Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. 2)
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Check the appropriate box:
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MicroENERGY, Inc.
......................................................................
(Name of Registrant as Specified In Its Charter)
MicroENERGY, Inc.
......................................................................
(Name of Person(s) Filing Proxy Statement)
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PROXY
MICROENERGY, INC.
SOLICITED BY THE BOARD OF DIRECTORS
For use at April 23, 1996 Special Annual Meeting of Stockholders
The undersigned hereby appoints, as proxies for the
undersigned, ROBERT G. GATZA and ROBERT J. FANELLA (each with
power to act alone and with power of substitution) who shall be
present at the meeting to vote all of the stock of the
undersigned
(1A) PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION to effect
a 1-for-360 reverse stock split of the Company's Common
Stock.
/ / FOR / / AGAINST / / ABSTAIN
(1B) PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION to
increase the post-reverse-split authorize shares of Common
Stock to 4,000,000 and the authorized shares of Preferred
Stock to 4,000,000.
/ / FOR / / AGAINST / / ABSTAIN
(2) PROPOSAL TO ADOPT THE 1996 INCENTIVE STOCK OPTION PLAN.
/ / FOR / / AGAINST / / ABSTAIN
and in their discretion upon such other business as may be
properly brought before the Special Meeting of Stockholders of
MICROENERGY, INC. to be held at the offices of the Company, 350
Randy Road, Carol Stream, Illinois on April 23, 1996 at 8:00 a.m.
and any adjournments thereof, hereby revoking any proxy
heretofore given by me.
IF NO INSTRUCTION IS INDICATED, THE UNDERSIGNED'S VOTE SHALL
BE CAST IN FAVOR OF THE PROPOSALS SET FORTH ABOVE.
Date
Shareholder, sign name exactly
as name appears on mailing label.
<PAGE>
MICROENERGY, INC.
NOTICE OF SPECIAL MEETING
To Be Held on April 23, 1996
To the Holders of the Common Stock:
PLEASE TAKE NOTICE that a Special Meeting of Share-
holders of MICROENERGY, INC. will be held on April 23, 1996 at
8:00 a.m. at the offices of the Company, 350 Randy Road, Carol
Stream, Illinois, 60188.
The purposes of the meeting are as follows:
1A. To approve an amendment to the Company's certifi-
cate of incorporation which will effect a 1-for-360 reverse stock
split of the Company's Common Stock, whereby each authorized
share and each outstanding share of Common Stock, $.001 par
value, will be reclassified to .00278 of a share, $.01 par value;
and
1B. To approve an amendment to the Company's certifi-
cate of incorporation which will increase the number of autho-
rized shares of common stock, $.01 par value, (after the 1-for-
360 reverse stock split) from 500,000 to 4,000,000 and increase
the number of authorized shares of preferred stock, no par value,
from 800 to 4,000,000, to be issued in such series, comprising
such number of shares and having the voting powers, designations,
preferences, limitations, restrictions, relative rights, and
distinguishing designations as may be determined by the Company's
Board of Directors.
2. To approve the Company's 1996 Incentive Stock
Option Plan.
3. To transact such other business as may properly be
brought before the meeting.
Shareholders of record as of the close of business on
February 23, 1996 will be entitled to vote at said meeting.
Enclosed are a proxy statement and proxy. Shareholders
who do not expect to attend the Special Meeting are requested to
sign and return the enclosed proxy in the enclosed envelope.
By Order of the Board of
Directors
Robert J. Fanella
April 5, 1996 Secretary<PAGE>
MICROENERGY, INC.
350 Randy Road
Carol Stream, Illinois 60188
PROXY STATEMENT FOR HOLDERS OF COMMON STOCK
This Proxy Statement is furnished to shareholders of
MICROENERGY, INC. (the "Company") in connection with the solici-
tation by the Board of Directors of proxies to be used at a
Special Meeting of Shareholders of the Company. Such meeting
will be held on April 23, 1996, at 8:00 a.m. at the offices of
the Company, 350 Randy Road, Carol Stream, Illinois for the
purposes set forth in the Notice of Meeting. It is anticipated
that this Proxy Statement and accompanying material will be
mailed to shareholders on April 5, 1996.
If the enclosed form of proxy is executed and returned,
it may nevertheless be revoked at any time up until the time when
it is voted by the Proxy Committee. The proxy is in ballot form
and each shareholder may indicate approval or disapproval as to
the proposals identified in the proxy and accompanying Notice of
Special Meeting and as set forth and discussed in this Proxy
Statement. The proposals will be presented by the Board of
Directors of the Company. Where a choice is specified with
respect to a proposal, the shares represented by the proxy will
be voted in accordance with the specification made. Where a
choice is not so specified, the shares represented by the proxy
will be voted in favor of the proposal. The Proxy Committee
appointed by the Board of Directors consists of Robert G. Gatza
and Robert J. Fanella.
VOTING SECURITIES OUTSTANDING, AND PRINCIPAL HOLDERS
Shareholders of record entitled to vote will be deter-
mined as of the close of business on February 23, 1996. At that
date, there were outstanding and entitled to vote 148,961,563
shares of Common Stock of the Company. Each share of Common
Stock entitles the holder thereof to one vote.
The following table sets forth the equity securities of
the Company beneficially owned by any person who, to the know-
ledge of the Company, owned beneficially more than 5% of the
outstanding Common Stock as of February 23, 1996, by all direc-
tors of the Company, by each of the executive officers of the
Company named in the Summary Compensation Table in item 10 of the
Company's Report on Form 10K for the fiscal year ended June 30,
1995, and by the directors and executive officers of the Company
as a group.
Amount and
Nature of
Beneficial Percentage
Title of Class Beneficial Owner Ownership of Class(4)
Common Stock Robert G. Gatza 48,386,375 29.73%
$.001 par value 350 Randy Road shares of
Carol Stream, IL 60188 record and
beneficially (1)
Robert Fanella 31,558,341 20.27%
350 Randy Road shares of
Carol Stream, IL 60188 record and
beneficially (2)
George M. Bradshaw 2,771,694 shares
550 Pennsylvania of record and
Glen Ellyn, IL 60137 beneficially (3) 1.84%
All Officers and 82,716,410 48.24%
Directors as a shares of
Group (3 persons) record bene-
ficially (1)(2)(3)
(1) Includes Class C Warrants to purchase 13,800,000 shares
at $.063 per share, which are presently exercisable. Does not
include 6,549,134 shares owned by Carol Ann Gatza, Mr. Gatza's
wife. Mr. Gatza does not share voting power or investment power
with respect to those shares and, accordingly, disclaims benefi-
cial ownership of them.
(2) Includes Class C Warrants to purchase 6,700,000 shares at
$.063 per share, which are presently exercisable.
(3) Includes presently-exercisable option to purchase
2,000,000 shares at $.033 per share.
(4) In determining the percentage of outstanding shares
owned by a shareholder or a group, presently exercisable options
or warrants are treated as having been exercised.
PREFACE TO THE PROPOSALS
Reasons for Proposals 1A and 1B - The Proposed Public Offering
The Company has been engaged since 1984 in the business of
designing and manufacturing high-frequency power supplies and DC-
to-DC converters for original equipment manufacturers ("OEMs")
who are engaged in the telecommunications, computer, and instru-
mentation segments of the electronics industry. During the
Company's eleven years of operations, the Company has acquired a
reputation in the marketplace for making timely deliveries of
high-quality power supplies which incorporate state-of-the-art
engineering. In recent years, however, the Company's growth has
been stagnant, as the Company's ability to attract new customers
has been hampered by the Company's high debt-to-assets ratio,
which has caused some potential customers to question the Com-
pany's financial stability.
During this past Winter, two events occurred which indicate
that the Company may now enter a period of significant growth.
First, the Company received pre-production orders for new product
designs from eight OEM customers. While none of these orders
create binding obligations on the customers, the Company expects
to receive production orders from each. If all eight customers
give the Company the production orders they have quoted, the
eight new products will represent $10.2 Million in annual sales
beginning in July, 1996.
The second favorable recent event was the agreement of AT&T
Global Information Systems, which was the holder of $2.33 Million
of the Company's long-term debt, to accept an immediate payment
of $1.33 Million in satisfaction of the debt. The Company was
able to effectuate that debt compromise by raising approximately
$1.0 Million in debt financing and $330,000 in equity financing
in the manner described in the following paragraph. In exchange
for payment of these sums to AT&T, AT&T forgave the remaining $1
Million of the debt. The effect of the debt compromise and
related financing was to reduce the Company's total debt by $1.33
Million, reduce the Company's debt-to-assets ratio from .88-to-1
as of December 31, 1995 to .68-to-1, and increase the Company's
net worth by $1.3 Million, resulting in a positive shareholders
equity for the first time in several years.
In order to finance the debt compromise, the Company's two
officers, Robert G. Gatza and Robert J. Fanella, agreed to make a
contribution to capital of $250,000 and personally guarantee
loans to the Company totalling $800,000. In compensation for
those contributions, the Company agreed to either (a) issue each
of them 175,000 shares of the Series A Preferred Stock described
in Proposal #1B below or (b) if Proposal #1B is not approved by
the Company's shareholders, issue each of them 15 shares of the
existing preferred stock which will have rights equivalent to the
proposed Series A Preferred Stock. The Company also raised an
additional $275,000 from outside investors by selling to them (a)
8% debentures in the principal amount of $187,000 which are due
in one year or upon completion of a public offering and (b)
880,000 Class A Warrants to purchase Series A Preferred Stock at
$5.25 per share. If Proposal #1B is not approved, the Class A
Warrants will expire and the Company will repay the investors the
$88,000 purchase price.
In order to finance the expansion of operations necessitated
by the expected new orders and to repay some of the debt incurred
to effectuate the debt compromise, the Company has entered into a
non-binding letter of intent with I.A. Rabinowitz & Co., a
registered securities broker-dealer, to conduct a public offering
of securities issued by the Company on a firm commitment basis.
It is contemplated that the offering, if completed, would yield
net proceeds to the Company of approximately $1,747,000, or
approximately $2,034,000 if the Underwriter's 15% "over-allotment
option" is exercised. The securities to be issued would consist
of 430,000 shares of Series A Preferred Stock at $5.00 per share
and 215,000 Class A Preferred Stock Warrants at $.10 per Warrant.
The terms of the offering will not be binding on the Company or
the broker, however, until the offering actually commences. The
terms described herein, therefore, may be materially different
from those actually carried out.
In order for the Company to complete the proposed public
offering, as well as to issue the Series A Preferred Stock it
owes to Messrs. Gatza and Fanella and to honor the Class A
Preferred Stock Warrants it has issued to the outside investors,
it is necessary that the shareholders approve an increase in the
number of authorized shares, both Common and Preferred. (Propo-
sal #1B). In addition, I.A. Rabinowitz & Co. believes that it
can manage the offering only if the number of outstanding shares
of Common Stock is reduced from the present 148,961,563 to a
number less than 500,000. To accomplish that it will be neces-
sary for the shareholders to approve a 1-for-360 reverse stock
split of the Common Stock. (Proposal #1A)
PROPOSAL NO. 1A
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION
TO EFFECT A 1-FOR-360 REVERSE STOCK SPLIT
There are currently 148,961,563 shares of the Company's
Common Stock outstanding, and 180,000,000 authorized in total.
The market price of the Common Stock has never exceeded $.35 and
for the past several years has been $.06 and below. In order to
increase the market price of the Common Stock to a level suitable
for a trading market, thus improving the marketability and
liquidity of the Common Stock, the broker-dealer which proposes
to underwrite a public offering for the Company has made it a
condition of the offering that the Company effect a 1-for-360
reverse split of the Common Stock. It is also hoped that the
reduction in outstanding shares will increase the quoted bid
price of the Common Stock to over $3.00, thus allowing the
Company to satisfy the market price criterion for listing of the
Common Stock on NASDAQ. The Company has no control over the bid
price, however, and cannot safely predict what effect the reverse
stock split will have on the market price for the Common Stock.
For the foregoing reasons, the Board of Directors has
unanimously adopted a resolution authorizing, subject to share-
holder approval, a reverse split of the Company's outstanding
Common Stock on the basis of one new share of Common Stock, $.01
par value, for each 360 shares of presently outstanding Common
Stock, $.001 par value. The reverse stock split will be effected
by means of an amendment (the "Amendment") to Article FOURTH of
the Certificate of Incorporation of the Corporation in the form
attached hereto as Exhibit A. Approval of the proposed Amendment
by shareholders requires the affirmative vote of the holders of a
majority of the outstanding shares of the Company's Common Stock.
The Amendment will not change the par value of the Company's
Common Stock in proportion to the reduction in outstanding
shares. Accordingly, subject to shareholder approval of the
Amendment, the Board of Directors has authorized an increase in
the Company's additional paid-in capital account in an amount
equal to the reduction in the Company's Common Stock account
which will result from the reduction in number of shares of
Common Stock outstanding.
Principal Effects of the Reverse Split
The principal effects of the proposed reverse stock split
will be as follows:
1. The Company is presently authorized to issue 180,000,000
shares of Common Stock, $.001 par value. At the close of busi-
ness on April 5, 1996, there were 151,241,563 shares of Common
Stock outstanding. The proposed reverse stock split would
decrease the outstanding shares of Common Stock by approximately
ninety-nine and seven-tenths percent (99.722%). After the
reverse split took effect, 420,115 shares of Common Stock would
be outstanding. The proposed reverse stock split would not
affect any shareholder's proportionate equity interest in the
Company, except for the adjustments caused by the provisions for
the elimination of fractional shares as described below under
"Exchange of Stock Certificates and Elimination of Fractional
Interests".
2. As of April 5, 1996, there were outstanding options and
warrants to purchase an aggregate of 23,005,000 shares of Common
Stock, including options to purchase an aggregate 2,505,000
shares of Common Stock under the Company's 1984 and 1985 Incen-
tive Stock Option Plans and warrants held by the Company's
directors (including Class C Warrants) to purchase 20,500,000
shares of Common Stock. As of the date of this Proxy Statement,
2,000,000 shares remained available for grant under the 1992
Incentive Stock Option Plan. All of the outstanding options and
warrants include provisions for adjustments in the number of
shares covered thereby, and the exercise price thereof, in the
event of a reverse stock split. If the proposed reverse stock
split is approved and effected, there would be reserved for
issuance upon exercise of all outstanding options and warrants a
total of 63,903 shares of Common Stock. Each of the outstanding
options and warrants would thereafter evidence the right to
purchase .00278 of the shares of Common Stock previously covered
thereby, and the exercise price per share would be approximately
three hundred and sixty times the previous exercise price per
share. The number of shares available for grant under the
Company's 1992 Incentive Stock Option Plan would be decreased to
5,555 shares.
The following table illustrates the principal effects of the
proposed reverse stock split referred to in Paragraphs 1 and 2
above:
Prior to Reverse After Reverse
Split and Amendment Split and Amendment
Number of Shares to Certificate to Certificate
Authorized................... 180,000,000 500,000
Outstanding.................. 151,241,563 420,115
Reserved for future issu-
ance upon exercise of
of outstanding options
and warrants............... 23,005,000 63,903
Reserved for future issu-
ance upon exercise of
of options which may be
granted pursuant to
the 1992 Stock Option Plan. 2,000,000 5,555
Available for future issuance
by action of Board of
Directors (including
treasury shares and after
giving effect to above
reservations).............. 3,070,278 8,528
3. The stated capital on the Company's balance sheet would
on the effective date of the reverse stock split be reduced by
the reverse stock split from $151,241 to $4,201, and the addi-
tional paid-in capital on the balance sheet will be increased by
the $147,040 difference. This restatement of accounts will occur
due to the fact that the par value of the Common Stock will be
increased from $.001 to only $.01, which is not in proportion to
the decrease in the number of outstanding shares. If the par
value were being increased by 360, from the present $.001 to
$.36, the minimum consideration which the Board of Directors
would be authorized to accept for a share of Common Stock would
be $.36. Furthermore, the amount of stated capital has the
effect of imposing an additional limit on the discretion of the
Board of Directors, as the Board is not authorized to pay out a
dividend which would reduce the stated capital. The Board has
determined, however, that the par value after the reverse split
should be limited to $.01, as it considered that the aforesaid
protections would have no practical effect on the Company and
that the designation of the Common Stock's par value as $.36
would be unwieldy.
Effective Date of Reverse Stock Split
Assuming the proposed Amendment to Article FOURTH of the
Certificate of Incorporation effecting the reverse stock split is
approved, a Certificate of Amendment amending the Certificate of
Incorporation as set forth on Exhibit A hereto will be filed in
the Office of the Secretary of State of the State of Delaware as
promptly as practicable thereafter. The amendment and the
proposed reverse stock split would become effective as of 5:00 on
the date of such filing (the "Effective Date"). Without any
further action on the part of the Company or the shareholders,
each share of Common Stock would thereby be converted on the
Effective Date into .00278 of a share of Common Stock.
Exchange of Stock Certificates and Elimination of Fractional
Share Interests
As soon as practicable after the Effective Date of the
proposed reverse stock split, shareholders will be notified and
requested to surrender their present Common Stock certificates
for new certificates representing the number of shares of Common
Stock owned by them after the reverse split. American Stock
Transfer and Trust Company of New York, New York, will be ap-
pointed Exchange Agent to act for shareholders in effecting the
exchange of their certificates. Until surrendered, each current-
ly outstanding stock certificate shall be deemed for all purposes
to represent the number of whole shares of Common Stock to which
the holder thereof is entitled as a result of the stock split.
No scrip or fractional share certificates for Common Stock
will be issued in connection with the reverse split. The number
of shares to which a shareholder is entitled after the reverse
stock split will be rounded to the nearest integer such that
holders of a fractional share of .50 shares or greater will
receive one additional share in lieu of the fractional share, and
holders of a fractional share less than .50 shares will receive
no share in lieu of the fractional share.
In order to maintain the current number of shareholders in
the Company, and to avoid the buy out by the Company of the
fractional interests of holders of small lots of Common Stock,
holders of fewer than 360 shares of Common Stock will receive 1
share of Common Stock after the proposed reverse stock split.
The proposed amendment to the Certificate of Incorporation will
reflect the commitment of the Company to issue one share of
Common Stock to holders of 360 or fewer pre-split shares of
Common Stock. There will, therefore, be no change in the total
number of record shareholders of the Company and there will be no
change in the Company's reporting requirements under the Securi-
ties Exchange Act of 1934 after the proposed reverse stock split.
Holders of fewer than 100 shares after the reverse stock
split may find that it is difficult to sell such a small number
of shares and that brokerage commissions may make such transac-
tions impractical. Also, the reverse stock split may change
holders of "round lots" (i.e., multiples of 100 shares) into
holders of "odd lots" of shares. Brokerage commissions for sales
of odd lots of shares may be significantly higher than for sales
of round lots of shares.
Federal Income Tax Consequences
The federal income tax consequences of the proposed reverse
stock split will be as set forth below. The following informa-
tion is based upon existing law which is subject to change by
legislation, administrative action and judicial decision and is
necessarily general. Therefore, shareholders are advised to
consult with their own tax advisor for more detailed information
relating to their individual tax circumstances.
1. The proposed reverse stock split will be a tax-free
recapitalization for the Company and its shareholders.
2. The new shares of Common Stock in the hands of a share-
holder will have an aggregate basis for computing gain or loss
equal to the aggregate basis of shares of Common Stock held by
that shareholder immediately prior to the proposed reverse stock
split.
3. A shareholder's holding period for the new shares of
Common Stock will be the same as the holding period of the shares
of Common Stock exchanged therefor, provided that the shares were
held as a capital asset immediately prior to the exchange.
Vote Required
Approval of the proposal to amend the Certificate of
Incorporation to effect the reverse stock split will require the
affirmative vote of the holders of a majority of the Company's
outstanding Common Stock entitled to vote thereon. Abstentions
will have the same effect as negative votes since the percentage
requirement for approval is based on all shares outstanding and
not only on those shares casting votes. Broker non-votes, if
any, will not be counted and will have the same effect as a
negative vote.
In order for the proposed public offering to take
place, Proposals 1A and 1B must both be adopted. Accordingly,
Proposal 1A may not be adopted unless Proposal 1B is adopted, and
Proposal 1B may not be adopted unless Proposal 1A is adopted. A
vote against Proposal 1A will have the effect, therefore, of a
vote against Proposal 1B.
If adopted, the amendment would become effective upon the
filing with the Delaware Secretary of State of a Certificate of
Amendment to the Certificate of Incorporation, which filing is
expected to take place shortly after the Special Meeting.
The Board of Directors recommends a vote FOR this
proposal.
PROPOSAL NO. 1B
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED SHARES
As of the date of this proxy statement, the authorized
capital stock of the Company consists of 180,000,000 shares of
Common Stock, par value $.001 per share, and 800 shares of
Preferred Stock, no par value. As of the record date for this
proxy statement, 151,241,563 shares of Common Stock were issued
and outstanding. In addition, 23,005,000 shares of Common Stock
are reserved for issuance under outstanding options and warrants,
including 20,500,000 issuable upon exercise of warrants held by
the Company's three directors. An additional 683,159 shares of
Common Stock are held in the Company's treasury. Accordingly,
only 3,070,278 shares of Common Stock are available for issuance.
If the shareholders approve the reverse stock split, it will
reduce the number of available shares of Common Stock to 8,528.
No shares of the Preferred Stock are outstanding, but 769 were
previously issued and converted to Common Stock. Accordingly,
only 31 shares of Preferred Stock are available for issuance.
On February 2, 1996, the Board of Directors adopted a
resolution approving an amendment to the Company's Certificate of
Incorporation. The effect of the amendment will be to (a)
increase the number of authorized shares of Common Stock, $.01
par value, after the Reverse Split from 500,000 to 4,000,000, and
(b) to increase the number of authorized shares of Preferred
Stock, no par value, from 800 to 4,000,000, to be issued with
such voting powers, designations, preferences, rights, qualifica-
tions, limitations and restrictions as may be fixed by the
Company's Board of Directors. Pursuant to the requirements of
the Delaware General Corporation Law, if and at such time as the
Board of Directors exercises its authority as thereby granted to
it, then prior to the issuance of the Preferred Stock in any
series so defined, the Board must adopt a resolution describing
the aforesaid characteristics of said series, and the Company
must file with the Delaware Secretary of State a certificate
setting forth such description.
Pursuant to the aforesaid authority granted to the Board of
Directors, authorized but unissued shares of the Common Stock may
be issued at such times, for such purposes and for such consider-
ation as the Board of Directors may deem appropriate, without
further authority from the Company's shareholders. Likewise,
pursuant to the aforesaid authority granted to the Board of
Directors, authorized but unissued shares of the Preferred Stock
may be issued in such series, at such times, for such purposes
and for such consideration as the Board of Directors may deem
appropriate, without further authority from the Company's share-
holders. The shareholders (whether Preferred or Common) do not
have preemptive rights.
If the amendment to the Certificate of Incorporation
proposed herein is approved by the shareholders, Article FOURTH
of the Certificate of Incorporation will be amended as set forth
in the form attached hereto as Exhibit A.
The Board of Directors has recommended the authoriza-
tion of the additional Preferred Stock and the additional Common
Stock (a) in order to allow the Company to complete the financing
transactions described in the "Preface to the Proposals," includ-
ing the issuance of Preferred Shares to Messrs. Gatza and Fanell-
a, the Company's officers, and (b) in order to provide the
Company with additional flexibility in pursuing its long-term
business objectives. Management believes that it will be useful
to have a reserve of both Common and Preferred Shares available
for issuance from time-to-time to raise additional capital for
the Company, to provide incentives for employees, consultants and
business contacts, or for other corporate purposes not now
determinable. As a result of the financing transactions de-
scribed immediately below, 350,000 of the Preferred Stock, if
authorized, will be issued to Messrs. Gatza and Fanella and
880,000 will be reserved for issuance on exercise of the out-
standing Class A Preferred Stock Warrants. Moreover, 50,000
shares of the Common Stock will be reserved for use in connection
with the 1996 Incentive Stock Option Plan, if approved. Other
than as here stated, the Company has no present plans to issue
either the additional Common Stock or the Preferred Stock.
Present Plans to Issue Preferred Stock to Management and Others
As described in the Preface to the Proposals, in order to
finance a debt compromise, the Company's Board of Directors has
already committed that the Company will issue (a) 880,000 Class A
Preferred Stock Purchase Warrants to certain outside investors,
which will permit them to purchase 880,000 shares of Series A
Preferred Stock (described below) at $5.25 per share, and (b)
350,000 shares of Series A Preferred Stock to Robert G. Gatza and
Robert J. Fanella, the officers of the Company. The Board has
also made a non-binding arrangement with I.A. Rabinowitz & Co., a
registered broker-dealer, that the I.A. Rabinowitz & Co. will
underwrite a public offering of 430,000 shares of Series A
Preferred Stock and 215,000 Class A Preferred Stock Warrants. In
the event that Proposal #1 is not approved by the Company's
shareholders, the Company has agreed to issue to Messrs. Gatza
and Fanella presently authorized preferred stock giving them
rights equivalent to those contemplated for the Series A Pre-
ferred Stock. On the other hand, if Proposal #1 is not approved,
the public offering will be abandoned, the Class A Warrants will
expire unexercised on December 31, 1996, and the Company will
repay to the investors the $88,000 purchase price of the War-
rants.
Series A Cumulative Convertible Redeemable Preferred Stock
There is no assurance that an offering of Series A Preferred
Stock will occur, whether on the terms set forth below or other-
wise. The terms of the proposed public offering, including the
terms of the securities being offered, may be modified at any
time before the offering commences in the discretion of the
Company's Board of Directors and I.A. Rabinowitz, the proposed
underwriter. If the terms of the Series A Preferred Stock are
modified, the modification would be applicable both to the shares
sold in the public offering and to the shares to be issued to
Messrs. Gatza and Fanella, as well as to the shares issuable upon
exercise of the presently outstanding Class A Warrants. Any of
these modifications may have an adverse effect on the Company.
In any event, the issuance of Series A Preferred Stock (if it
occurs) will be based solely upon the approval of the Board of
Directors pursuant to the authority granted by the amendment to
the Certificate of Incorporation proposed in this proxy state-
ment. Approval of the shareholders will not be not required.
At the present time, it is contemplated that the Series A
Preferred Stock will have the following terms.
Dividend Rights
Holders of shares of Series A Preferred Stock will be
entitled to receive, out of the assets of the Company legally
available for the payment of dividends, dividends payable semi-
annually at a rate of 8% per annum. At the Company's option, the
Company may pay all or part of each dividend in shares of Common
Stock. Any such dividends will be paid before any dividends may
be paid to holders of the Common Stock.
Voting Rights
The holder of each share of Series A Preferred Stock will be
entitled to cast one vote at any meeting of the shareholders of
the Company, as will the holder of each share of Common Stock.
If the offering is completed as contemplated (without exercise of
the Over-Allotment Option) there would be 420,115 shares of
Common Stock outstanding and 780,000 shares of Series A Preferred
Stock. Accordingly, at a shareholders meeting held immediately
after completion of the offering, there would be 1,195,143 votes
authorized, of which the holders of Series A Preferred Stock
would be entitled to cast 780,000.
Conversion
The Series A Preferred Stock will be convertible at the
option of the holder, commencing on the first anniversary of the
date of the public offering. The conversion rate will be based
upon the average closing bid price for the Common Stock for the
twenty trading days preceding said anniversary date. If that
average exceeds $5.50, each share of Series A Preferred Stock
will be convertible into one share of Common Stock. If the
average bid price is $4.51 to $5.50, each Series A Preferred
Share will be convertible into 1.25 Common Shares. If the average
bid price is $3.50 to $4.50, each Series A Preferred Share will
be convertible into 1 Common Shares. If the average bid price
is less than $3.50, each Series A Preferred Share will be con-
vertible into 2 Common Shares. Notwithstanding the foregoing,
each Series A Preferred Share will be convertible at the Com-
pany's option into one share of Common Stock either (1) on or
after the third anniversary of the offering or (2) during the 24
months following the first anniversary of the offering if the
closing price of the Common Stock exceeds $7.00 for five con-
secutive trading days during that period.
Liquidation Preference
In the event of a voluntary or involuntary liquidation or
winding up of the Company, the holders of Series A Preferred
Stock will be entitled to receive out of the assets of the
Company available for distribution to shareholders $5.00 per
share plus all accrued and unpaid dividends before any distribu-
tion is made to the holders of Common Stock or any other class or
series of stock ranking junior to the Series A Preferred Stock as
to distribution of assets.
Class A Preferred Stock Purchase Warrants
Each Class A Warrant entitles the holder thereof to purchase
one share of Series A Preferred Stock at an exercise price of
$5.25 during the three year period beginning one year after the
offering. At any time during the exercise period, the Company
has the right to redeem all the Class A Warrants at a price of
$.05 per Warrant upon not less than 30 days' prior written notice
if the average closing bid price of the Company's Common Stock as
reported on NASDAQ shall have been $7.00 per share for 5 consecu-
tive trading days ending within 15 days prior to the date on
which notice of redemption is sent.
Effect of the Debt Compromise and the Proposed Equity Transac-
tions on the Company's Financial Statements
The "Debt Compromise" with AT&T Global Information Systems
described above allowed the Company to eliminate a $2.33 Million
debt by payment of $1.33 Million. The Debt Compromise will be
recorded on the Company's financial statements as a $1 Million
extraordinary gain on early extinguishment of debt. In order to
raise the $1.33 to be paid to AT&T, the Company issued Preferred
Stock to Robert Gatza and Robert Fanella for $250,000 plus a loan
guarantee of $800,000. That transaction will add $250,000, the
cash purchase price, to the Company's stated capital. In addi-
tion the Company sold to certain investors 8% debentures for
$187,000 and 880,000 Class A Preferred Stock Warrants at $.10 per
Warrant. The $187,000 was recorded as long-term debt on the
Company's balance sheet, and the purchase price of the Warrants
was recorded as an addition to the Company's equity.
The following table sets forth information regarding the
capitalization of the Company. The first column sets forth the
capitalization at December 31, 1995. The second column sets
forth the capitalization as adjusted to reflect the effect of
"Debt Compromise" with AT&T Global Information Systems described
above and the related financing activities, including the sale of
350,000 shares of Preferred Stock to Robert Gatza and Robert
Fanella. All calculations assume that the reverse stock split
has already taken place.
December 31, 1995
Before After Debt
Offering Compromise
Long-term Debt $ 3,243,819 $ 1,900,819
Shareholders Equity:
Common Stock - Par Value $.01
Per Share, Authorized -
4,000,000 Shares; Out-
standing - 415,143 Shares 4,151 4,151
Preferred Stock- Par Value,
$.01 Per Share, Authorized -
4,000,000 Shares; Outstanding -
350,000; To Be Outstanding -
780,000 Shares. Liquidation
Preference of $250,000 pro
forma and $2,400,000 after Offering 250,000
Additional Paid In Capital 5,837,379 5,837,379
Accumulated Deficit (5,356,650) (4,356,650)
Unearned Restricted Stock Comp. (1,428,550) (1,428,550)
Stock Purchase Warrants 75 88,075
Treasury Stock, at cost ( 16,386) ( 16,386)
Unrealized Gain on Securities 102,270 102,270
Total Stockholders Equity/(Deficit) ( 857,711) 480,289
Total Capitalization $ 2,386,108 $ 2,381,108
The Company presently contemplates that it will make a
public offering of Preferred Stock and Warrants. There is no
assurance that it will occur. If it is completed on the terms in
the letter of intent with I.A. Rabinowitz & Co. the 430,000
shares of Preferred Stock to be sold in the proposed public
offering at $5.00 a share will add $2,150,000 to the Company's
stated capital. The Class A Preferred Stock Purchase Warrants
which are contemplated to be sold in the public offering at $.10
each add $109,500 to the Company's equity.
The prices at which the Preferred Stock and the Class A
Warrants have been and are expected to be sold was determined by
negotiations involving the Company, the investors in the recent
financing, Messrs. Gatza and Fanella, and the proposed underwrit-
er of the public offering. The prices bear no specific rela-
tionship to the market value of the Common Stock. During the
period of these negotiations, the market price of the Common
Stock was approximately $.02 per share ($7.20 after giving effect
to the proposed reverse stock split). The market price of the
Common Stock was not considered a fair standard for determining
the fair value of the Company' securities, however, as the market
is very thinly-traded and subject to sudden large changes in
price.
Effect of Preferred Stock Dividends on Holders of Common Stock
Each share of Series A Preferred Stock which is issued will
pay an annual dividend of $.40. Accordingly, the total of
350,000 shares issued to Messrs. Gatza and Fanella and 430,000
shares to be issued in the proposed public offering would pay an
annual dividend of $312,000 until they were converted to Common
Stock. At the Company's option, all or part of each dividend
could be paid in shares of the Company's Common Stock at market
value.
Holders of Common Stock are entitled to receive such divi-
dends as may be declared by the Board of Directors of the Compa-
ny. However, no dividends could be paid on the Common Stock until
all accrued dividends had been paid on the Preferred Stock. The
existence of outstanding Preferred Stock, therefore, could
prevent the Company from paying dividends on its Common Stock.
At no time since its formation in 1983 has the Company
either declared or paid any dividends on its Common Stock nor
does the Company anticipate that such dividends will be paid in
the foreseeable future. The following table sets forth certain
information regarding the Company's net income during the past
three fiscal years.
Years Ended
June 30
1995 1994 1993
Revenues................$14,588,844 $12,771,067 $15,886,279
Operating Income........ 581,685 426,419 433,280
Net Income.............. 249,894 204,845 40,806
Net Income Per Share.... $.002 $.002 $.001
The table indicates that the Company's earnings have been
insufficient to make the payment of dividends reasonable.
Rather, the Company has applied past earnings and intends to
apply any future earnings to the expansion and development of its
business. Accordingly, while the issuance of Preferred Stock
places a theoretical limitation on the ability of Common Share-
holders to receive dividends, the fact is that unless the Company
improves its financial condition through the Debt Compromise and
the proposed public offering, there is no real possibility that
holders of Common Stock would ever receive dividends from the
Company.
Effect on Possible Takeovers
The proposal to amend the Certificate of Incorporation
to authorize an increase in the Preferred Stock and an increase
in the authorized Common Stock is not being offered for the
purpose of impeding any takeover attempt, and the Company is not
aware of any person who is acquiring or plans to acquire control
of the Company. Nevertheless, the power of the Board of Direc-
tors to provide for the issuance of shares of Common Stock and/or
Preferred Stock, and to fix by resolution, without shareholder
approval, the designations, rights, preferences and limitations
of the shares of Preferred Stock, has potential utility as a
device to discourage or impede a takeover of the Company. In the
event that a non-negotiated takeover were attempted, the private
placement of stock into "friendly" hands, for example, could make
the Company unattractive to the party seeking control of the
Company. This would have a detrimental effect on the interests
of any shareholder who would want to tender his or her shares to
the party seeking control or who would favor a change in control.
Vote Required
Approval of the proposal to amend the Certificate of
Incorporation to increase the authorized shares will require the
affirmative vote of the holders of a majority of the Company's
outstanding Common Stock entitled to vote thereon. Abstentions
will have the same effect as negative votes since the percentage
requirement for approval is based on all shares outstanding and
not only on those shares casting votes. Broker non-votes, if
any, will not be counted and will have the same effect as a
negative vote.
In order for the proposed public offering to take
place, Proposals 1A and 1B must both be adopted. Accordingly,
Proposal 1A may not be adopted unless Proposal 1B is adopted, and
Proposal 1B may not be adopted unless Proposal 1A is adopted. A
vote against Proposal 1B will have the effect, therefore, of a
vote against Proposal 1A.
If adopted, the amendment would become effective upon
the filing with the Delaware Secretary of State of a Certificate
of Amendment to the Certificate of Incorporation, which filing is
expected to take place shortly after the Special Meeting.
The Board of Directors recommends a vote FOR this
proposal.
PROPOSAL NO. 2
PROPOSAL TO ADOPT THE
1996 INCENTIVE STOCK OPTION PLAN
In 1984, the Company adopted the 1984 Incentive Stock
Option Plan and the 1985 Incentive Stock Option Plan (collective-
ly the "Initial Plans") under which a total of 3,000,000 shares
of Common Stock were reserved for issuance. In 1994 and 1995 the
Initial Plans terminated. Options for 2,505,000 of the 3,000,000
shares which were reserved were granted to employees of the
Company and remain outstanding. The average exercise price of
the options which are outstanding is $.0149. No options were
issued under the Initial Plans to any person who is currently an
officer or director of the Company.
In 1992, the Company adopted the 1992 Incentive Stock
Option Plan (the "1992 Plan") under which a total of 2,000,000
shares of Common Stock were reserved for issuance. No options
have been granted under the 1992 Plan.
In the event that the Shareholders approve Proposal No. 1
and the 1-for-360 reverse stock split is effectuated, there will
remain in the 1992 Plan options for only 5,555 shares of stock.
The Company's Board of Directors has determined, therefore, that
it is in the best interest of the Company to have an additional
vehicle by which further incentives can be offered to key employ-
ees. Accordingly, the Board has adopted a resolution approving a
1996 Incentive Stock Option Plan (the "1996 Plan"). The 1996
Plan provides for the reservation of 18,000,000 shares of Common
Stock for issuance thereunder. That number will be reduced to
50,000 if the proposed 1-for-360 reverse stock split is approved
and put into effect. The 1996 Plan, together with the existing
1992 Plan, would then provide Management a reserve of 55,555
shares of Common Stock to be used to attract and maintain neces-
sary employees.
No options have been granted under the 1996 Plan, and
Management has no plans at the present time to grant options
under wither the 1992 Plan or the 1996 Plan.
The 1996 Plan
The salient provisions of the 1996 Plan are as follows:
(a) The options granted will be for a period not greater
than 10 years from the date of grant, except that the Board of
Directors may, in its discretion, prescribe a shorter period for
any individual option. Options granted to any person possessing
more than 10% of the voting power of the Company's Common Stock
shall have a term not exceeding five years.
(b) The Board of Directors will determine to whom options
are to be granted and the price per share at which the options
may be exercised (which must be at least 100% of the fair market
value of the Company's Common Stock on the date of grant, or 100%
in the case of any grantee owning more than 10% of the voting
power of the Company's Common Stock).
(c) The purchase price of shares issuable upon exercise of
an option must be paid in full at the time notice to exercise
such an option is given to the Secretary or Treasurer of the
Company.
(d) Options may be granted only to officers, directors, and
key employees of the Company or any subsidiary of the Company.
At the present time, 41 employees of the Company would be eligi-
ble to be awarded options under the 1996 Plan.
(e) All options granted will be adjusted for stock splits,
recapitalization and stock dividends.
(f) All shares issued pursuant to the exercise of options
under the Plan shall come from authorized but unissued shares (or
reacquired shares) of the Company's Common Stock.
(g) Any shares underlying options which have terminated or
expired shall become available for further options pursuant to
the Plan.
(h) The Board of Directors may appoint a Committee from
among its members to administer the Plan.
(i) Options to be granted under the Plan are not transfer-
able and are exercisable only during the optionee's lifetime, and
only by him or her.
(j) No employee may exercise any option after termination
of employment for any reason.
(k) The aggregate fair market value (determined as of the
date the option is granted) of the stock with respect to which
options are exercisable for the first time by any employee during
any calendar year under all plans of the Company (and parent and
subsidiary corporations) shall not exceed $100,000.
The options granted under the 1996 Plan are intended to
qualify under the Internal Revenue Code of 1986, as "incentive
stock options" within the meaning of Code Section 422A. The
Company has been advised that under the law as now in effect,
recipients of options will pay no tax upon the receipt or exer-
cise of the options if no disposition of the stock received upon
their exercise is made within two years of the granting of the
options or within one year of the exercise thereof. The amount
by which the fair market value of shares purchased upon exercise
of options exceeds the option price constitutes an item of tax
preference, potentially subjecting the recipient to the alterna-
tive minimum tax. Upon subsequent sale of the stock, the excess
of the sale price of the stock over the price paid therefor will
be taxable. If the tests described above are met, the Company
will receive no deduction for the difference between the fair
market value and the exercise price.
Executive Compensation
The Board of Directors does not anticipate that any options
under the 1996 Plan will be issued to members of the Company's
Management. Nevertheless, members of Management will be eligible
to receive options under the Plan.
The following table sets forth all compensation awarded to,
earned by, or paid by the Company to the following persons for
services rendered in all capacities to the Company during each of
the fiscal years ended June 30, 1995, 1994 and 1993: (1) the
Company's Chief Executive Officer, and (2) each of the other
executive officers whose total salary and bonus for the fiscal
year ended June 30, 1995 exceeded $100,000.
SUMMARY COMPENSATION TABLE
(a) (e) (f)
Name and (b) (c) (d) Option All Other
Principal Position Year Salary Bonus Shares Comp. *
Robert G, Gatza 1995 $210,001 - 21,000,000 $1,500
Chief Executive Officer 1994 $212,281 - - $2,100
1993 $208,950 - - $2,100
Robert J. Fanella 1995 $203,801 - 14,000,000 $1,500
Chief Financial Officer 1994 $204,301 - - $2,000
1993 $201,150 - - $2,000
_________________________
* Represents Company matching contribution to 401(k) Plan.
The following tables set forth certain information regarding
the stock options or warrants acquired by the persons identified
in the table above during the year ended June 30, 1995 and those
options or warrants held by them on June 30, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Percent Potential Realizable
of Total Value at Assumed
Options Annual Rates of
Number of Granted Stock Price
Securities to Appreciation
underlying Employees Exercise For Option Term
option in Fiscal Price Expiration
Name Granted (#) Year ($/Sh) Date 5% ($) 10% ($)
Robert G. Gatza 21,000,000 60% $.00125 12/31/01 $3,297 $14,673
Robert J. 14,000,000 40% $.00125 12/31/01 $2,198 $ 9,782
Fanella
AGGREGATED FISCAL YEAR OPTION VALUES
Number of Securities Underlying Value of Unexercised in-
Unexercised Options at Fiscal the-Money Options at
Name Year-End (#) Fiscal Year-End ($)
Robert G. Gatza 13,800,000 Exercisable $0
21,000,000 Unexercisable $141,750
Robert J. Fanella 6,700,000 Exercisable $0
14,000,000 Unexercisable $ 94,500
Employment Agreements
One February 1, 1996 The Company entered into employment
agreements with Robert G. Gatza and Robert J. Fanella. The
employment agreements are substantially identical to each other.
The agreements provide for full-time employment and include a
covenant that the officer will not compete with the Company for
one year after his employment terminates. The agreements termi-
nate on January 31, 2000. They provide that each officer will be
paid a salary determined by the Board, but that his annual salary
shall be no less than his average salary for the preceding two
years.
Restricted Stock Grant Program
On May 19, 1989, the shareholders of the Company adopted a
Restricted Stock Grant Program (the "Program"), pursuant to which
58,333 shares of common stock were reserved for issuance. On
July 3, 1989, a portion of the reserved shares were issued to
two "Grantees", namely Robert G. Gatza (34,722 shares) and Robert
J. Fanella (18,056 shares). Messrs. Gatza and Fanella are the
Company's officers.
The shares issued under the terms of the Program are subject
to the following restrictions:
1. The shares granted under the Program cannot be sold,
assigned, pledged, transferred or hypothecated in any
manner, by operation of law or otherwise, other than by writ or
the laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. This restriction shall
lapse, with respect to 3 % of the number of shares granted under
the Program, and those shares will become unrestricted stock, on
the last day of the Company's 1996 fiscal year. The restriction
shall lapse with respect to each additional 3 % of such number of
shares on the last day of each successive fiscal year of the
Company, until the 27th year in which the final 13 % will vest.
2. The restriction shall also lapse as to all shares
granted to a Grantee on the first to occur of (i) the termination
of that Grantee's employment with the Company by reason of his
disability, (ii) the Grantee's death, (iii) termination of the
Grantee's employment by the Company without good reason, or (iv)
a change of control of the Company. The Program defines "Change
of Control" as an acquisition by a person or group of more than
50% of the Company's outstanding shares, a transfer of the
Company's property to an entity of which the Company does not own
at least 50%, or the election of directors constituting a majori-
ty of the Board who have not been approved by the existing Board.
3. Shares which have not become unrestricted under the
circumstances referred to in Item 1 or Item 2 above shall be
forfeited to the Company upon termination of the Grantee's
employment with the Company.
4. During any tax year in which a Grantee realizes taxable
income by reason of the lapse of the restrictions on the shares
granted under the Program, the Company shall pay to such Grantee
a "Gross-Up Bonus" in cash equal to the aggregate of (i) the
additional federal, state and local income taxes incurred by
Grantee as a result of realization of such taxable income, and
(ii) the federal, state and local income tax incurred by the
Grantee as a result of the Gross-Up Bonus. In no event shall the
Gross-Up Bonus exceed the aggregate of (i) the amount of the tax
deduction for which the Company receives a benefit for the tax
year of the Company beginning during the tax year of the Grantee
in which he realizes taxable income by virtue of the lapse of the
restrictions referred to in Item 1 above, and (ii) the amount of
the tax deduction for which the Company receives a benefit for
such tax year of the Company by virtue of the Gross-Up Bonus.
Remuneration of Directors
The Directors of the Company receive no compensation for
their services, but are reimbursed for out-of-pocket expenses
incurred on the Company's behalf.
Vote Required
The Board of Directors believes that the adoption of the
1996 Plan is important to the Company in that it will help the
Company to attract and retain qualified personnel. The Board of
Directors will not propose approval of Proposal #2, however, if
Proposal #1B is not approved, as there would not be enough autho-
rized shares of Common Stock to be reserved under the 1996 Plan.
The affirmative vote of the majority of the shares present
in person or represented by proxy at the Meeting and entitled to
vote will be required for approval of the 1996 Incentive Stock
Option Plan. Abstentions will have the same effect as negative
votes since the percentage requirement for approval is based on
all shares present at the meeting and not only on those shares
casting votes. Broker non-votes, if any, will not be counted and
will have no effect on the vote.
The Board of Directors recommends a vote FOR this proposal.
MISCELLANEOUS
Independent Certified Public Accountants
Selden Fox & Associates, Ltd. are the independent certified
public accountants who audited the Company's financial statements
for the fiscal year ended June 30, 1995, and are expected to
audit the Company's financial statements for the fiscal year
ended June 30, 1996. It is not expected that representatives of
Selden Fox & Associates, Ltd. will be present at the Special
Meeting of Shareholders.
Transaction of Other Business.
As of the date of this Proxy Statement, Management has no
knowledge of any business which will be presented for consid-
eration at the meeting other than that described above. Should
any other matter come before the meeting, it is the intention of
the persons named in the accompanying proxy to vote such proxy in
accordance with their best judgment.
Shareholder Proposals.
The Board of Directors does not presently contemplate that
it will hold an Annual Meeting of Shareholders in the foreseeable
future, due to the expense attendant to such a meeting. If the
Company does have an Annual Meeting of Shareholders at some time
in the future, the Board of Directors will issue a press release
at least 90 days before the date of the meeting stating the date
by which shareholder proposals which are to be presented at the
meeting must be received by the Company. If a shareholder
desires to have his/her own proposal presented at the Meeting,
the proposal must be received by the Company at its principal
offices in Carol Stream, Illinois on or before the date specified
in the press release to be eligible for inclusion in the
Company's Proxy Statement and the form of proxy for such meeting.
Solicitation of Proxies
The entire expense of preparing, assembling and mailing this
Proxy Statement, the form of proxy and other material used in the
solicitation of proxies will be paid by the Company. In addition
to the solicitation of proxies by mail, arrangements may be made
with brokerage houses and other custodians, nominees and fiducia-
ries to send proxy material to their principals, and the Company
will reimburse them for expenses in so doing. To the extent
necessary in order to insure sufficient representation, officers
and other regular employees of the Company, who will not be
additionally compensated therefor, may request the return of
proxies personally, by telephone or telegram. The extent to
which this will be necessary depends on how promptly proxies are
received, and shareholders are urged to send their proxies
without delay.
By Order of the Board of Directors
ROBERT G. GATZA
Chairman
Dated: Carol Stream, Illinois
April 5, 1996 <PAGE>
FORM OF AMENDMENT TO CERTIFICATE OF INCORPORATION
A. AMENDMENT TO ARTICLE FOURTH
Article "Fourth" of the Company's Certificate of
Incorporation shall be amended
(1) By deleting the entirety and inserting the follow-
ing:
FOURTH: (A) The aggregate number of shares of stock
which the Corporation shall have the authority to issue
is eight million (8,000,000) shares, consisting of four
million (4,000,000) shares of Common Stock with $.01
par value and four million (4,000,000) shares of Pre-
ferred Stock with no par value. The Board of Directors
is authorized, subject to limitations prescribed by law
and the provisions hereof, to provide for the issuance
from time to time of Preferred Stock in one or more
series, and by filing a certificate pursuant to Paragraph 151
of the Delaware General Corporation Law, as amended and
supplemented from time to time, to establish the number
of shares to be included in each such series, and fix
the voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of the
shares of each such series not fixed hereby. The
aforesaid authorization of the Board shall include, but
not be limited to, the power to provide for the issu-
ance of shares of any series of Preferred Stock con-
vertible, at the option of the holder or of the Corpo-
ration or both, into shares of any other class or
classes or of any series of the same or any other class
or classes.
(ii) Adding the following paragraph "B:"
(B) Reverse Stock Split. At 5:00 p.m., New York City
time, on ______________, 1996 (the "Reverse Split
Date"), each share of Common Stock issued and outstand-
ing immediately prior to the Reverse Split Date (re-
ferred to in this Paragraph B as the "Old Common
Stock") automatically and without any action on the
part of the holder thereof will be reclassified and
changed into .00278 of a share of Common Stock, par
value $.01 per share (referred to in this Paragraph B
as the "New Common Stock", which is the Common Stock
authorized under Paragraph A of this Article Fourth),
subject to the treatment of fractional share interests
as described below. Each holder of a certificate or
certificates that immediately prior to the Reverse
Split Date represented outstanding shares of Old Common
Stock (the "Old Certificates") will be entitled to
receive, upon surrender of such Old Certificates to the
Company's exchange agent (the "Exchange Agent") for
cancellation, a certificate or certificates (the "New
Certificate", whether one or more) representing the
number of whole shares of the New Common Stock into
which and for which the shares of the Old Common Stock
formerly represented by such Old Certificates so sur-
rendered are reclassified under the terms hereof. From
and after the Reverse Split Date, Old Certificates
shall represent only the right to receive New Certifi-
cates pursuant to the provisions hereof. No certifi-
cates or scrip representing fractional share interests
in New Common Stock will be issued, and no such frac-
tional share interest will entitle the holder thereof
to vote, or to any rights of a shareholder of the
Company. The number of shares to which a stockholder
is entitled after the recapitalization will be rounded
to the nearest integer such that holders of a fraction-
al share of .50 shares or greater will receive one
additional share in lieu of the fractional share, and
holders of a fractional share less than .50 shares will
receive no share in lieu of the fractional share. Any
holder of fewer than 360 shares of Old Common Stock
will receive 1 share of New Common Stock upon surrender
of the Old Certificate. If more than one Old Certifi-
cate shall be surrendered at one time for the account
of the same stockholder, the number of full shares of
New Common Stock for which New Certificates shall be
issued shall be computed on the basis of the aggregate
number of shares represented by the Old Certificates so
surrendered. In the event that the Company's Exchange
Agent determines that a holder of Old Certificates has
not tendered all his certificates for exchange, the
Exchange Agent shall carry forward any fractional share
until all certificates of that holder have been pre-
sented for exchange. The Old Certificates surrendered
for exchange shall be properly endorsed and otherwise
in proper form for transfer, and the person or persons
requesting such exchange shall affix any requisite
stock transfer tax stamps to the Old Certificates
surrendered, or provide funds for their purchase, or
establish to the satisfaction of the Exchange Agent
that such taxes are not payable. From and after the
Reverse Split Date the amount of capital represented by
the shares of the New Common Stock into which and for
which the shares of the Old Common Stock are reclassi-
fied under the terms hereof shall be the same as the
amount of capital represented by the shares of Old
Common Stock so reclassified, until thereafter reduced
or increased in accordance with applicable law."
<PAGE>
