manager.
FRANCIS E. WELLOCK, JR. was hired as Controller of the Company on June 10,
1991 and was elected Vice President Finance and Chief Financial Officer on
August 19, 1996. Mr. Wellock holds a Bachelor of Science Degree in Accounting
from Saint Joseph's University. Prior to joining the Company, Mr. Wellock worked
as a CPA for a Public Accounting Firm.
JACOB I. HAFT, M.D. was elected a Director of the Company in conjunction
with the Company's acquisition of Berger in 1989. Dr. Haft has practiced
medicine, with a specialization in cardiology, for over twenty-five years. Since
1974, Dr. Haft has been a Cardiologist at St. Michael's Medical Center in
Newark, New Jersey. In addition, Dr. Haft is currently a Clinical Professor of
Medicine at the New Jersey College of Medicine and Dentistry and Professor of
Medicine at the Seton Hall University Post Graduate School of Medicine. Dr. Haft
has several professional certifications, is a member of various professional
societies and associations and has published many scholarly articles and books.
Dr. Haft currently serves on the Cardiac Services Committee of the New Jersey
Department of Health.
LARRY FALCON was elected as a Director of the Company in November 1985 and
acted as Chairman of the Board from September 3, 1986 to June 1, 1987. He has
served as President of the Residential Division of The Kaplan Organization, a
real estate developer, since 1985.
DR. IRVING KRAUT was elected as a Director at the Company in July 1993. Dr.
Kraut was a practicing orthodontist from 1948 to 1991. Since that time, he has
served as a consultant to orthodontists in his capacity as President of Irving
Kraut, D.D.S., P.A. Since 1978, Dr. Kraut has served as a director of Princeton
Research Lands, Inc., a private real estate company.
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<PAGE>
JAY SEID was elected as a Director of the Company on December 15, 1997. Mr.
Seid is a Vice President of Bachow & Associates, a venture capital firm. Prior
to joining Bachow in December 1992, Mr. Seid was President and General Counsel
of Judicate, Inc. Previously he was an attorney specializing in corporate law at
Wolf, Block, Schorr and Solis-Cohen in Philadelphia. Mr. Seid graduated with a
B.A. from Rutgers University and received a J.D. from New York University School
of Law.
JOHN PAUL KIRWIN was elected as a Director of the Company on December 15,
1997. Mr. Kirwin is a principal in Argosy Investment Partners, L.P., a small
business investment company. Mr. Kirwin is also a principal in Odyssey Capital
Group, L.P., a private investment fund. Mr. Kirwin was a corporate and
securities attorney for 14 years, including six years as a partner at
McCausland, Keen & Buckman, until joining Odyssey full time in January 1996. Mr.
Kirwin holds a Juris Doctris, Order of the Coif, from the National Law Center of
George Washington University and a Bachelor of Arts from Dickinson College.
-15-
<PAGE>
Item 11. Executive Compensation
The following table shows the annual compensation of each of the Company's
executive officers for the years 1997, 1996 and 1995.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
- -------------------------- --------- ------------ ----------- ---------------- -------------- ----------------
(a) (b) (c) (d) (e) (g) (i)
Name & Principal Year Salary($) Bonus($) Other Annual Options/ All other
Position Compensation SARs (#) Compensation
($) ($)
<S> <C> <C> <C> <C> <C> <C>
Theodore A. Schwartz 1997 $131,561 $10,000 0 - $12,770 1
Chairman & Chief 1996 131,955 31,854 0 200,000 11,273
Executive Officer 1995 124,865 0 0 150,000 10,699
Joseph F. Weiderman 1997 $127,512 $10,000 0 - $2,507 2
President and Chief 1996 118,435 42,470 0 200,000 2,242
Operating Officer 1995 109,346 0 0 150,000 1,877
Paul L. Spiese, III 1997 $ 93,767 $10,000 0 - $1,879 3
Vice President 1996 88,015 29,980 0 200,000 1,856
Francis E. Wellock, Jr. 1997 $ 75,132 $10,000 0 - $ 514 4
Chief Financial 1996 55,818 5,000 0 180,000 $ 49
Officer
- ---------------------------
<FN>
1 Represents premiums paid by the Company for life insurance for the benefit of Mr. Schwartz.
2 Represents premiums paid by the Company for life insurance for the benefit of Mr. Weiderman.
3 Represents premiums paid by the Company for life insurance for the benefit of Mr. Spiese.
4 Represents premiums paid by the Company for life insurance for the benefit of Mr. Wellock.
</FN>
</TABLE>
-16-
<PAGE>
The following table shows (1) the number and value of options exercised by
the Company's executive officers during fiscal year 1997 and (2) the number and
value of unexercised options held by the Company's executive officers at the end
of 1997:
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
-----------------------------------------------------------------------------------------------------------
<CAPTION>
(a) (b) (c) (d) (e)
Value of Unexercised In
# of Unexercised Options at the-Money Options/SARs
Shares Acquired Value FY-End(#) at FY-End ($)
Name on Exercise (#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Theodore A. 0 0 256,633/250,000 $610,000/$570,000
Schwartz
213,643/250,000 $507,000/$570,000
Joseph F. 0 0
Weiderman
Paul L. Spiese, 0 0 204,043/250,000 $486,000/$570,000
III
Francis E. 0 0 85,000/180,000 $201,875/$410,625
Wellock, Jr.
-----------------------------------------------------------------------------------------------------------
</TABLE>
During 1997, members of the Company's Board of Directors who were not also
executive officers of the Company were paid $250 per Board meeting attended. An
aggregate of $2,750 was paid to directors for their services. No director was
paid more than $750.
Employment Agreements
Theodore A. Schwartz, Joseph F. Weiderman & Paul L. Spiese, III
Pursuant to Employment Agreements amended as of December 15, 1997, Messrs.
Schwartz, Weiderman and Spiese are employed by the Company as its Chief
Executive Officer, President and Chief Operating Officer and Vice President of
Manufacturing, respectively. These agreements, originally for a term of five
years, have been extended for two additional years and now expire December 31,
2000. The agreements provide for base annual salaries of $150,000, $150,000 and
$105,000, respectively. In addition to their salaries, the agreements provide
that Messrs. Schwartz, Weiderman and Spiese shall be entitled to a bonus at the
discretion of the Board of Directors. If, at the end of the term of the
agreement, the Company and Messrs. Schwartz, Weiderman and Spiese have not
agreed to an extension of these agreements for a minimum additional term of
three years, the Company is obligated to pay them an amount equal to 50% of
their then annual salary in weekly installments over a six month period (the
"Severance Payment"). In the event that the three officers are unable to perform
their duties under the agreement for an aggregate period of more than 180 days
-17-
<PAGE>
in any 365 day period, the Company may terminate any one of the three
officers' employment upon 90 days notice. In this event, the Company
is obligated to pay Messrs. Schwartz, Weiderman or Spiese his full
salary for a period of 12 months. At the end of this 12 month period,
the Company is obligated to pay the sum of $1,000 per week, subject to
certain reductions set forth in the agreement, for a period of 3 years
and then $500 per week for the remainder of their lives.
Messrs. Schwartz, Weiderman and Spiese are also entitled to the use of a
car provided by the Company and life insurance to benefit the beneficiary of
their respective choices in the face amount of $500,000. During the term of the
agreement, and so long as the any one of the three officers receives a Severance
Payment, they are prohibited directly or indirectly from engaging in any
business which is the same as, similar to or in competition with the business of
the Company. In addition, the amended agreement stipulates that during 1999 and
2000, the stock options granted for those years will be 100,000 for each year.
Francis E. Wellock, Jr.
Pursuant to an Employment Agreement dated as of December 15, 1997, Mr.
Wellock is employed by the Company as its Vice President of Finance. This
agreement is for a term of four and one half years and expires December 31,
2000. The agreement provides for a base annual salary of $90,000. In addition to
his salary, the agreement provides that Mr. Wellock shall be entitled to a bonus
at the discretion of the Board of Directors. If, at the end of the term of the
agreement, the Company and Mr. Wellock have not agreed to an extension of such
agreement for a minimum additional term of three years, the Company is obligated
to pay Mr. Wellock an amount equal to 50% of his then annual salary in weekly
installments over a six month period (the "Severance Payment"). In the event
that Mr. Wellock is unable to perform his duties under the agreement for an
aggregate period of more than 180 days in any 365 day period, the Company may
terminate Mr. Wellock's employment upon 90 days notice. In such event, the
Company is obligated to pay Mr. Wellock his full salary for a period of 12
months. At the end of this 12 month period, the Corporation is obligated to pay
Mr. Wellock the sum of $1,000 per week, subject to certain reductions set forth
in the agreement, for a period of three years and then $500 per week for the
remainder of Mr. Wellock's life.
Mr. Wellock is also entitled to the use of a car provided by the Company
and receives life insurance to benefit the beneficiary of his choice in the face
amount of $500,000. During the term of the agreement, and so long as Mr. Wellock
receives the Severance Payment, Mr. Wellock is prohibited directly or indirectly
from engaging in any business which is the same as, similar to or in competition
with the business of the Company. In addition, the amended agreement stipulates
that during 1999 and 2000, the stock options granted for those years will be
75,000 for each year.
-18-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Principal Shareholders
The following table sets forth, as of December 31, 1997, information with
respect to the beneficial ownership of the Company's directors, all directors
and executive officers as a group, and all persons believed by the Company to
beneficially own more than 5% of the outstanding Common Stock based upon filings
with the Securities and Exchange Commission. Unless otherwise indicated, such
ownership is believed to be direct, with sole voting and investment power.
Name and Address Shares Owned
of Outstanding Beneficially Percentage
Beneficial Owner and of Record of Shares
Theodore A. Schwartz 415,225 (1) 7.40%
Joseph F. Weiderman 345,090 (2) 6.15%
Paul L. Spiese, III 294,726 (3) 5.29%
Jacob I. Haft, M.D. 136,700 (4) 2.46%
Larry Falcon 52,791 (5) *
Dr. Irving Kraut 262,533 (6) 4.83%
Jay Seid 21,500 *
John Paul Kirwin 0 *
Francis E. Wellock, Jr. 115,750 (7) 2.13%
Tandem Capital 588,235 (8) 9.89%
Argosy Investment Partners, L.P. 352,941 (8) 6.18%
All Directors and Executive
Officers as a group (9 persons) 2,585,491 35.76%
* = less than 1%
-19-
<PAGE>
(1) Includes 1,500 shares of Common Stock registered to Mr. Schwartz as joint
tenant with Janice L. Bredt and options to purchase 251,250 shares of Common
Stock.
(2) Includes options to purchase 210,643 shares of Common Stock.
(3) Includes options to purchase 204,726 shares of Common Stock.
(4) Includes options to purchase 52,414 shares of Common Stock.
(5) Consists solely of options to purchase shares of Common Stock.
(6) Includes options to purchase 70,000 shares of Common Stock.
(7) Includes options to purchase 85,000 shares of Common Stock.
(8) Consists solely of shares of Series A Convertible Preferred Stock
convertible into Common Stock
Item 13. Certain Relationships and Related Transactions
Theodore A. Schwartz, Joseph F. Weiderman and Paul L. Spiese, III
The Company holds Promissory Notes (the "Notes") made by Messrs. Schwartz,
Weiderman and Spiese totaling $175,083, $152,000 and $100,833 respectively,
which bear interest at a rate of six percent per annum. The Notes require that
the principal and accrued interest be paid on or before November 21, 2001. The
proceeds of the Notes were used by Messrs. Schwartz, Weiderman and Spiese to
purchase securities of the Company in the Company's 1993 private placements and
warrant exercise of 1996. These securities were purchased on the same terms as
other investors in the private placements. The largest aggregate amount
outstanding under each of the Notes during the year ended December 31, 1997 was
$175,083, $152,000 and $100,833 respectively, all of which are currently
outstanding.
-20-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
1. Financial statements - attached at pages F-1 through F-24 are the financial
statements and financial schedules set forth below, and which are incorporated
by reference in Item 8:
Berger Holdings, Ltd.
Reports of Independent Auditors on Financial Statements
of Berger Holdings, Ltd. and Subsidiary for 1997, 1996 and 1995 F-1
Consolidated Balance Sheets of Berger Holdings, Ltd.
and Subsidiary as of December 31, 1997 and 1996 F-2
Consolidated Statements of Operations of Berger
Holdings, Ltd. and Subsidiary for the years ended
December 31, 1997, 1996, and 1995 F-4
Consolidated Statements of Stockholders' Equity of
Berger Holdings, Ltd. and Subsidiary for the years
ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows of Berger Holdings,
Ltd. and Subsidiary for the years ended December 31, 1997,
1996 and 1995 F-6
Notes to Consolidated Financial Statements of Berger
Holdings, Ltd. and Subsidiary F-8
-21-
<PAGE>
Independent Auditor's Report
February 13, 1998
Stockholders and Board of Directors
Berger Holdings, Ltd. and Subsidiary
Feasterville, Pennsylvania
We have audited the accompanying consolidated balance sheets of BERGER
HOLDINGS, LTD. AND SUBSIDIARY as of December 31, 1997 and 1996 and the related
consolidated statements of operations, of stockholders' equity, and of cash
flows listed under Item 14(a)(2) of the Company's annual report on Form 10-K for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BERGER
HOLDINGS, LTD. AND SUBSIDIARY as of December 31, 1997 and 1996, and the results
of their operations, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/S/ GOLDENBERG ROSENTHAL FRIEDLANDER
Goldenberg Rosenthal Friedlander
Jenkintown, Pennsylvania
F-1
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31
ASSETS 1997 1996
<S> <C> <C>
Current assets
Cash $ 4,411,347 $ 1,236,709
Accounts receivable, net of allowance for doubtful
accounts of $43,000 in 1997 and 1996 1,655,327 1,569,741
Inventories 2,652,466 2,133,895
Prepaid and other current assets 372,721 153,733
Deferred income taxes 800,000 250,000
----------- -----------
Total current assets 9,891,861 5,344,078
Property and equipment, net 6,110,128 6,080,755
Other assets
Deferred income taxes 700,000 250,000
Construction in progress, equipment deposits
and other assets 918,304 145,654
Patents, covenant not to compete agreements,
and deferred loan acquisition costs, net of
accumulated amortization of $32,551 in 1997 608,271 -
Goodwill, net of accumulated amortization of
$550,254 in 1997 and $393,530 in 1996 1,522,649 472,374
----------- -----------
$19,751,213 $12,292,861
=========== ===========
</TABLE>
(continued)
See notes to consolidated financial statements
F-2
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(continued)
<CAPTION>
December 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 *
<S> <C> <C>
Current liabilities
Current maturities of long-term debt $ 522,679 $ 247,717
Accounts payable 251,093 110,867
Accrued expenses 462,023 557,222
------------ ------------
Total current liabilities 1,235,795 915,806
Note payable, bank 1,447,675 1,574,456
Long-term debt, net of current maturities 4,574,472 2,147,263
------------ ------------
Total liabilities 7,257,942 4,637,525
------------ ------------
Stockholders' equity
Series A convertible
preferred stock, $.01 par value
($2,500,000 liquidation value)
Authorized 5,000,000 shares
Issued and outstanding 25,000 shares 250 -
Common stock, $.01 par value
Authorized 20,000,000 shares
Issued and outstanding 5,228,973 shares in 1997
4,858,150 shares in 1996 52,289 48,581
Additional paid-in capital 19,562,462 16,753,862
Accumulated deficit (6,613,814) (8,634,191)
------------ ------------
13,001,187 8,168,252
Less common stock subscribed (507,916) (512,916)
------------ ------------
12,493,271 7,655,336
------------ ------------
$ 19,751,213 $ 12,292,861
============ ============
</TABLE>
* Reclassified to conform with the presentation for 1997
See notes to consolidated financial statements
F-3
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended December 31
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 20,748,017 $ 19,745,890 $ 15,653,321
Cost of sales 16,196,776 15,587,221 13,738,061
------------- ------------- -------------
Gross profit 4,551,241 4,158,669 1,915,260
------------- ------------- -------------
Selling, administrative and general
expenses 2,963,614 2,389,285 2,225,685
------------- ------------- -------------
Income (loss) from operations 1,587,627 1,769,384 (310,425)
------------- ------------- -------------
Other (expense) income
Interest expense (581,624) (619,178) (570,420)
Other income, net 14,374 4,295 30,984
------------- ------------- -------------
(567,250) (614,883) (539,436)
------------- ------------- -------------
Income (loss) before income taxes 1,020,377 1,154,501 (849,861)
Provision for income tax benefit 1,000,000 500,000 -
------------- ------------- -------------
Net income (loss) $ 2,020,377 $ 1,654,501 $ (849,861)
============= ============= =============
Basic earnings (loss) per share $0.40 $0.44 ($0.26)
============= ============= =============
Dilutued earnings (loss) per share $0.31 $0.44 ($0.26)
============= ============= =============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
Series A Convertible Common Stock
Preferred Stock Common Stock Subscribed
Additional
Number Number Paid-in Accumulated Number
of Shares Amount of Shares Amount Capital Deficit of Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 - $ - 3,191,439 $31,914 $14,778,238 ($9,438,831) 200,000 $200,000
Shares issued in exchange for equipment - - 100,000 1,000 111,500 - - -
Shares issued in private placements - - 240,000 2,400 199,009 - - -
Net loss for the year ended December 31, 1995 - - - - - (849,861) - -
------ ------- ---------- ------ ----------- ---------- -------- --------
Balance, December 31, 1995 - - 3,531,439 35,314 15,088,747 (10,288,692) 200,000 200,000
Debt converted to common shares - - 175,000 1,750 173,250 - - -
Warrants exercised at $1.50 per share, net of costs
associated with raising funds - - 966,250 9,662 1,415,079 - 247,500 371,250
Warrants exercised at $1.00 per share - - 52,500 525 51,975 - - -
Shares issued in exchange for services - - 133,000 1,330 24,870 - - -
Shares retired - - (39) - (59) - - -
Reduction of common stock subscribed - - - - - (58,334) (58,334)
Net income for the year ended December 31, 1996 - - - - - 1,654,501 - -
------ ------- ---------- ------ ----------- ---------- -------- --------
Balance, December 31, 1996 - - 4,858,150 48,581 16,753,862 (8,634,191) 389,166 512,916
Series A convertible preferred stock 25,000 250 - - 2,254,123 - - -
Common shares issued - - 182,500 1,825 330,363 - - -
Warrants exercised at $.90 per share - - 70,000 700 62,300 - - -
Warrants exercised at $1.00 per share - - 110,000 1,100 108,900 - - -
Stock based compensation - - - - 38,700 - - -
Shares issued in connection with employee - - 8,500 85 14,790 - - -
Shares retired - - (177) (2) (576) - - -
Reduction of common stock subscribed - - - - - - (3,333) (5,000)
Net income for the year ended December 31, 1997 - - - - - 2,020,377 - -
------ ------- ---------- ------ ----------- ---------- -------- --------
Balance, December 31, 1997 25,000 $250 5,228,973 $52,289 $19,562,462 ($6,613,814) 385,833 $507,916
====== ======= ========== ====== =========== ========== ======== ========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 2,020,377 $ 1,654,501 $ (849,861)
------------ ----------- -------------
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities
Deferred income tax (1,000,000) (500,000) -
Depreciation and amortization 847,189 732,066 719,245
(Increase) decrease in assets
Accounts receivable 5,577 (348,676) 18,366
Inventories (459,116) (540,253) 288,254
Other current and long-term
assets (1,923,971) (149,019) (126,915)
Increase (decrease) in accounts
payable and accrued expenses 45,027 (827,997) 416,118
------------ ----------- -------------
Total adjustments (2,485,294) (1,633,879) 1,315,068
------------ ----------- -------------
Net cash provided by (used in) operating
activities (464,917) 20,622 465,207
------------ ----------- -------------
Cash flows from investing activities
Payment for purchase of Real-Tool Inc. (900,618) - -
Acquisition of property and equipment,
net of retirements (652,715) (444,706) (226,986)
------------ ----------- -------------
Net cash used in investing activities (1,553,333) (444,706) (226,986)
------------ ----------- -------------
Cash flows from financing activities
Net proceeds (repayments) from
working capital line (126,781) 209,297 -
Proceeds from issuance of convertible - 175,000 -
Proceeds from long-term debt 4,050,000 - -
Loan and mortgage repayments (1,347,889) (85,402) (347,589)
Gross proceeds from issuance of stock,
private placements, stock warrants
and stock options 2,820,370 1,264,696 239,000
Costs of raising capital (202,812) (74,230) (37,591)
------------ ----------- -------------
Net cash provided by (used in)
financing activities 5,192,888 1,489,361 (146,180)
------------ ----------- -------------
Net increase in cash 3,174,638 1,065,277 92,041
Cash, beginning of year 1,236,709 171,432 79,391
------------ ----------- -------------
Cash, end of year $ 4,411,347 $ 1,236,709 $ 171,432
============ =========== =============
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year Ended December 31
1997 1996 1995
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for int 582,000 619,000 570,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
The Company purchased all of the Common stock of Real Tool Inc for $1,667,395.
In conjunction with this purchase the following was recorded:
Cash paid for assets 900,618
Note payable for acquisition 750,000
Common Stock issued 200,000
-----------
$ 1,850,618
Less: fair value of assets acquired
Inventory (91,163)
Accounts receivable (59,455)
Equipment (32,605)
-----------
$ 1,667,395
===========
In 1996, the Company entered into capital leases aggregating $91,657.
In 1996, the Company applied $455,388 of deposits to equipment.
In 1995, the Company issued 100,000 shares of common stock valued at
$112,500 as a partial payment on an equipment deposit.
See notes to consolidated financial statements
F-7
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS ORGANIZATION
Berger Holdings, Ltd. ("Company") was incorporated in the Commonwealth of
Pennsylvania on August 28, 1979.
The Company operates from a manufacturing facility in Feasterville,
Pennsylvania. The Company produces aluminum, galvanized and copper roof drainage
and solid vinyl home siding products. The roof metal drainage products represent
over 95% of the Company's revenues. Berger sells to wholesale building product
distributors throughout the United States, its territories and Canada, but is
specifically concentrated in the Northeast corridor. The Company routinely
grants credit to these distributors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiary, Berger Financial Corporation (a Delaware corporation
formed in 1994) and Berger Financial's wholly-owned subsidiary, Berger Bros
Company, a Pennsylvania corporation. All significant intercompany transactions
and balances have been eliminated.
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. For financial reporting
purposes, depreciation is computed on the straight-line method over the
estimated useful lives of the assets. For income tax purposes, depreciation is
computed using accelerated methods.
Maintenance and repair costs, which do not improve or extend the life of
the respective assets, are charged to operations as incurred. Leasehold
improvements are amortized over the shorter of the lease term or useful life.
When an asset is sold, retired, or otherwise disposed of, the cost of the
property and the related accumulated depreciation is removed from the respective
accounts and any resulting gains or losses are included in income.
Revenue Recognition
The Company records revenues on its products when goods are shipped.
Goodwill
Goodwill is amortized using the straight-line method over 10-14 years.
Goodwill charged to operations was $156,724 in 1997 and $78,800 in both 1996 and
1995.
F-8
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings (Loss) Per Share
In February 1997, Statement of Financial Accounting Standards No. 128
"Earnings per Share" was issued. This pronouncement is effective for financial
statements issued after December 15, 1997. This statement requires presentation
of "Basic" earnings per share, which is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding,
and when applicable, "Diluted" earnings per share which gives effect to all
dilutive (both vested and non-vested), potential common shares.
Basic and diluted earnings (loss) per share for the years 1995 through 1997
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Basic earnings (loss) per share
Income (loss) available to
common stockholders $2,020,377 $1,654,501 ( $ 849,861 )
----------------- ----------------- -----------------
Weighted average common
shares outstanding 5,057,828 3,720,149 3,326,412
----------------- ----------------- -----------------
Basic earnings (loss) per share $ 0.40 $ 0.44 ( $ 0.26 )
================= ================= =================
Diluted earnings (loss) per share
Weighted average common
shares outstanding 5,057,828 3,720,149 3,326,412
Add: effect of vested and
non-vested dilutive securities 1,500,498 - -
Add: effect of convertible
preferred shares 1,612 - -
----------------- ---------------- ----------------
6,559,937 3,720,149 3,326,412
================== ================ ================
Diluted earnings (loss) per share $ 0.31 $ 0.44 ( $ 0.26 )
================== ================ ================
</TABLE>
Stock equivalents which were exercisable at prices greater than the average
market price of the common shares during the year have been excluded from the
computation since the effect would be anti-dilutive. As of December 31, 1997,
there were 115,000 options meeting this criterion.
F-9
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Management's Judgments and Accounting Estimates
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 period. Actual results could differ from those estimates.
3. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out method ("FIFO").
As of December 31, 1997 and 1996, inventories consist of the following:
1997 1996
--------------- ----------------
Raw materials $1,422,501 $1,291,490
Finished goods 1,215,959 816,719
Packaging materials and supplies 60,006 71,686
Less provision for obsolescence ( 46,000 ) ( 46,000 )
--------------- ----------------
$2,652,466 $2,133,895
=============== ================
4. PROPERTY AND EQUIPMENT
As of December 31, 1997 and 1996, property and equipment consists of the
following:
1997 1996
----------------- -----------------
Land $ 485,000 $ 485,000
Building 3,842,865 3,842,865
----------------- -----------------
Subtotal (carried forward) 4,327,865 4,327,865
----------------- -----------------
F-10
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
1997 1996
----------------- -----------------
Subtotal (brought forward) 4,327,865 4,327,865
Machinery 5,295,593 5,058,444
Furniture and fixtures 503,011 442,107
Trucks and autos 567,477 482,462
Dies 631,366 517,101
Leasehold improvements 881,571 744,596
----------------- -----------------
12,206,883 11,572,575
Less accumulated depreciation
and amortization 6,096,755 5,491,820
----------------- -----------------
$ 6,110,128 $ 6,080,755
================= =================
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $690,786, $653,266 and $640,445, respectively.
Total cost of machinery under capital leases included above as of December
31, 1997 and 1996 was $ 177,283 and $243,493, respectively.
5. OTHER ASSETS
As of December 31, 1997 and 1996, other assets consist of the following:
1997 1996
------------- --------------
Construction in progress $500,000 -
Equipment deposit 405,093 $109,711
Other assets 13,211 35,943
------------- --------------
$918,304 $145,654
============= ==============
F-11
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM DEBT
As of December 31, 1997 and 1996, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
--------------- ----------------
<S> <C> <C>
Term loan, payable in 36 monthly installments of $21,667
plus interest at prime plus 1% (prime was 8.5% as of December 31, 1997)
through September 2000, and a balloon payment of $ 520,000 due in
October, 2000. This loan is collateralized by machinery and
equipment.
$1,213,332 $
-
12.25%subordinated debenture , due January 2, 2003, interest is payable
quarterly commencing February 1, 1998 through maturity (see Note 16)
2,000,000 -
Note payable in connection with acquisition of Real Tool,
Inc. product line. Due in quarterly installments of
$187,500 plus interest at 5.69% through January 1998
(see Note 14) 187,500 -
Mortgage note payable, principal and interest due in monthly payments of
approximately $17,400 through May, 2016 with a call date any time after
April 23, 2001 upon 60 days prior notice. Interest is based on U.S.
Treasury Bill rates and adjusted every 5 years. The current interest
rate is 10.2%.
1,612,218 1,659,046
Notes payable and capital leases, due in monthly installments of approximately
$4,000, including interest, ranging from 7.25% to 11.0% through 2000;
collateralized by certain equipment.
84,101 90,339
Notes repaid in current period (See Note 7) - 645,595
--------------- ----------------
5,097,151 2,394,980
Less current maturities 522,679 247,717
--------------- ----------------
$4,574,472 $2,147,263
=============== ================
</TABLE>
F-12
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM DEBT (continued)
Scheduled annual maturities of long-term debt as of December 31, 1997 are
as follows:
Year Ending December 31
1998 $ 522,679
1999 338,110
2000 776,950
2001 66,939
2002 66,000
Thereafter 3,326,473
----------------
$5,097,151
================
7. NOTE PAYABLE, BANK
The Company has available a $3,500,000 revolving line-of-credit expiring in
August, 2000. This line is secured by accounts receivable, inventory and
property and equipment. Interest is based on prime plus 1/2%. Borrowings under
this facility are based on a formula defined in the agreement. This
line-of-credit is subject to certain financial covenants as defined in the
agreement. As of December 31, 1997, $1,447,675 was outstanding on this loan.
In 1996 the Company has a term loan working capital line with available
credit aggregating $3,500,000. This line-of-credit was repaid in full during
1997. For financial statement purposes this line was classified as follows as of
December 31, 1996:
Note payable, bank $1,574,456
Term note (see Note 6) 645,595
----------------
$2,220,051
================
F-13
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. ACCRUED EXPENSES
As of December 31, 1997 and 1996, accrued expenses consist of the
following:
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Payroll and related expenses $ 89,702 $122,685
Volume rebates 329,518 270,988
Insurance, real estate taxes, freight and miscellaneous
19,803 136,736
Professional fees 23,000 26,813
-------------- -------------
Total accrued expenses $462,023 $557,222
============== =============
</TABLE>
9. INCOME TAXES
The Company accounts for the recognition of deferred tax assets and
liabilities based on the expected future tax consequences of events that have
been included in the financial statements or tax returns. The provision
(benefit) for (from) deferred income taxes results from temporary differences
which consist of different tax bases for assets and liabilities than their
reported amounts in the financial statements. Such differences result in
recognition of income or expense in different years for tax and financial
statement purposes. The sources of these differences and the tax effect of each
as of December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- ---------------
<S> <C> <C> <C>
Inventory reserves $ 18,400 $ 18,400 $ 24,000
Net operating loss carryforwards 2,004,000 2,390,000 2,400,000
Depreciation ( 125,000 ) ( 135,000 ) ( 120,000 )
---------------- --------------- ---------------
Subtotal 1,897,400 2,273,400 2,304,000
Valuation allowance ( 397,400 ) ( 1,773,400 ) ( 2,304,000 )
---------------- --------------- ---------------
Total net deferred tax asset $1,500,000 $ 500,000 $ -
================ =============== ===============
</TABLE>
F-14
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES (continued)
The valuation allowance decreased by $1,376,000, $530,600 and $-0- during
the years ended December 31, 1997, 1996 and 1995, respectively. The 1996 and
1995 gross amounts have been changed to reflect revised information regarding
the availability of net operating loss carry forwards. These changes did not
affect the net balances reported. The net deferred asset has been recognized on
the balance sheet as follows:
December 31
--------------------------------------
1997 1996
------------------ --------------
Current portion $ 800,000 $250,000
Noncurrent portion 700,000 250,000
------------------ --------------
$1,500,000 $500,000
================== ==============
As of December 31, 1997, the Company had carryforward net operating losses
of approximately $5,000,000, expiring through 2010. In addition, investment tax
credits of approximately $5,000 are available to apply against future income
taxes, if any, and expire in 2000.
Provision for income taxes for 1997 and 1996 were as follows:
1997 1996
--------------- ---------------
Current, federal and state at statutory rates $ 376,000 $ 500,000
Deferred, reduction of valuation allowance ( 1,376,000 ) ( 1,000,000)
--------------- ---------------
Deferred tax benefit $1,000,000 $ 500,000
=============== ===============
No provision for federal or state income taxes was recognized for 1995.
Certain gains which were recognized as a result of the Company's emergence from
bankruptcy are not considered taxable income for either federal or state
purposes. Additionally, gains recognized from exchanging debt for common stock
are not considered taxable income. However, these gains reduce prior years' net
operating loss carryforwards.
F-15
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK OPTIONS
Under various plans, the Company may grant stock options to key executives,
directors, management personnel, other employees and consultants. Transactions
under the various stock option plans for the period indicated were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ---------------- ---------------
<S> <C> <C> <C>
Outstanding as of beginning of
year 2,261,998 1,205,167 515,167
Options granted 195,750 1,065,000 690,000
Options exercised or canceled ( 8,500 ) ( 8,169 ) -
--------------- ---------------- ---------------
Outstanding as of December 31 2,449,248 2,261,998 1,205,167
=============== ================ ===============
Exercisable as of December 31 1,179,248 736,998 505,167
=============== ================ ===============
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1997:
<TABLE>
<CAPTION>
Weighted
Average
Number Remaining Weighted Weighted
Range of Of Years of Average Number Average
Exercise Options Contractual Exercise Of Options Exercise
Price Outstanding Life Price Exercisable Price
- ----------------- ----------------- ----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
$1.00-$1.99 2,259,248 8.91 $1.55 1,029,248 $1.51
$3.00-$3.99 160,000 7.13 $3.58 120,000 $3.60
$4.00-$4.55 30,000 5.00 $4.55 30,000 $4.55
----------------- -----------------
2,449,248 1,179,248
================= =================
</TABLE>
F-16
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK OPTIONS (continued)
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") which is effective
for the Company in 1996. As permitted under SFAS No. 123, the Company has
elected not to adopt the fair value based method of accounting for its
stock-based compensation plans. The Company will continue to account for such
compensation under the provisions of Accounting Principles Board Opinion No. 25.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards granted in 1997
and 1996 consistent with SFAS No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C> <C>
Net income As reported $2,020,377 $1,654,501
Pro forma $1,792,942 $1,564,510
Basic earnings per share As reported $ .40 $ .44
Pro forma $ .35 $ .42
Diluted earnings per share As reported $ .31 $ .44
Pro forma $ .27 $ .42
</TABLE>
The fair value of the options granted in 1997 and 1996 used to compute pro
forma net income and earnings per share disclosures is the estimated present
value at the grant date using the Black-Scholes option pricing model with the
following weighted average assumptions: dividend yield 0%; expected volatility
of 29% in 1997 and 83% in 1996; risk free interest rate of 6.2% in 1997 and 6.5%
in 1996; it is expected that the options will be exercised immediately upon
vesting.
11. CAPITAL STOCK AND WARRANTS
In December, 1997 the Company issued 25,000 shares of Series A Convertible
Preferred Stock for $100 per share. These shares have a $100 per share
liquidating preference. Each share is convertible at any time into 23.53 common
shares. Dividends on the preferred shares are cumulative, provided at $10.00 per
share per annum and payable quarterly commencing March 31, 1998. On the fifth
anniversary of the original issue of the preferred shares the dividend rate is
scheduled to increase to $20.00 per share.
The shares are redeemable at the Company's option from January 2, 2000 to
January 2, 2003, if the Company's common stock's average sale price exceeds
$9.00 per share over a period specified in the agreement. Subsequent to January
2, 2003 the preferred shares are redeemable at the Company's option. The
redemption price is $105 per share.
F-17
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. CAPITAL STOCK AND WARRANTS (continued)
In connection with the acquisition of Real Tool, Inc. the Company issued
100,000 shares of common stock.
In connection with the funding of the acquisition of certain product lines
of Benjamin Obdkye, Inc. (see Note 16), among other uses an additional 15,000
shares of Series A Preferred Stock were issued in 1998.
In 1997 and 1996, the Company issued 82,500 and 133,000 shares,
respectively of common stock in exchange for consulting services. Additionally,
in 1996 the Company issued convertible debt aggregating $175,000, which was
converted into 175,000 shares of common stock.
The following summarizes shares issued in connection with private
placements during 1995:
<TABLE>
<CAPTION>
Number Capital Shares
Date Of Units Raised Issued
- --------------------------------------------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C>
October, 1995 240 (a) $ 239,000 240,000
<FN>
(a) In connection with the placement of these units, the placement agents
were granted warrants to purchase up to 112,500 shares at $1.00 per share
(effective August, 1995) which were exercised prior in December, 1997.
</FN>
</TABLE>
As of December 31, 1997, total outstanding warrants were 375,000. The
exercise price of these warrants ranged from $1.00 to $2.00 and expire at
various dates through 1999.
Stock warrant transactions are summarized as follows:
Stock
Warrants
---------------
Outstanding, January 1, 1996 1,174,317
Issued 495,000
Exercised ( 1,018,750 )
Forfeited ( 95,567 )
---------------
Outstanding, December 31, 1996 555,000
Exercised ( 180,000 )
---------------
Outstanding, December 31, 1997 375,000
===============
F-18
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. CAPITAL STOCK AND WARRANTS (continued)
During 1996, $58,334 due from officers for stock subscribed, relating to a
1993 private placement, were forgiven. The balance due on certain subscriptions
of $116,666 can be forgiven at the discretion of the Board of Directors or if
during the period 1998 through 1999, operating earnings goals are met as
follows:
1) If per share operating earnings are at least 110% of 1996 per share
operating earnings, $58,333 will be forgiven or,
2) If per share operating earnings are at least 120% of 1996 per share
operating earnings, the entire balance will be forgiven.
There was no forgiveness in 1997 for these subscriptions.
12. COMMITMENTS AND CONTINGENCIES
The Company leases certain real property and equipment under noncancellable
operating leases. Under certain leasing arrangements, the Company pays property
taxes, insurance and maintenance related to the leased property.
Rent expense for the years ended December 31, 1997, 1996 and 1995 was
$185,000, $106,000 and $103,000, respectively.
As of December 31, 1997, minimum rental commitments under long-term,
noncancellable operating leases are as follows:
Year Ending December 31
1998 $ 560,000
1999 522,000
2000 519,000
2001 518,000
2002 506,000
Thereafter 66,000
---------------
$2,691,000
===============
The Company's current involvement in legal proceedings are those which
arise in the ordinary course of business. In the opinion of management, the
outcome of these matters will not have a material adverse effect on the
financial position of the Company.
F-19
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES (continued)
The Company participates in a multi-employer pension plan covering
substantially all of its union employees. The union employees comprise 67% of
the Company's workforce which are represented by two unions. The Company makes
monthly payments as required into the multi-employer plan trust established for
union employees. Under the Employee Retirement Income Security Act of 1974, as
amended by the Multi-Employer Pension Plan Amendments Act of 1980, an employer
is liable for a proportionate part of the plan's unfunded vested benefits
liability. The Company's share of the unfunded liability related to Local 107
Multi-Employer Pension Plan, is $58,000. Local 169 unfunded liability is
unknown.
The Company's union agreements expire in December 2001.
The Company has entered into an agreement through December 31, 1997, with a
shareholder to provide management support, strategic planning and assistance in
raising capital. Under the terms of the agreement, the Company provided 75,000
unregistered shares, in 1996, and paid this consultant $75,000 in 1995. The
Company revised this contract, effective January 1, 1997. Under the revised
contract, the Company issued 37,500 shares of common stock in 1997 to satisfy
obligations under this contract.
During 1997, the Company entered into an agreement with First Colonial
Securities Group, Inc. ("FCSG") to provide corporate financing and investment
banking services. In connection with this agreement the Company granted to FCSG,
100,000 common stock options exercisable at prices ranging from $3.25 - $4.55
per share. In accordance with SFAS 123 (See Note 10), compensation of $38,700
was recognized in 1997, which was charged to additional paid in capital.
The Company is currently expanding its facility. The total cost anticipated
on this expansion including furniture is $1,400,000. As of December 31, 1997,
approximately $580,000 of deposits were made towards this expansion.
During 1996, the Company entered into an agreement with Focus Tech
Investments, Inc. ("FTI") to provide financial public relations services through
March 31, 1997. In exchange for these services the Company issued 58,000
unregistered shares of common stock in 1996 and 18,000 unregistered shares of
common stock in 1997.
F-20
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. CONCENTRATION OF CREDIT RISK ARISING FROM CASH DEPOSITS
The Company maintains cash balances at a financial institution located in
the Delaware Valley area. The accounts at the institution are insured by the
Federal Deposit Insurance Corporation up to $100,000. During the year, the
Company's cash balances periodically exceed the insured limit.
14. ACQUISITION
On February 7, 1997, the Company purchased a 100% interest in Real-Tool,
Inc., a Virginia Corporation. Consideration for this acquisition was as follows:
Cash $ 900,618
Note payable (see Note 6) 750,000
Common stock (100,000 shares @$2.00 per share) 200,000
----------------------------
1,850,618
Less: identifiable tangible assets ( 183,223 )
------------------------------
Intangible assets acquired 1,667,395
==============================
The intangible assets acquired have been recorded as follows:
Non-compete rights $ 100,000
Patents 360,395
Goodwill 1,207,000
------------------------------
$ 1,667,395
==============================
Amortization of these assets is provided on the straight-line method over
the remaining life of the patent of 14 years.
Concurrent with the purchase, the Company entered into a royalty agreement
with the sole shareholder of Real-Tool, Inc. Under this agreement, which expires
in 2012, the Company is required to pay royalties of 6% of revenues with a
minimum of $75,000 annually, through 2002.
Subsequent to 2002, the Company has the option to either increase the
percentage of royalties paid to this individual and eliminate the minimum
payment requirement, or continue this contract in its current form.
F-21
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Accounts Receivable and Accounts Payable
The carrying amount approximates fair value because of the short maturity
of those instruments.
Long-Term Debt
The fair value of the Company's long-term debt is estimated based on the
current rates available to the Company for debt of the same remaining
maturities. As of December 31, 1997, the carrying value of this debt,
aggregating $6,544,000 approximates the fair value.
16. SUBSEQUENT EVENTS
In January 1998, the Company acquired the roof drainage manufacturing
segment of Benjamin Obdkye, Inc. Consideration for the purchase included the
following:
Cash $10,000,000
Note payable $ 879,000
Common stock 125,000 shares
In connection with the Acquisition, the Company agreed to repurchase, at
the option of Benjamin Obdyke, Inc., all of the Common Stock issued to Benjamin
Obdyke, Inc. with regard to the acquisition. Such option is exercisable upon the
second anniversary of the acquisition.
The Company also issued 50,000 common stock warrants which are exercisable
at any time until December 31, 1999. The exercise price of these warrants is
$4.17.
In order to fund this acquisition, and provide funds for other coporate
puposes, the Company has completed the following transactions:
Increased credit facility with current bank by $4,160,000
Issued 40,000 shares of Series A Convertible Preferred Stock at $100 per
share (Of this amount 25,000 shares were issued in December 1997 [See Note 11]).
These shares have a $100 per share liquidating preference.
F-22
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SUBSEQUENT EVENTS (continued)
Issued 2,500,000 of 12.25% debentures, due January 2003 ($2,000,000 issued
prior to December 31, 1997 [See Note 6]). This debt is subordinated to the bank
loan.
Both the preferred stock and debentures were issued to Tandem Capital and
Argosy Investment Partners. L.P.. As a further inducement to obtain financing
from Tandem Capital and Argosy Investment Partners, L.P. the Company issued
300,000 common stock warrants, exercisable at $4.25 per share expiring January
2, 2003.
17. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE
As of December 31, 1997, there were no accounting pronouncements issued,
but not yet effective which would have a material effect on the financial
statements of the Company.
F-23
<PAGE>
2. Financial statement schedules - The following consolidated financial
statement schedules are included herein:
Schedule IX --Consolidated Short-Term Borrowings
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are included in the financial statements or the notes
thereto and therefore have been omitted.
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Title Method of Filing
<S> <C> <C>
2(a) Debtor's Third Amended Incorporated by reference to Exhibit
Joint Plan of 1 of the Company's Current Report on
Reorganization Form 8-K filed on March 31, 1993 (the
"March 1993 8-K")
2(b) Third Amended Disclosure Incorporated by reference to Exhibit
Statement for Debtor's 2 of the March 1993 8-K
Amended Joint Plan of
Reorganization
2(c) Settlement Agreement by Incorporated by reference to Exhibit
and between the Registrant 4 of the March 1993 8-K
and Meridian Bank
3(a) Articles of Incorporation Incorporated by Reference to
and Bylaws Exhibit 3 of the Registration
Bylaws Statement on Form S-18 filed February
15, 1983 (File No. 2-81851-W) (the
"1983 Registration Statement")
3(b) Articles of Amendment Incorporated by reference to
dated November 29 Exhibit 3(b) of the Annual
Report on Form 10-K for the
year ended December 31,
1989 (the "1989 Form 10-K")
3(c) Articles of Amendment Incorporated by reference to
effective July 30, 1990 Exhibit 3(c) to Amendment No. 1
to the Registration Statement on Form S-1
filed on October 15, 1990 ("Pre-Effective
Amendment No. 1") (33-35898)
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title Method of Filing
<S> <C> <C>
3(d) Amended and Restated Incorporated by reference to Exhibit 3(d)
By laws of the Registration Statement on Form S-1
filed June 16, 1993 (the "1993 Form S-1")
(33-64468)
3(e) Articles of Amendment Incorporated by reference to Exhibit 3(e)
dated July 22, 1993 of the Annual Report on Form 10-K for the
year ended December 31, 1993 (the "1993
Form 10-K")
3(f) Articles of Amendment Filed herewith
dated December 29, 1997
4(a) Form of 1993 Incorporated by reference to Exhibit 4(g)
Private Placement of the 1993 Form S-1
4(b) Form of Consulting Incorporated by reference to Exhibit 4(h)
Warrant by and between of the 1993 Form S-1
the Company and Universal
Solutions, Inc.
4(c) Form of 1993 Incorporated by reference to Exhibit 4.9
Private Placement Warrant of the Registration Statement on Form S-3
No. 2 filed January 21, 1994 (the "Form S-3")
(33-82152)
4(d) Form of Consulting Incorporated by reference to Exhibit 4.10
Warrant of the Form S-3
10(a) Lease Agreement Incorporated by reference to Exhibit 10(i)
between Berger Bros. of the 1989 Form 10-K
Company and Feasterville
Associates dated May 30, 1989
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title Method of Filing
<S> <C> <C>
10(b) Addendum to Lease Incorporated by reference to
Agreement between Exhibit 10(j) of the 1989
Berger Bros. Company Form 10-K
and Feasterville
Associates dated
May 30, 1989
10(c) Cobra Ridge Vent Incorporated by reference to
Sale Agreement Exhibit 10(r) of the Annual Report on
Form 10-K for the year ended December 31,
1993
10(d) Employment Agreement Filed Herewith
between Berger Holdings,
Ltd. and Theodore
A. Schwartz
10(e) Employment Agreement Filed Herewith
between Berger Holdings,
Ltd. and Joseph
F. Weiderman
10(f) Employment Agreement Filed Herewith
between Berger Holdings,
Ltd. and Paul L. Spiese, III
10(g) Stock Purchase Agreement, Incorporated by Reference to Exhibit 2.1 of
dated as of February 7, 1997, the Company's Report on Form 8-K filed
by and between Berger Holdings, on February 20, 1997 (the "February 1997
Ltd. and Roger M. Cline 8-K")
10(h) Amendment to Stock Purchase Incorporated by Reference to Exhibit 2.2 of
Agreement, dated as of February of the February 1997 8-K
7, 1997, by and between Berger
Holdings, Ltd. and Roger M.
Cline
10(i) Asset Purchase Agreement Incorporated by reference to Exhibit 2.1 of
dated as of December 3, Company's Report on Form 8-K filed on
1997, by and among the January 20, 1998, as amended (the "January
Registrant, Obdyke and the 1998 Form 8-K")
Shareholders of Obdyke
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title Method of Filing
<S> <C> <C>
10(j) Preferred Stock Purchase Incorporated by reference to Exhibit 2.2 to
Agreement, dated as of the January 1998 Form 8-K
December 17, 1997, by
and among the Registrant,
Tandem and Argosy
10(k) Debenture Purchase Incorporated by reference to Exhibit 2.3 to
Agreement, dated as of the January 1998 Form 8-K
December 17, 1997, by
and among the Registrant,
Tandem and Argosy
10(l) Amended and Restated Loan Incorporated by reference to the Exhibit 2.4 to
and Security Agreement, dated the January 1998 Form 8-K
as of January 2, 1998, by
and among Berger Financial
Corp., a Delaware corporation,
Berger Bros. Company, a
Pennsylvania corporation and
Summit
21 Subsidiaries of the Incorporated by reference to
Company Exhibit 22 to the 1989 Form 10-K
23 Consent of Independent Filed Herewith
Accountants
27 Financial Data Schedule Filed Herewith (EDGAR version only)
</TABLE>
All other exhibits for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted. (b) Reports on Form 8K:
No Reports on Form 8K were filed during the last quarter covered by
this report.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Form 10-K to be signed on its behalf by
the undersigned, thereunto duly authorized on the 30th day of March, 1998.
BERGER HOLDINGS, LTD.
By: /S/ THEODORE A. SCHWARTZ
Theodore A. Schwartz
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/S/ THEODORE A. SCHWARTZ Chief Executive Officer March 30, 1998
Theodore A. Schwartz and Chairman of the Board
(Principal Executive Officer)
/S/ PAUL L. SPIESE, III Director March 30, 1998
Paul L. Spiese, III Vice President
/S/ JOSEPH F. WEIDERMAN President, Chief Operating March 30, 1998
Joseph F. Weiderman Officer and Director
/S/LARRY FALCON Director March 30, 1998
Larry Falcon
Director March __, 1998
Jacob I. Haft, M.D.
/S/ DR. IRVING KRAUT Director March 30, 1998
Dr. Irving Kraut
/S/JAY SEID Director March 30, 1998
Jay Seid
________________ Director March __, 1998
John Paul Kirwin
/S/ FRANCIS E. WELLOCK, JR. Chief Financial Officer March 30, 1998
Francis E. Wellock, Jr. (Principal Financial and
Accounting Officer)
</TABLE>
-26-
<PAGE>
STBOR97
BERGER HOLDINGS, LTD. AND SUBSIDIARY
SCHEDULE IX - CONSOLIDATED SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
STATED MAX. AMT. AVG. AMT. WTD. AVG.
BALANCE AVERAGE OUTSTANDING OUTSTANDING INT. RATE
AT END OF INTEREST DURING DURING DURING
YEAR ENDED DECEMBER 31, 1997 PERIOD RATE PERIOD PERIOD PERIOD
- ---------------------------- ----------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
REVOLVING CREDIT LINE / TERM LOAN $2,661,000 PRIME +2.35% $3,514,000 $2,934,000 10.48%
YEAR ENDED DECEMBER 31, 1996
- ----------------------------
REVOLVING CREDIT LINE / TERM LOAN $2,220,000 PRIME +3.25% $3,470,000 $2,683,000 11.52%
YEAR ENDED DECEMBER 31, 1995
- ----------------------------
REVOLVING CREDIT LINE / TERM LOAN $2,011,000 PRIME +3.5% $2,894,000 $2,608,000 12.31%
</TABLE>
<PAGE>
Exhibit 3(f)
STATEMENT WITH RESPECT TO SHARES
OF
BERGER HOLDINGS, LTD.
RESOLVED, that pursuant to the powers expressly delegated to
the Board of Directors by Article 6 of the Articles of Incorporation of the
Corporation, as amended, the Corporation hereby establishes and designates one
series of preferred stock and fixes and determines as set forth herein the
relative rights and preferences thereof as follows:
SECTION 1. DESIGNATION. There shall be established a series of
preferred stock, which shall consist of 40,000 shares of the authorized
preferred stock and shall be designated Series A Convertible Preferred Stock
(herein referred to as the "Preferred Stock").
SECTION 2. DIVIDENDS.
(A) The holders of Preferred Stock shall be entitled to
receive dividends (the "Preferred Dividend") payable in cash at the rate of
$10.00 per share per annum or such rate as modified under Section 2(b) herein
(the "Dividend Rate") on a cumulative basis from the actual date of original
issue of each share of Preferred Stock (the "Original Issue Date"), whether or
not declared, out of funds legally available therefor, payable quarterly in
arrears on the first day of each February, May, August, and November in each
year (each a "Dividend Payment Date"). Payments shall commence on the first such
date to occur after the Original Issue Date. Each such Preferred Dividend shall
be payable to the holders of record of the Preferred Stock at the close of
business on the preceding December 31, March 31, June 30, and September 30,
respectively. Each dividend shall be declared by the Board of Directors no more
than fifteen (15) days prior to its respective record date. Payments shall equal
$2.50 per share on each Dividend Payment Date or such lesser amount as shall
result from any proration in respect of any partial quarterly period. The amount
of Preferred Dividends payable upon the occurrence of any event described in
Sections 3, 5 or 7 hereof shall be computed by multiplying the applicable
Dividend Rate by a fraction, the numerator of which shall be the number of days
since the preceding Dividend Payment Date to the date of payment of such partial
Preferred Dividend and the denominator of which shall be 360.
(B) Beginning on the fifth anniversary of the Original Issue
Date, the Dividend Rate shall be adjusted by increasing the Dividend Rate to
$20.00 per share per annum, with the quarterly Preferred Dividend being
increased to $5.00 per share.
<PAGE>
(C) So long as any of the shares of Preferred Stock are
outstanding, no dividends (other than dividends or distributions paid in shares
of or options, warrants or rights to subscribe for or purchase shares of Common
Stock) shall be declared or paid or set apart for payment by the Corporation or
other distribution of cash or other property declared or made directly or
indirectly by the Corporation or any affiliate or any person acting on behalf of
he Corporation or any of its affiliates with respect to any shares of Common
Stock or other capital stock over which the Preferred Stock has preference or
priority in the payments of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Corporation ("Junior Stock"), nor
shall any shares of Junior Stock be redeemed, purchased or otherwise acquired
(other than a (i) purchase or other acquisition of Common Stock made for
purposes of any employee incentive or benefit plan of the Corporation or any
subsidiary or (ii) the purchase of up to 125,000 shares of Common Stock (as
adjusted for stock splits or stock dividends) pursuant to the "Put Option"
contained in the Asset Purchase Agreement dated as of December 3, 1997, by and
among the Corporation and the parties thereto) for any consideration (or any
moneys be paid to or made available for a sinking-fund for the redemption of any
shares of any such stock) directly or indirectly by the Corporation or any
affiliate or any person acting on behalf of the Corporation or any of its
affiliates (except by conversion into or exchange for Junior Stock), nor shall
any other cash or other property otherwise be paid or distributed to or for the
benefit of any holder of shares of Junior Stock in respect thereof, directly or
indirectly, by the Corporation or any affiliate or any person acting on behalf
of the Corporation or any of its affiliates unless in each case (x) the full
Preferred Dividends (including all accumulated, accrued and unpaid dividends) on
all outstanding shares of Preferred Stock shall have been paid or such dividends
have been declared and set apart for payment for the current dividend periods
with respect to the Preferred Stock and (y) sufficient funds shall have been
paid or set apart for the payment of the full Preferred Dividend for the current
dividend period with respect to the Preferred Stock.
(D) If and whenever a quarterly Preferred Dividend is not paid
on a Dividend Payment Date (whether or not declared), then the amount of such
Preferred Dividend remaining in arrears and unpaid from time to time shall bear
interest from such Dividend Payment Date until the date it is paid in full at an
annual rate equal to ten percent (10%). Interest payable in respect of Preferred
Dividends which are in arrears shall be computed on the basis of twelve (12) 30
- - - day months and a 360-day year. No payment shall be applied to the Preferred
Dividend due on a Dividend Payment Date unless and until all arrears, including
interest thereon, with respect to accumulated, accrued but unpaid Preferred
Dividends shall have been paid.
<PAGE>
SECTION 3. LIQUIDATION, DISSOLUTION, OR WINDING UP.
(A) In the event of any liquidation, dissolution, or winding
up of the Corporation, whether voluntary or involuntary, the holders of the
Preferred Stock shall be entitled to be paid first out of the assets of the
Corporation available for distribution to holders of the Corporation's capital
stock of all classes and before any sums shall be paid or any assets distributed
among the holders of shares of any other class or series of capital stock of the
Corporation, including Common Stock, an amount per share equal to One Hundred
Dollars ($100.00) plus an amount equal to all the accrued but unpaid Preferred
Dividends (whether or not declared), and the amount equal to all interest, if
any, on any Preferred Dividends in arrears, in each case to the date of final
distribution to such holders (the "Preference Amount"). Until the holders of the
Preferred Stock have been paid the Preference Amount in full, no payment will be
made to any holder of Junior Stock upon the liquidation, dissolution or winding
up of the Corporation. If the assets of the Corporation shall be insufficient to
permit the payment in full to the holders of the Preferred Stock of the
Preference Amounts, then the entire assets of the Corporation available for such
distribution shall be distributed ratably among the holders of the Preferred
Stock in proportion to the Preference Amount each such holder is otherwise
entitled to receive. After payment of the Preference Amount shall have been made
in full to the holders of the Preferred Stock or funds necessary for such
payment shall have been set aside by the Corporation in trust for the account of
holders of the Preferred Stock so as to be available for such payment, holders
of the Preferred Stock shall not be entitled to participate in the distribution
of any remaining assets of the Corporation.
(B) Any consolidation, merger or a statutory share exchange
(other than a (i) merger with a wholly-owned subsidiary of the Corporation, (ii)
or a mere reincorporation transaction, or (iii) a merger pursuant to which the
Corporation is the surviving entity and the capitalization of the Corporation
remains unchanged) in which the outstanding shares of capital stock of the
Corporation are exchanged for securities or other consideration of or from
another corporation, or a sale of all or substantially all the assets or stock
of the Corporation, shall be deemed to be a liquidation, dissolution, or winding
up of the affairs of the Corporation within the meaning of this Section 3, and
shall entitle the holders of the Preferred Stock to receive on the effective
date of such event the Preference Amount, in cash, securities or other property;
provided, however, that any such event shall not be so regarded as a
liquidation, dissolution, or winding up of the affairs of the Corporation with
respect to the Preferred Stock if the holders of seventy-five percent (75%) of
the outstanding shares of the Preferred Stock approve such event or elect not to
have any such event deemed to be a liquidation, dissolution, or winding up of
the affairs of the Corporation by giving written notice thereof to the
Corporation at least ten (10) days prior to the effective date of such event.
(C) Whenever the distribution provided for in this Section 3
shall be paid in property other than cash, the value of such distribution shall
be the fair value thereof determined in good faith by the Board of Directors of
the Corporation.
SECTION 4. VOTING RIGHTS.
(A) Except as otherwise required by law, or as specifically
provided herein, the holders of Preferred Stock shall have full voting rights
and powers, and the holders of shares of Preferred Stock and Common Stock shall
vote together as a single class on all matters submitted to a vote of the
stockholders of the Corporation; provided, however, that solely with respect to
the right to elect and remove directors, the holders of Preferred Stock shall
not be entitled to vote pursuant to this Section 4(a), but the provisions of
Section 4(b) and (c) shall govern the rights of the holders of Preferred Stock
with respect to the election or removal of directions. In any vote pursuant to
the preceding sentence, each holder of Preferred Stock shall be entitled to that
number of votes equal to the number of shares of Common Stock which would be
issuable upon conversion of such shares of Preferred Stock, as provided in
Section 5(a) hereof (the "As Converted Number of Shares") of such holder (with
fractional shares rounded up or down to the nearest whole number) at the record
date for the determination of stockholders entitled to vote on such matters or,
if no such record date is established, at the date such vote is taken or any
written consent of stockholders is solicited. The holders of the Preferred Stock
shall be entitled to notice of any stockholders' meeting in accordance with the
Bylaws of the Corporation.
<PAGE>
(B) The holders of the Preferred Stock, voting separately as
one class, shall have the exclusive and special right at all times to elect two
(2) directors (the "Preferred Directors") to the Board of Directors of the
Corporation provided, however, that so long as any shares of Preferred Stock are
outstanding, the Board of Directors shall not consist of more than nine (9)
members. The Preferred Directors shall be elected by the vote of the holders of
seventy-five percent (75%), and removed by the vote of the holders of
seventy-five percent (75%), of the shares of Preferred Stock then outstanding.
The right of holders of the Preferred Stock contained in this Section 4(b) may
be exercised either at a special meeting of the holders of Preferred Stock or at
any annual or special meeting of the stockholders of the Corporation, or by
written consent of such holders in lieu of a meeting. Upon the written request
of the holders of record of at least a majority of the Preferred Stock then
outstanding, the Secretary of the Corporation shall call a special meeting of
the holders of Preferred Stock for the purpose of (i) removing any Preferred
Director elected pursuant to this Section 4(b) and/or (ii) electing director(s)
to fill a vacancy of the directorship authorized to be filled by the holders of
Preferred Stock pursuant to this Section 4(b). Such meeting shall be held at the
earliest practicable date.
At any meeting held for the purpose of electing or removing a Preferred
Director, the presence, in person or by proxy, of the holders of record of
seventy-five percent (75%) of the Preferred Stock then outstanding shall be
required to constitute a quorum of the Preferred Stock for such election. A
vacancy in the directorship to be elected by the holders of Preferred Stock
pursuant to this Section 4(b) may be filled only by vote or written consent in
lieu of a meeting of the holders of seventy-five percent (75%) of the shares of
Preferred Stock then outstanding and may not be filled by the remaining
directors.
<PAGE>
(C) If and whenever four (4) quarterly dividends (whether or
not consecutive) payable on the Preferred Stock shall be in arrears (which
shall, with respect to any such quarterly dividend, mean that any such dividend
has not been paid in full), whether or not earned or declared, the number of
directors then constituting the Board of Directors shall be increased to a
number which allows for holders of the Preferred Stock to elect a majority of
the entire Board of Directors at a special meeting of stockholders called as
hereinafter provided. Whenever all arrears in dividends on the Preferred Stock
(together with interest on dividends in arrears pursuant to Section 2(d) above)
shall have been paid and dividends thereon for the current quarterly dividend
period shall have been paid or declared and set apart for payment, then the
right of the holders of the Preferred Stock to elect such additional directors
shall cease (but subject always to the same provision of the vesting of such
special voting rights in the case of any similar future arrearages in four (4)
quarterly dividends), and the terms of office of all persons elected as
additional directors by the holders of the Preferred Stock pursuant to this
Section 4(c) shall forthwith terminate and the number of the Board of Directors
shall be reduced accordingly. At any time after such additional voting power
shall have been so vested in the holders of the Preferred Stock, the Secretary
of the Corporation may, and upon the written request of any holder of Preferred
Stock (addressed to the Secretary at the principal office of the Corporation)
shall, call a special meeting of the holders of the Preferred Stock for the
election of the additional directors to be elected by them as herein provided,
such call to be made by notice similar to that provided in the Bylaws of the
Corporation for a special meeting of the stockholders or as required by law. If
any such special meeting required to be called as above provided shall not be
called by the Secretary within twenty (20) days after receipt of any such
request, then any holder of Preferred Stock may call such meeting, upon the
notice above provided, and for that purpose shall have access to the stock books
of the Corporation. The additional Preferred Directors elected at any special
meeting shall hold office until the next annual meeting of the stockholders or
special meeting held in lieu thereof if such office shall not have previously
terminated as above provided. If any vacancy shall occur among the additional
Preferred Directors, a successor shall be elected by the Board of Directors,
upon the nomination of the then remaining Preferred Directors or the successor
of such remaining directors, to serve until the next annual meeting of the
stockholders or special meeting held in place thereof if such office shall not
have previously terminated as above provided.
SECTION 5. CONVERSION RIGHTS. The holders of the Preferred Stock shall
have the following conversion rights:
(A) RIGHT TO CONVERT. Each share of Preferred Stock shall be
convertible at any time, and from time to time, at the option of the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing One Hundred Dollars ($100.00) (the "Numerator") by
the Conversion Price (as defined below) in effect at the time of conversion. The
conversion price at which shares of Common Stock shall be deliverable upon
conversion of Preferred Stock without the payment of additional consideration by
the holder thereof (the "Conversion Price") initially shall be Four and 25/100
Dollars ($4.25). Such initial Conversion Price, and the rate at which shares of
Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below. The conversion rights of the holders of
Preferred Stock shall terminate (i) in the event of a liquidation of the
Corporation, at the close of business on the first full day preceding the date
fixed for the payment of any amounts distributable on liquidation to the holders
of Preferred Stock; and (ii) in the event shares of Preferred Stock are called
for redemption pursuant to Section 7 hereof, at the close of business on the
Redemption Date (as defined in Section 7(a) below), unless the Corporation shall
default in making payment in full of the Redemption Price.
(B) ADJUSTMENT TO CONVERSION PRICE UPON OCCURRENCE OF
EXTRAORDINARY COMMON STOCK EVENT. Upon the happening of an Extraordinary Common
Stock Event (as hereinafter defined), the Conversion Price for the Preferred
Stock, simultaneously with the happening of such Extraordinary Common Stock
Event, shall be adjusted by multiplying the then-effective Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such Extraordinary Common Stock Event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such Extraordinary Common Stock Event, and the product so
obtained thereafter shall be the Conversion Price for the Preferred Stock. The
Conversion Price, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive Extraordinary Common Stock Event(s).
"Extraordinary Common Stock Event" shall mean (i) the issuance of additional
shares of Common Stock as a dividend or other distribution on outstanding Common
Stock, (ii) a stock split or subdivision of outstanding shares of Common Stock
into a greater number of shares of Common Stock, or (iii) a reverse stock split
or combination of outstanding shares of Common Stock into a smaller number of
shares of Common Stock.
<PAGE>
(C) RECAPITALIZATION OR RECLASSIFICATION. If the Common Stock
issuable upon the conversion of the Preferred Stock shall be changed into the
same or a different number of shares of any class or classes of stock of the
Corporation, whether by recapitalization, reclassification, or otherwise (other
than a subdivision or combination of shares or stock dividend provided for in
Section 5(b) hereof, or a reorganization, merger, share exchange, consolidation,
or sale of assets provided for in Section 5(d) hereof), then and in each such
event the holder of each share of Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such recapitalization,
reclassification, or other change by holders of the number of shares of Common
Stock into which such share of Preferred Stock might have been converted
immediately prior to such recapitalization, reclassification, or change, all
subject to further adjustment as provided herein.
(D) CAPITAL REORGANIZATION, MERGER, SHARE EXCHANGE,
CONSOLIDATION, OR SALE OF ASSETS. If at any time or from time to time there
shall be a capital reorganization of the Common Stock, including a merger, share
exchange, consolidation, or sale of all or substantially all of assets of the
Corporation (other than a subdivision or combination of shares or stock dividend
provided for in Section 5(b) hereof or a recapitalization or reclassification
provided for in Section 5(c) hereof), then, as a part of such reorganization,
provision shall be made so that the holders of the Preferred Stock thereafter
shall be entitled to receive, upon conversion of each share of the Preferred
Stock, the number of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock into which such shares of
Preferred Stock might have been converted immediately prior to such capital
reorganization would have been entitled to receive. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of the Preferred Stock
after the reorganization to the end that the provisions of this Section 5
(including adjustment of the Conversion Price then in effect and the number of
shares acquired upon conversion of the Preferred Stock) shall be applicable
after that event in as nearly equivalent a manner as may be practicable.
Notwithstanding the foregoing, in the case of a consolidation, merger, share
exchange, or sale of all or substantially all the assets of the Corporation, the
provisions of Section 3(b) shall apply to the Preferred Stock, and this Section
5(d) shall not apply, unless, as provided in Section 3(b) the holders of seventy
five percent (75%) of the outstanding shares of Preferred Stock elect that such
event shall not be deemed to be a liquidation, dissolution, or winding upof the
affairs of the Corporation.
(E) CERTAIN DILUTIVE ISSUES.
(I) SPECIAL DEFINITIONS. For purposes of this Section 5(e), the
following definitions apply:
<PAGE>
(1) "Options" shall mean rights, options, or warrants to subscribe
for, purchase or otherwise acquire either Common Stock or Convertible
Securities (as defined below), except for (A) currently exercisable options
and warrants to purchase an aggregate of 1,539,248 shares of Common Stock
outstanding on the Original Issue Date (the "Outstanding Options"); (B)
options to purchase an aggregate of 1,270,000 shares of Common Stock
granted or provided for but not exercisable as of the Original Issue Date
(the "Agreed Options"), (C) rights or options to acquire up to an aggregate
of 250,000 shares of Common Stock which may be granted to employees,
directors or consultants to the Corporation at an exercise price of no less
than the Fair Market Value (as defined in Section 5(h) below) on the date
of grant (the "Future Options") and (D) warrants to purchase an aggregate
of 350,000 shares of Common Stock granted and reserved for issuance on the
Original Issue Date (the "Current Warrants").
(2) "Convertible Securities" shall mean any evidences of indebtedness,
shares of stock (other than Common Stock and Preferred Stock) or other
securities convertible into or exchangeable for Common Stock.
(3) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or deemed to be issued pursuant to Section 5(e)(iii))
by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable upon (i) upon conversion of shares of
Preferred Stock or as a dividend or distribution on Preferred Stock, (ii)
upon the exercise of the Outstanding Options; (iii) upon the exercise of
the Agreed Options, (iv) upon the exercise of any Future Options, or (v)
upon the exercise of the Current Warrants.
(II) NO ADJUSTMENT OF CONVERSION PRICE. Any provision herein to the
contrary notwithstanding, no adjustment in the number of shares of Common
Stock into which shares of Preferred Stock is convertible shall be made, by
adjustment in the Conversion Price, unless the consideration per share
(determined pursuant to Section 5(e)(v) hereof) for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than
the Conversion Price in effect on the date of, and immediately prior to,
the issue of such Additional Shares of Common Stock.
(III) ISSUE OF OPTIONS AND CONVERTIBLE SECURITIES. In the event the
Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities then
entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent
adjustment of such number) of Common Stock issuable upon the exercise of
such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall
be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the
close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 5(e)(v) hereof) of
such Additional Shares of Common Stock would be less than the Conversion
Price in effect on the date of and immediately prior to such issue, or such
record date, as the case may be, and provided that in any such case in
which Additional Shares of Common Stock are deemed to be issued:
(1) no further adjustments in the Conversion Price shall be made upon
the subsequent issue of Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
<PAGE>
(2) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase or decrease in the
consideration payable to the Corporation, or decrease or increase in the
number of shares of Common Stock issuable upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and
any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities, provided, however, that no such
adjustment of the Conversion Price shall affect Common Stock previously
issued upon conversion of shares of Preferred Stock;
(3) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities that shall not
have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and
any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if:
(A) in the case of Convertible Securities or Options for Common Stock,
the only Additional Shares of Common Stock issued were the shares of Common
Stock, if any, actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised,
plus the consideration actually received by the Corporation upon such
exercise, or for the issue of all such Convertible Securities that were
actually converted or exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such conversion or exchange, and
(B) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued upon the exercise thereof
were issued at the time of issue of such Options, and the consideration
received by the Corporation for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to Section 5(e)(v)) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment pursuant to Section 5(e)(iii)(2) or (3) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (a) the Conversion Price prior to the initial
adjustment to which the readjustment applies, or (b) the Conversion Price
that would have resulted from any issuance of Additional Shares of Common
Stock between the date of the initial adjustment date and such readjustment
date; and
<PAGE>
(5) in the event of any change in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting
from the antidilution provisions thereof, the Conversion Price then in
effect shall forthwith be readjusted to such Conversion Price as would have
been obtained had the adjustment which was initially made upon the issuance
of such unexercised Option or unconverted Convertible Security, been made
upon the basis of such subsequent change, but no further adjustment shall
be made for the actual issuance of Common Stock upon the exercise or
conversion of any such Option or Convertible Security.
(IV) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES
OF COMMON STOCK. In the event the Corporation at any time after the
Original Issue Date shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant
to Section 5(e)(iii)), without consideration or for a consideration per
share less than the Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, the Conversion
Price shall be reduced to a price (calculated to the nearest cent)
determined by multiplying the then current Conversion Price by a fraction
the numerator of which shall be the sum of
(A) the number of shares of Common Stock outstanding immediately prior
to such issue, plus
(B) the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at the
Conversion Price in effect immediately prior to such issuance
and the denominator of which shall be the sum of
(X) the number of shares of Common Stock outstanding immediately prior
to such issue, plus
(Y) the number of such Additional Shares of Common Stock so issued.
For the purpose of the above calculation, the number of shares of Common Stock
outstanding shall be calculated on a fully diluted basis, as if all shares of
Preferred Stock and all other Convertible Securities had been fully converted
into shares of Common Stock immediately prior to such issuance, and any
outstanding warrants, options or other rights for the purchase of shares of
stock or Convertible Securities had been fully exercised immediately prior to
such issuance, and the resulting securities fully converted into shares of
Common Stock, if so convertible as of such date. This calculation shall not
include, however, any Additional Shares of Common Stock issuable with respect to
shares of Preferred Stock, Convertible Securities or outstanding options,
warrants or other rights for the purchase of shares or Convertible Securities,
solely as a result of adjustment of the Conversion Price resulting from the
issuance of Additional Shares of Common Stock causing such adjustment.
The provisions of this Section 5(e)(iv) do not apply if the provisions
of any of Section 5(b), (c) or (d) apply.
<PAGE>
(V) DETERMINATION OF CONSIDERATION. The consideration received by the
Corporation for the issue of any Additional Sharesof Common Stock shall be
computed as follows:
(1) CASH, PROPERTY, AND OTHER CONSIDERATION. Such consideration shall:
(A) insofar as it consists of cash, be computed as the aggregate
amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property, services, or other
consideration other than cash, be computed at the fair value thereof at the
time of such issue, as determined in good faith by the Board of Directors;
and
(C) in the event Additional Shares of Common Stock are issued together
with other shares or securities or other assets of the Corporation for
consideration which covers both, be the proportion of the consideration so
received, computed as provided in clauses (a) and (b) above, as is
determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share
received by the Corporation for Additional Shares of Common Stock deemed to
have been issued pursuant to Options and Convertible Securities, shall be
deemed to be the sum of the consideration paid for such Option or
Convertible Security, if any, plus the lowest consideration per share then
payable upon the exercise of Options, as set forth in the instruments
relating to such Options or Convertible Securities, without regard to any
provision contained therein designed to protect against dilution. If
Options or Convertible Securities are issued together with other securities
or instruments of the Corporation, the Board of Directors shall determine
in good faith the amount of consideration paid for such Option or
Convertible Securities.
(F) CERTIFICATE AS TO ADJUSTMENTS. In each case of an adjustment or
readjustment of the Conversion Price of the Preferred Stock, the
Corporation will furnish each holder of the Preferred Stock with a
certificate prepared by the Chief Financial Officer of the Corporation
showing such adjustment or readjustment and stating in detail the facts
upon which such adjustment or readjustment is based.
(G) EXERCISE OF CONVERSION PRIVILEGE. To exercise its conversion
privilege, a holder of Preferred Stock shall surrender the certificate(s)
representing the shares being converted to the Corporation at its principal
office, accompanied by written notice to the Corporation at that office
that such stockholder elects to convert such shares (a "Conversion
<PAGE>
Notice"). The Conversion Notice also shall state the name(s) and address(es) in
which the certificate(s) for shares of Common Stock issuable upon such
conversion shall be issued. The certificate(s) for shares of Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. The date when the Conversion Notice is received by
the Corporation together with the certificate(s) representing the shares of
Preferred Stock being converted shall be the "Conversion Date." As promptly as
practicable after the Conversion Date, the Corporation shall issue and deliver
to the holder of the shares of Preferred Stock being converted, or on its
written order, such certificate(s) as it may request of the number of whole
shares of Common Stock issuable upon the conversion of such shares of Preferred
Stock in accordance with the provisions of this Section 5 and cash, as provided
in Section 5(h), in respect of any fraction of a share of Common Stock issuable
upon such conversion. Such conversion shall be deemed to have been effected
immediately prior to the close of business on the Conversion Date, and at such
time the rights of the holder as a holder of the converted shares of Preferred
Stock shall cease and the person(s) in whose name(s) any certificate(s) for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder(s) of record of the shares of Common Stock represented
thereby.
(H) CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Preferred Stock. Instead of any fractional shares of
Common Stock that otherwise would be issuable upon conversion of a series of
Preferred Stock, the Corporation shall pay to the holder of the shares of
Preferred Stock that were converted a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the Fair Market
Value price per share of the Common Stock at the close of business on the
Conversion Date. "Fair Market Value" shall mean (i) in the case of a security
listed or admitted to trading on any securities exchange, the last reported sale
price, regular way (as determined in accordance with the practices of such
exchange), on such day, or if no sale takes place on such day, the average of
the closing bid and asked prices on such day (and in the case of a security
traded on more than one national securities exchange, at such price or such
average, upon the exchange on which the volume of trading during the last
calendar year was the greatest), (ii) in the case of a security not then listed
or admitted to trading on any securities exchange, the last reported sale price
on such day, or if no sale takes place on such day, the average of the closing
bid and asked prices on such day, as reported by a reputable quotation service
designated by the Corporation, (iii) in the case of a security not then listed
or admitted to trading on any securities exchange and as to which no such
reported sale price or bid and asked prices are available, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or the Wall Street Journal, or if there are no bids and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than 30 days prior to the date in
question) for which prices have been so reported, and (iv) in the case of a
security determined by the Corporation's Board of Directors as not having an
active quoted market or in the case of other property, such fair market value as
shall be determined by the Board of Directors. The determination as to whether
any fractional shares are issuable shall be based upon the total number of
shares of Preferred Stock being converted at any one time by any holder thereof,
not upon each share of Preferred Stock being converted.
(I) RESERVATION OF COMMON STOCK. The Corporation at all times
shall reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Preferred Stock, such number of its shares of Common Stock as from time
to time shall be sufficient to effect the conversion of all outstanding shares
of the Preferred Stock.
<PAGE>
SECTION 6. RESTRICTIONS AND LIMITATIONS; VOTING AS A CLASS. So
long as any shares of Preferred Stock remain outstanding, in addition to any
other vote or consent of stockholders required by law or the Articles of
Incorporation, the Corporation will not take any of the following actions
without the affirmative vote or consent (with each share of Preferred Stock
being entitled to one vote) of the holders of at least seventy-five percent
(75%) of the outstanding shares of the Preferred Stock, given in writing or by
resolution adopted at a meeting called for such purpose:
(A) amend the Articles of Incorporation or Bylaws of the
Corporation if such amendment would:
(I) reduce the Dividend Rate on the Preferred Stock provided
for herein, make such dividends noncumulative, defer the date
from which dividends will accrue, cancel accrued and unpaid
dividends, or change the relative seniority rights of the
holders of the Preferred Stock as to the payment of dividends
in relation to the holders of any other capital stock of the
Corporation;
(II) reduce the amount payable to the holders of the Preferred
Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, or change the
relative seniority of the liquidation preferences of the
holders of the Preferred Stock;
(III) reduce the Redemption Price specified in Section 7
hereof with respect to the Preferred Stock;
(IV) cancel or modify the conversion rights of the Preferred
Stock provided for in Section 5 hereof; or
(V) adversely affect any of the rights, preferences or
privileges provided for herein for the benefit of any shares
of Preferred Stock; provided that no issuance of equity
securities which shall have been approved under Section 6(d)
hereof (or which does not require approval under such Section
6(d)) shall be deemed to have such an adverse effect.
(B) redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose) any share or shares of
Preferred Stock otherwise than by redemption of Preferred Stock in accordance
with Section 7 hereof or by conversion in accordance with Section 5 hereof;
(C) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any share or shares of Junior Stock,
except for (i) a purchase or other acquisition of Common Stock made for purposes
of any employee incentive or benefit plan of the Corporation or any subsidiary,
or (ii) the purchase of up to 125,000 shares of Common Stock (as adjusted for
stock splits or stock dividends) pursuant to the "Put Option" contained in the
Asset Purchase Agreement dated as of December 3, 1997, by and among the
Corporation and the parties thereto.
<PAGE>
(D) authorize or issue, or obligate itself to issue, any other
equity security (i) senior to or on a parity with the Preferred Stock as to
dividend rights or redemption rights or liquidation preferences or (ii) which
entitles the holders thereof to voting rights equal to at least twenty percent
(20%) of the outstanding voting power of all capital stock of the Corporation or
to elect directors which constitute twenty percent (20%) or more of the Board of
Directors;
(E) effect any sale, lease, assignment, transfer, or other
conveyance of all or substantially all of the assets of the Corporation or any
of its subsidiaries, or any consolidation or merger involving the Corporation or
any of its subsidiaries, except (i) merger with wholly-owned subsidiary of the
Corporation, (ii) a mere reincorporation transaction, or (iii) a merger pursuant
to which the Corporation is the surviving entity and the capitalization of the
Corporation remains unchanged, or (iv) upon an election by the holders of
Preferred Stock pursuant to Section 3(b) hereof;
(F) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Preferred Stock (which
shall not prohibit the increase or decrease by the Corporation of the total
number of authorized shares of preferred stock); or
(G) effect any change in the rights or limitations of the
Common Stock, or any recapitalization of the Corporation.
<PAGE>
SECTION 7. REDEMPTION.
(A) REDEMPTION AT THE OPTION OF THE CORPORATION. Shares of
Preferred Stock shall not be redeemable by the Corporation at any time prior to
the second anniversary of the Original Issue Date. On and after the second (2nd)
anniversary of the Original Issue Date, at the option of the Corporation, the
Corporation may fix a date (the "Redemption Date") on which it shall redeem all
(but not less than all) of the then outstanding shares of Preferred Stock by
paying in cash, out of funds legally available therefor, to the holders thereof
and in respect of each such share of Preferred Stock, the Redemption Price (as
defined below), (i) at any time prior to the fifth anniversary of the Original
Issue Date but only in the event that the average bid price of the Common Stock
of the Corporation exceeds Nine Dollars ($9.00) per share (without giving effect
to any stock splits, stock dividends or recapitalizations after the Original
Issue Date), with respect to each of the twenty (20) consecutive Trading Days
(as defined below) immediately preceding the date of the Redemption Notice (as
defined in Section 7(b) below), or (ii) at any time after the fifth anniversary
of the Original Issue Date. A holder of Preferred Stock may elect, by written
notice delivered to the Corporation not less than ten (10) days prior to the
Redemption Date, to waive its right to have redeemed all (but not less than all)
of the shares of Preferred Stock held by such holder which are eligible to be
redeemed on such Redemption Date, provided that on such Redemption Date each
such share of Preferred Stock which is not redeemed shall be converted
automatically into shares of Common Stock at the Conversion Price then in effect
on such Redemption Date. The term "Trading Day" shall mean any day other than
Saturday or Sunday on which national securities exchanges are open for trading
and trades in Corporation Common Stock occur. The term "Redemption Price" shall
mean an amount per share equal to (A) for any redemption pursuant to clause (i)
above, the Preference Amount (determined as provided in Section 3(a) hereof);
and (B) for any redemption pursuant to clause (ii) above, One Hundred Five
Dollars ($105.00) plus an amount equal to all the accrued but unpaid Preferred
Dividends (whether or not declared), and the amount equal to all interest, if
any, on any Preferred Dividends in arrears, in each case to the Redemption Date.
(B) PROCEDURES FOR REDEMPTION OF PREFERRED STOCK. At least
thirty (30) days but not more than forty-five (45) days prior to the Redemption
Date the Corporation shall mail a written notice, first class postage prepaid,
to each holder of record at the close of business on the business day preceding
the day on which notice is given, of the Preferred Stock to be redeemed, at the
address last shown on the records of the Corporation for such holder, notifying
such holder of the redemption to be effected, specifying (i) that all shares of
Preferred Stock shall be redeemed from such holder, (ii) the Redemption Date,
(iii) the Redemption Price, (iv) the place at which payment may be obtained, (v)
advising such holder of its right to elect to waive its right to have all (but
not less than all) such shares redeemed and that, if such election is made, such
shares of Preferred Stock which are not redeemed shall be converted
automatically into shares of Common Stock at the Conversion Price then in effect
(setting forth such Conversion Price), and (vi) calling upon such holder to
surrender to the Corporation, in the manner and at the place designated, its
certificate or certificates representing the shares to be redeemed (the
"Redemption Notice"). On or after the Redemption Date, each holder of Preferred
Stock to be redeemed shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. From and after each Redemption Date, unless there
shall have been a default in payment of the Redemption Price, any shares of
Preferred Stock redeemed on such Redemption Date shall not be entitled to any
further rights as Preferred Stock and shall not be deemed outstanding for any
purpose. If the funds of the Corporation legally available for redemption of
shares of Preferred Stock on any Redemption Date are insufficient to redeem the
total number of shares of Preferred Stock to be redeemed on such date, those
funds which are legally available will be used to redeem the maximum possible
number of such shares ratably among the holders of such shares to be redeemed
based upon the number of shares of Preferred Stock held by each such holder. The
shares of Preferred Stock not redeemed shall remain outstanding and entitled to
all the rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
shares of Preferred Stock such funds will be used immediately to redeem the
balance of the shares which the Corporation has become obliged to redeem on any
Redemption Date, but which it has not redeemed, it being understood that any
such redemption shall not constitute a waiver by a holder of Preferred Stock of
any rights derived from the failure to redeem on the Redemption Date.
SECTION 8. NO REISSUANCE OF CONVERTIBLE PREFERRED STOCK;
STATUS OF STOCK. No share of Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion, or otherwise shall be reissued, and
all such shares shall be restored to the status of authorized but unissued
shares of preferred stock, without designation as to rights, limitations or
preferences.
<PAGE>
SECTION 9. NO DILUTION OR IMPAIRMENT. The Corporation will
not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, share exchange,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of the Preferred
Stock set forth herein, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Preferred Stock against dilution or other impairment.
SECTION 10. NOTICES OF RECORD DATE. In the event of any:
(A) taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase, or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right; or
(B) capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger, consolidation, or share exchange of the Corporation, or any transfer
of all or substantially all the assets of the Corporation to any other
corporation, or any other entity or person; or
(C) voluntary or involuntary dissolution, liquidation, or
winding up the Corporation;
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Preferred Stock a notice specifying (i) the record date for such
dividend, distribution, or right and a description of such dividend,
distribution, or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger, share
exchange, dissolution, liquidation, or winding up is expected to become
effective, and (iii) the time, if any, that is to be fixed as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, share exchange, dissolution,
liquidation, or winding up. Such notice shall be mailed at least ten (10) days
prior to the date specified in such notice on which such action is to be taken.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-3 of Berger Holdings, Ltd. (Commission
File No. 33-64705) and the Registration Statement on Form S-3 of Berger
Holdings, Ltd. (Commission File No. 333-15725) of our report dated February
13, 1998, which appears beginning on page F-1 of this Annual Report on Form
10-K of Berger Holdings, Ltd. for the year ended December 31, 1997.
/S/ GOLDENBERG ROSENTHAL FRIEDLANDER, LLP
Goldenberg Rosenthal Friedlander, LLP
Jenkintown, Pennsylvania
February 13, 1998
-27-
<PAGE>
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