SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 2-93668-FW
CURTIS MATHES HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
Texas 75-1975147
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10911 Petal Street, 75238
Dallas, Texas (Zip Code)
(Address of principal executive offices)
(214) 503-8880
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
At September 30, 1996, there were 29,048,998 shares of Registrant's
common stock outstanding.
<PAGE>
GENERAL INDEX
Page
Number
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
SIGNATURES 9
EXHIBIT INDEX 10
<PAGE>
CURTIS MATHES HOLDING CORPORATION
and Subsidiaries
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
A. BASIS OF INTERIM FINANCIAL STATEMENT PREPARATION
The interim financial statements and summarized notes included
herein were prepared, without audit, pursuant to rules and regulations of
the Securities and Exchange Commission. Because certain information and
notes normally included in financial statements prepared in accordance
with generally accepted accounting principles were condensed or omitted
pursuant to such rules and regulations, it is suggested that these
financial statements be read in conjunction with the Consolidated
Financial Statements and the Notes thereto, included in the Company's
Annual Report on Form 10-K for the preceding fiscal year. These interim
financial statements and notes hereto reflect all adjustments which are,
in the opinion of management, necessary for a fair statement of results
for the interim periods presented. Such financial results, however,
should not be construed as necessarily indicative of future earnings.
CURTIS MATHES HOLDING CORPORATION
Consolidated Balance Sheets (Unaudited)
September 30 June 30
1996 1996
ASSETS
Current Assets
Cash and cash equivalents $ 5,409,365 $ 4,150,481
Subscriptions receivable 558,000 4,351,500
Accounts receivable 34,837 48,445
Notes receivable 351,190 354,807
Inventory 709,746 646,929
Current portion of restricted cash 8,000 47,423
Investments 550,769 --
Prepaid expenses and other 1,507,956 585,583
Total current assets 9,129,863 10,185,168
Long-term notes receivable 3,145 --
Property and equipment 1,370,660 1,327,448
Less depreciation (774,635) (671,346)
Goodwill 4,915,755 4,915,755
Less amortization (642,930) (577,389)
Other assets 470 30,770
TOTAL ASSETS $14,002,328 $15,210,406
<PAGE>
CURTIS MATHES HOLDING CORPORATION
Consolidated Balance Sheets (Unaudited) - Continued
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities
of long-term debt $ 607,848 $ 807,847
Current maturities
of obligations under capital
leases 109,487 109,487
Trade accounts payable 54,218 134,522
Accrued and other current liabilities 495,712 649,456
Deferred gain -- 1,252,461
Total Current Liabilities 1,267,265 2,953,773
Long-Term Debt
Obligations under notes payable,
less current maturities 124,966 186,310
Obligations under capital leases,
less current maturities 84,876 88,876
Other liabilities 203,403 257,915
Total Long-Term Liabilities 413,245 533,101
Stockholders' Equity
Preferred stock, cumulative,
$1.00 par value; 1,000,000
shares authorized:
Series A, 140,000 shares
(liquidation preference
of $140,000) $ 140,000 $ 140,000
Series G, zero and 117,305
shares (liquidation preference
of $0 and $1,173,050) -- 117,305
Series H, 14 and 55 shares
(liquidation preference of
$350,000 and $1,375,000) 14 55
Series I, 1,293 and 5,385 shares
(liquidation preference of
$1,293,000 and 5,385,000) 1,293 5,385
Series J, 620 shares issued
September 1996 (liquidation
preference $620,000) 620 --
Common stock, $.01 par value;
80,000,000 shares authorized;
29,048,998 and 24,311,188 shares
issued and outstanding at September
30, and June 30, 1996 290,490 243,112
Additional paid-in-capital 22,366,338 22,193,525
Accumulated deficit, since July 1,
1993 quasi reorganization in which
an accumulated deficit of
$4,140,595 was eliminated (10,975,850) (10,975,850)
Current year profit (loss) 498,913 --
Total Stockholders' Equity $12,321,818 $11,723,532
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $14,002,328 $15,210,406
<PAGE>
CURTIS MATHES HOLDING CORPORATION
Consolidated Statements of Operations (Unaudited)
Three Months Ended
September 30 September 30
1996 1995
REVENUE
Sales Revenues $ 2,090,383 $ 2,496,027
Other Income -- 31,209
TOTAL REVENUE $ 2,090,383 $ 2,527,236
COSTS AND EXPENSES
Costs of Goods Sold $ 2,005,071 $ 2,259,372
Amortization 65,541 61,248
Financing Expense -
Accounts Receivable -- 32,250
Financing Expense - Other 9,833 344,964
Freight Expense 28,626 113,065
Occupancy & Office Expense 256,723 332,521
Payroll & Related Expense 257,396 466,621
Professional Services/Fees 134,497 319,132
Travel & Entertainment 36,216 23,425
Taxes 20,000 36,000
Warranty/Reorganization Provision 52,260 73,940
Other Expenses 45,038 59,226
TOTAL COSTS AND EXPENSES $ 2,911,201 $ 4,121,764
OTHER INCOME:
Deferred gain on early payoff of debt 1,252,498 --
Interest income 67,233 --
TOTAL OTHER INCOME 1,319,731 --
INCOME/(LOSS) FROM CONTINUING OPERATIONS $ 498,913 $(1,594,528)
INCOME FROM DISCONTINUED OPERATIONS $ -- $ --
NET INCOME/(LOSS) $ 498,913 $(1,594,528)
NET INCOME/(LOSS) Per Share
Cont. Operations $ 0.02 $ (0.13)
NET INCOME/(LOSS) Per Share $ 0.02 $ (0.13)
WEIGHTED AVERAGE SHARES OUTSTANDING 26,481,800 12,338,133
<PAGE>
CURTIS MATHES HOLDING CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
September 30 September 30
1996 1995
CASH FLOW FROM OPERATING ACTIVITIES
Net Income/ (Loss) $ 498,913 $(1,594,528)
Adjustments to reconcile net
profit/(loss)to net cash used
by operating activities
Amortization 65,541 61,249
Depreciation 103,289 107,527
Increase (decrease) in
accounts payable (80,304) 54,998
Increase (decrease) in
accrued and other liabilities (353,743) (119,973)
Increase (decrease)
in dividends payable -- (412,966)
Increase (decrease)
in pre-petition liabilities -- (17,776)
Increase (decrease)
in warranty reserves 52,260 13,863
Increase (decrease)
in deferred gain (1,252,461) --
Decrease (increase)
in accounts receivable 13,608 586,989
Decrease (increase)
in subscriptions receivable 3,793,500 --
Decrease (increase) in inventory (62,817) 629,312
Decrease (increase)
in other current assets (918,755) 8,552
Decrease (increase)
in other assets 30,300 256,920
Decrease (increase)
in restricted cash 39,423 16,501
Cash provided (used)
by operating activities 1,928,754 (409,332)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets (43,212) (68,180)
Decrease (increase) in investments (550,769) --
Cash used by investing activities (593,981) (68,180)
CASH FLOW FROM FINANCING ACTIVITIES
Increase (decrease) in credit line advances -- (834,469)
Issuance of long-term debt (3,145) 271,103
Issuance of notes receivable -- (375,591)
Payments on notes receivable -- (696,747)
Payments on long-term debt (119,856) --
Redemption of preferred stock (1,170,305) --
Payments on preferred stock -- (155,000)
Proceeds from common stock -- 2,444,905
Proceeds from preferred stock 1,217,417 (14,958)
Cash provided (used)
by financing activities (75,889) 639,243
NET INCREASE (DECREASE) IN CASH 1,258,884 161,731
CASH AT BEGINNING OF PERIOD 4,150,481 91,693
CASH AT END OF PERIOD $ 5,409,365 $ 253,424
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The following discussion provides information to assist in the
understanding of the Company's financial condition and results of
operations for the fiscal quarter ended September 30, 1996. It should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto appearing in the Company's Annual Report on Form 10-K for fiscal
year ended June 30, 1996.
Results of Operations
Revenues. The statement of the revenues of the Company during the
fiscal quarters ended September 30, 1996 and 1995 excludes any effect of
Southwest Memory, Inc. ("SMI"), which was sold in December, 1994. The
Company reports revenues of $2,090,383 in the first fiscal quarter,
compared to $ 2,527,236 for the same quarter last year. This decrease in
revenue is primarily due to the elimination of commodity products
(television screen sizes of 27" or less), VCRs, and other low margin
products.
Net Sales. Net sales are net of discounts and are recognized
upon shipment of an order to a customer. The Company reports net sales
of $2,090,383 for the first fiscal quarter, compared to $2,496,027 for
the same quarter last year.
Gross Profit. Gross Profit equals net sales less cost of goods sold
(both labor and material), non-direct, fixed manufacturing costs (such as
salaries, leasing costs, and depreciation charges related to production
operations), and non-direct, variable manufacturing costs (such as
supplies and employee benefits). In the first fiscal quarter, the
Company reports Gross Profit of $85,312, compared to $236,655 for the
same quarter last year.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses (SGA expense) consists primarily of non-
manufacturing salaries, sales commissions, and other general expenses.
The Company reports SGA expense of $906,130 for the first fiscal quarter,
compared to $1,862,392 for the same quarter last year, which amounts to
a 51% decrease from the same period last year. The decrease in these
expenses is primarily due to continued restructuring and consolidation of
operations and management.
Net Income. As a result of the above factors, the Company reports
a net profit of $498,913 for the first fiscal quarter, which translates
into a $0.02 profit per share, compared to a net loss for the same period
last year of ($1,594,528), or loss per share of ($0.13). This net profit
is attributable to several factors: (1) income recognized as a result of
the deferred gain related to early payoff of debt as reported in the June
30, 1996, Form 10-K; (2) significantly lower financing costs due to
elimination of the previous line of credit (replaced with a more
favorable line of credit discussed under Liquidity below); (3)
reduction of payroll and related expenses through streamlining of
workforce; and (4) continued productivity increases due to consolidation
of operations.
<PAGE>
Interest Expense. The Company reports interest expense for the
first fiscal quarter of $9,833, compared to $377,214 for the same
quarter last year, which is a decrease of 97% for the same quarter last
year on a full quarter basis
Liquidity and Capital Resources
Prior to September 30, 1996, the Company established a new credit
line for floor planning with an international investment group for up to
$10,000,000. The terms of the line of credit allow the Company to
utilize the line as management deems necessary. As of September 30,
1996, the Company had not activated the line of credit due to its
existing cash reserves.
Management believes that sufficient cash resources and credit
facilities are available or can be obtained to support the Company's
continued growth and continues to evaluate additional sources of equity
and/or credit facilities to maintain and increase the growth and
profitability of the Company.
Quarterly Results
Management believes that, as a consumer electronics firm, the
Company's business is affected by the same seasonal factors that affect
the industry as a whole. The Company's sales and earnings may vary from
quarter to quarter, depending primarily upon the timing of customer
orders and the state of the industry. The Company's operating results
for any particular quarter, therefore, may not be indicative of the
results for any future quarter or year.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Wholly owned subsidiary Curtis Mathes Corporation ("CM") and the
Company were previously served with petitions alleging toxic tort
injuries to approximately 800 to 1,100 private plaintiffs arising out of
CM's past operation of, and use of chemicals at the manufacturing
facility located in Athens, Texas. Damages were unspecified and
management took the position that any liability that may have accrued to
CM was discharged in CM's bankruptcy and that the Company had no
liability by virtue of never having participated in the operation of the
Athens plant. Subsequent to fiscal year end, both CM and the Company
were dismissed from the action, resulting in no liability accruing to
either CM or the Company. The action was filed on August 31, 1995 and is
still pending against other defendants unrelated to the Company in the
60th Judicial District Court of Jefferson County, Texas under Cause No.
B-153,035, styled Anita Michelle Allen, et al. v. Harvey Industries,
Inc., et al.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1996 Annual Shareholders' Meeting on September
19, 1996. Of the 24,311,188 common shares of the Company issued and
outstanding as of the Record Date, 21,644,662 were represented in person
or by proxy at the meeting, which constituted a quorum for the
transaction of all business to come before the meeting. The following
proposals were approved by a majority of the shares represented at the
meeting:
<PAGE>
1. Election of Directors:
Patrick A. Custer (FOR--21,567,816; WITHHELD-76,846.)
Edward M. Warren (FOR--21,567,816; WITHHELD-76,846.)
Billy J. Robinson (FOR--21,567,816; WITHHELD-76,846.)
Bernard S. Appel (FOR--21,567,416; WITHHELD-77,246.)
2. Ratification of the appointment of the accounting firm of KING,
BURNS & COMPANY, P.C. as independent auditors of the Company for
fiscal year 1996 and 1997.
(FOR--21,510,310; AGAINST--74,775; and ABSTAINING--59,577.)
3. An amendment to the Articles of Incorporation of the Company
was approved increasing authorized common shares to 80 million.
(FOR--21,032,893; AGAINST--515,193; ABSTAINING--96,576.)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Curtis Mathes Holding Corporation
(Registrant)
By: /s/ F. Shelton Richardson, Jr.
F. Shelton Richardson, Jr.
Vice President - Chief Financial Officer
(Principal Financial and Duly Authorized
Officer)
Date: October 22, 1996
CURTIS MATHES HOLDING CORPORATION
and Subsidiaries
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
4.1* Articles of Incorporation of the Company, as amended.
4.2* Series J Preferred Stock terms and conditions.
27* Financial Data Schedule.
_______________
* Filed herewith.
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF INCORPORATION OF
CURTIS MATHES HOLDING CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Article
of Amendment to its Articles of Incorporation:
ARTICLE ONE: The name of the corporation is Curtis Mathes Holding
Corporation.
ARTICLE TWO: The following amendment to the Articles of Incorporation
was adopted by resolution of the Board of Directors of the Corporation
and was submitted to the shareholders of the Corporation for vote at the
Annual Shareholders' Meeting held on September 19, 1996:
RESOLVED, that the number of authorized shares of common stock
of the Corporation be, and hereby is, subject to shareholder
approval, increased from 40,000,000 to 80,000,000 by the
following amendment to the Articles of Incorporation of the
Corporation (Articles of Incorporation amended to read):
"ARTICLE IV (The first paragraph): The total number
o f shares of all classes of stock which the
corporation shall be authorized to issue is
81,000,000 shares, divided into the following: (i)
1,000,000 shares of preferred stock, of the par value
of $1.00 per share (hereinafter called "Preferred
Stock"); and (ii) 80,000,000 shares of common stock,
of the par value of $.01 per share (hereinafter
called "Common Stock.")"
ARTICLE THREE: The number of shares of the corporation outstanding and
entitled to vote on the amendment at the time of the adoption was
24,311,188.
ARTICLE FOUR: The number of shares that voted for the amendment was
21,032,893; the number of the shares that voted against the amendment was
515,193; and the number of shares abstaining was 96,576.
ARTICLE FIVE: Except as set forth above and in prior amendments, the
Articles of Incorporation of the Corporation remain unchanged.
Dated: September 19, 1996
CURTIS MATHES HOLDING CORPORATION
By:___/s/ Billy J. Robinson_______
Billy J. Robinson, Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF INCORPORATION OF
CURTIS MATHES HOLDING CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Article
of Amendment to its Articles of Incorporation:
ARTICLE ONE: The name of the corporation is Curtis Mathes Holding
Corporation.
ARTICLE TWO: The following amendment to the Articles of Incorporation
was adopted by resolution of the Board of Directors of the Corporation
and was submitted to the shareholders of the Corporation for vote at the
Annual Shareholders' Meeting held on April 8, 1995:
"ARTICLE VII: (UNCHANGED) If with respect to any action taken by
the shareholders of the corporation, any provision of the Texas
Business Corporation Act would, but for this Article VII, require
the vote or concurrence of the holders of shares having more than a
majority of the votes entitled to be cast thereon, or of any class
or series thereof, the vote or concurrence of the holders of shares
having only a majority of the votes entitled to be cast thereon, or
of any class or series thereof, shall be required with respect to
any such action.
(AMENDMENT ADDED) Any shareholder action required by the Texas
Business Corporation Act to be taken at any annual or special
meeting of shareholders, or any action which may be taken at any
annual or special meeting of shareholders, may be taken without a
meeting, without prior notice, and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be
signed by the holder or holders of shares having not less than the
minimum number of votes that would be necessary to take such action
at a meeting at which the holders of all shares entitled to vote on
the action were present and voted.
ARTICLE THREE: The number of shares of the corporation outstanding and
entitled to vote on the amendment at the time of the adoption was
9,194,800.
ARTICLE FOUR: The number of shares that voted for the amendment was
4,703,412; and the number of the shares that voted against the amendment
was 82,950.
ARTICLE FIVE: Except as set forth above and in prior amendments, the
Articles of Incorporation of the corporation remain unchanged.
Dated: July 24, 1995
CURTIS MATHES HOLDING CORPORATION
By____Billy J. Robinson_____________
Billy J. Robinson, Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
ENHANCED ELECTRONICS CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following
Articles of Amendment to its Articles of Incorporation.
ARTICLE ONE: The name of the corporation is Enhanced Electronics
Corporation.
ARTICLE TWO: The following amendments to the Articles of Incorporation
were adopted and ratified by the shareholders of the Corporation
effective April 1, 1994:
"ARTICLE I: The name of the corporation is Curtis Mathes Holding
Corporation.
ARTICLE THREE: The number of shares of the Corporation outstanding and
entitled to vote at the time of the adoption was 8,412,000. The number
of shares voting for the amendment was 4,280,815.
ARTICLE FOUR: Except as set forth above, the Articles of Incorporation
of the corporation remain unchanged.
Dated: Effective April 1, 1994.
ENHANCED ELECTRONICS CORPORATION
By____Phillip L. Scheldt____________
Phillip L. Scheldt
Executive Vice President/Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
DONNY OSMOND ENTERTAINMENT CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following
Articles of Amendment to its Articles of Incorporation.
ARTICLE ONE: The name of the corporation is Donny Osmond Entertainment
Corporation.
ARTICLE TWO: The following amendments to the Articles of Incorporation
were unanimously adopted by the shareholders of the corporation on April
4, 1989.
The Articles of Incorporation are hereby amended so to read as
follows:
"ARTICLE I: The name of the corporation is Entertainment
Equity Corporation.
ARTICLE X: The address of its registered office is 8080
North Central Expressway, Suite 1600, Lock Box 46, Dallas,
Texas 75206, and the name of its registered agent at such
address is Diane M. Given.
ARTICLE XIII: A director of the Corporation shall not be
person-ally liable to the Corporation or its shareholders for
monetary damages for any act or omission in his capacity as a
director, except to the extent otherwise expressly provided by
a statute of the State of Texas. Any repeal or modification of
this Article shall be prospective only, and shall not adversely
affect any limitation of the personal liability of a director
of the Corporation existing at the time of the repeal or
modification.
The number of shares outstanding and entitled to vote on this
amendment at the time of its adoption was 6,253,900 and the number of
shares voting for this amendment was 5,200,000.
ARTICLE THREE: Except as set forth above, the Articles of Incorporation
of the corporation remain unchanged.
Dated: May 31, 1989
ENTERTAINMENT EQUITY CORPORATION,
previously, Donny Osmond Entertainment
Corporation
By: Patrick A. Custer
Patrick A. Custer, President
Helen Williams
Helen Williams, Secretary
<PAGE>
State of Texas )
County of Dallas )
The undersigned notary public does hereby certify that on this 31st
day of May, 1989, personally appeared before me Patrick A. Custer who,
being by me first duly sworn, declared that he is the president of
Entertainment Equity Corporation, that he signed the foregoing document
as president of the corporation, and that the statements herein contained
are true.
[Notarial Seal] Anne G. Thomas
Notary Public in and for the State
of Texas
My commission expires: 2-19-92
State of Texas )
County of Dallas )
The undersigned notary public does hereby certify that on this 31st
day of May, 1989, personally appeared before me Helen Williams who, being
by me first duly sworn, declared that she is the secretary of
Entertainment Equity Corporation, that she signed the foregoing document
as secretary of the corporation, and that the statements herein contained
are true.
[Notarial Seal] Anne G. Thomas
Notary Public in and for the State
of Texas
My commission expires: 2-19-92
ARTICLES OF INCORPORATION
OF
DONNY OSMOND ENTERTAINMENT CORPORATION
ARTICLE I: The name of the corporation is Donny Osmond Entertainment
Corporation.
ARTICLE II: The period of its duration is perpetual.
ARTICLE III: The purpose or purposes for which this corporation is
organized are the transaction of any and all lawful business for which
corporations may be incorporated under the Texas Business Corporation
Act.
ARTICLE IV: The total number of shares of all classes of stock which
the corporation shall be authorized to issue is 11,000,000 shares,
divided into the following: (i) 1,000,000 shares of preferred stock, of
the par value of $1.00 per share (hereinafter called "Preferred Stock");
and (ii) 10,000,000 shares of common stock, of the par value of $.01 per
share (hereinafter called "Common Stock").
A description of the respective classes of stock and a statement of
the designations, preferences, limitations and relative rights of such
classes of stock and the limitations on or denial of the voting rights of
the shares of such classes of stock are as follows:
<PAGE>
A. PREFERRED STOCK: 1. Issuance in Series. The Preferred
stock may be divided into and issued in one or more series. The board of
directors is hereby vested with authority from time to time to establish
and designate such series, and within the limitations prescribed by law
or set forth herein, to fix and determine the relative rights and
preferences of the shares of any series so established, but all shares of
Preferred Stock shall be identical except as to the following relative
rights and preferences as to which there may be variations between
different series: (a) the rate of dividend; (b) the price and at the
terms and conditions on which shares may be redeemed; (c) the amount
payable upon shares in event of involuntary liquidation; (d) the amount
payable upon shares in event of voluntary liquidation; (e) sinking fund
provisions for the redemption or purchase of shares; (f) the terms and
conditions on which shares may be converted, if the shares of any series
are issued with the privilege of conversion; and (g) voting rights. The
board of directors shall exercise such authority by the adoption of a
resolution as prescribed by law.
2. Dividends. The holders of each series of
Preferred Stock at the time outstanding shall be entitled to receive,
when and as declared to be payable by the board of directors, out of any
funds legally available for the payment thereof, dividends at the rate
theretofore affixed by the board of directors for such series of
Preferred Stock that have theretofore been established, and no more,
payable quarterly on the first days of January, April, July and October
in each year.
3. Preferred Dividends Cumulative. Dividends on all
Preferred Stock, regardless of series, shall be cumulative. No dividends
shall be declared on shares of any series of Preferred Stock for any
dividend period unless all dividends accumulated for all prior dividend
periods shall have been declared or shall then be declared at the same
time upon all Preferred Stock then outstanding. No dividends shall be
declared on the shares of any series of Preferred Stock unless a dividend
for the same period shall be declared at the same time upon all Preferred
Stock outstanding at the time of such declaration in like proportion to
the dividend rate then declared. No dividends shall be declared or paid
on the Common Stock unless full dividends on all Preferred Stock then
outstanding for all past dividend periods and for the current dividend
period shall have been declared and the corporation shall have paid such
dividends or shall have set apart a sum sufficient for the payment
thereof.
4. Preference on Liquidation. In the event of any
dissolution, liquidation or winding up of the corporation, whether
voluntary or involuntary, the holders of each series of the then
outstanding Preferred Stock shall be entitled to receive the amount fixed
for such purpose in the resolution or resolutions of the board of
directors establishing the respective series of Preferred Stock that
might then be outstanding together with a sum equal to the amount of all
accumulated and unpaid dividends thereon at the dividend rate fixed
therefor in the aforesaid resolution or resolutions. After such payment
to such holders of Preferred Stock, the remaining assets and funds of the
corporation shall be distributed pro rata among the holders of the Common
Stock. A consolidation, merger or reorganization of the corporation with
any other corporation or corporations or a sale of all or substantially
all of the assets of the corporation shall not be considered a
dissolution, liquidation or winding up on the corporation within the
meaning of these provisions.
<PAGE>
5. Redemption. The whole or any part of the
outstanding Preferred Stock or the whole or any part of any series
thereof may be called for redemption and redeemed at any time at the
option of the corporation, exercisable by the board of directors upon
thirty (30) days' notice by mail to the holders of such shares as are to
be redeemed, by paying therefor in cash the redemption price fixed for
such shares in the resolution or resolutions of the board of directors
establishing the respective series of which the shares to be redeemed are
a part together with a sum equal to the amount of all accumulated and
unpaid dividends thereon at the dividend rate fixed therefor in the
aforesaid resolution or resolutions to the date fixed for such
redemption. The corporation may redeem the whole or any part of the
shares of any series, or of several series, without redeeming the whole
or any part of the shares of any other series; provided, however, that if
at any time less than the whole of the Preferred Stock of any particular
series then outstanding shall be called for redemption, the particular
shares called for redemption shall be determined by lot or by such other
equitable method as may be determined by the board of directors. If, on
the redemption date specified in any such notice, funds necessary for
such redemption shall have been set aside by the corporation, separate
and apart from its other funds, in trust for the pro rate benefit of the
h o lders of the Preferred Stock so called for redemption, then,
notwithstanding that any certificate for shares so called for redemption
shall not have been surrendered for cancellation, the shares so called
for redemption shall no longer be deemed to be outstanding, the right to
receive dividends thereon shall cease to accrue from and after the date
so fixed, and all rights of holders of Preferred Stock so called for
redemption shall forthwith after such redemption date cease and
terminate, excepting only the right of the holders thereof to receive the
redemption price thereof, but without interest; and if, before the
redemption date specified in any notice of the redemption of any
Preferred Stock, the corporation shall deposit with the bank or trust
company in the City of Dallas, Texas, having a capital and surplus of at
least $50,000,000 according to its last published statement of condition,
in trust to be applied to the redemption of the Preferred Stock so called
for redemption, the funds necessary for such redemption, then, from and
after the date of such deposit, the shares so called for redemption shall
no longer be deemed to be outstanding and all rights of holders of the
shares so called for redemption shall cease and terminate, excepting only
the rights of holders thereof to receive the redemption price thereof,
but without interest. Any interest accrued on funds so deposited shall
be paid to the corporation from time to time. In case the holder of
shares shall have been called for the redemption shall not, within six
(6) years after the making of such deposit, claim the amount deposited
with respect to the redemption of such shares, the bank or trust company
in which such deposit was made shall upon demand pay over to the
corporation such unclaimed amounts and thereupon such bank or trust
company shall be relieved of all responsibility in respect thereof to
such holder. Preferred Stock redeemed or otherwise retired by the
corporation shall, upon the filing of such statement as may be required
by law, assume the status of authorized by unissued Preferred Stock and
may thereafter be reissued in the same manner as other authorized but
unissued Preferred Stock, except that any shares of any series purchased
or redeemed pursuant to the requirements of any sinking fund or purchase
fund provided for such series shall not be reissued.
<PAGE>
B. COMMON STOCK: 1. Dividends. Subject to all the rights of
the Preferred Stock or any series thereof, and on the conditions set
forth in Part A of this Article Four or in any resolution of the board of
directors providing for the issuance of any series of Preferred Stock,
the holders of the Common Stock shall be entitled to receive, when, as
and if declared by the Board of Directors, out of funds legally available
therefor, dividends payable in cash, stock or otherwise.
ARTICLE V: The corporation will not commence business until it has
received fro the issuance of its shares consideration of the value of not
less than $1,000.00.
ARTICLE VI: No holder of securities of the corporation shall be
entitled as a matter of right, preemptive or otherwise, to subscribe for
or purchase any securities of the corporation now or hereafter authorized
to be issued, or securities held in the treasury of the corporation,
whether issued or sold for cash or other consideration or as a dividend
or otherwise. Any such securities may be issued or disposed of by the
board of directors to such persons and on such terms as in its discretion
it shall deem advisable.
ARTICLE VII: If with respect to any action taken by the shareholders of
the corporation, any provision of the Texas Business Corporation Act
would, but for this Article VII, require the vote or concurrence of the
holders of shares having more than a majority of the votes entitled to be
cast thereon, or of any class or series thereof, the vote or concurrence
of the holders of shares having only a majority of the votes entitled to
be cast thereon, or of any class or series thereof, shall be required
with respect to any such action.
ARTICLE VIII: At each election for directors every shareholder entitled
to vote at such election shall have the right to vote, in person or by
proxy, the number of shares owned by him for as many persons as there are
directors to be elected and for whose election he has a right to vote.
It is expressly prohibited for any shareholder to cumulate his votes in
any election of directors.
ARTICLE IX: The corporation, without vote of shareholders, may
purchase, directly or indirectly, its own shares to the extent of the
aggregate of unrestricted capital surplus available therefor and
unrestricted reduction surplus available therefor.
ARTICLE X: The address of its registered office is 5001 LBJ Freeway,
Suite 912, Dallas, Texas 75234, and the name of its registered agent at
such address is Patrick A. Custer.
ARTICLE XI: The number of initial directors is three (3), and the
names and addresses of the directors are:
NAME ADDRESS
Donald C. Osmond 1420 East 800 North
Orem, Utah 84059
William L. Waite III 1420 East 800 North
Orem, Utah 84059
Patrick A. Custer 5001 LBJ Freeway, Suite 912
Dallas, Texas 75234
<PAGE>
ARTICLE XII: The name and address of the incorporator is Cynthia A.
Smith, 5400 Allied Bank Plaza, 1000 Louisiana Street, Houston, Texas
77002.
Cynthia A. Smith
Cynthia A. Smith
SWORN TO ON THIS 12th day of July, 1984, by the above-named
incorporator.
Susan Powers
Notary Public in and for
the State of T E X A S
My commission expires:
May 20, 1985
<PAGE>
CURTIS MATHES HOLDING CORPORATION
(the "Corporation")
RESOLUTION OF THE BOARD OF DIRECTORS
FIXING THE NUMBER AND DESIGNATING THE RIGHTS, PRIVILEGES,
RESTRICTIONS AND CONDITIONS ATTACHING TO THE SERIES J
PREFERENCE SHARES
WHEREAS:
A. The Corporation's share capital includes 1,000,000 Preference Shares
par value, $1.00 per share which Preference Shares may be issued in
one or more series with the directors of the Corporation (the
"Board") being entitled by resolution to fix the number of shares in
each series and to designate the rights, privileges, restrictions
and conditions attaching to the share of each series; and
B. It is in the best interests of the Corporation for the Board to
create a series of preferred stock entitled Series J Preference
Shares;
NOW, THEREFORE, BE IT RESOLVED, THAT:
Series J Preference Shares (the "Series J Preference Shares") of the
Corporation shall consist of 7,500 shares and no more and shall be
designated as the Series J Preference Shares and in addition to the
preferences, rights, privileges, restrictions and conditions
attaching to all the Preference Shares as a class, the rights,
privileges, restrictions and conditions attaching to the Series J
Preference Shares shall be as follows:
Part 1 - Pre-emptive Rights.
1.1 The Series J Preference Shares shall not give their holders any pre-
emptive rights to acquire any other securities issued by the Corporation
at any time in the future.
Part 2 - Liquidation Rights.
2.1 If the Corporation shall be voluntarily or involuntarily liquidated,
dissolved or wound up, at any times when any Series J Preference Shares
shall be outstanding, the holders of the then outstanding Series J
Preference Shares shall have a preference in distribution of the
Corporation's property available for distribution to the holders of the
Common Shares equal to $1,000.00 consideration per Series J Preference
Share; provided, however, that the amalgamation of the Corporation with
any Corporation or corporations, the sale or transfer by the Corporation
of all or substantially all of its property, or any reduction of the
authorized or issued capital of the Corporation of any class, whether now
or hereafter authorized, shall be deemed to be a liquidation of the
Corporation within the meaning of any of the provisions of this Part 2.
<PAGE>
2.2 Subject to the provisions of Part 6 hereof, all amounts to be paid
as preferential distributions to the holders of Series J Preference
Shares as provided in this Part 2 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any of the Corporation's property to the holders of
Common Shares, whether now or hereafter authorized, in connection with
such liquidation, dissolution or winding up.
Part 3 - Dividends.
3.1 Holders of record of Series J Preference Shares shall not be
entitled to receive dividends on their Series J Preference Shares.
Part 4 - Redemption.
4.1 At any time, and from time to time, on and after 45 days from the
date of the issuance of any Series J Preference Shares, if, upon receipt
of a notice of conversion pursuant to Section 5 hereunder, the average of
the closing bid prices for the Common Shares for 5 consecutive trading
days shall be less than $1.50, the Corporation may, at its sole option,
but shall not be obligated to, redeem, in whole or in part, the then
outstanding Series J Preference Shares at a price per share of U.S.
$1,150 each (the "Redemption Price") (such price to be adjusted
proportionately in the event of any change of the Series J Preference
Shares into a different number of Shares).
4.2 Five (5) days prior to any date stipulated by the Corporation for
the redemption of Series J Preference Shares (the "Redemption Date"),
written notice (the "Redemption Notice") shall be mailed to each holder
of record on such notice date of the Series J Preference Shares. The
Redemption Notice shall state (I) the Redemption Date of such Shares (ii)
the number of Series J Preference Shares to be redeemed from the holder
to whom the Redemption Notice is addressed (iii) instructions for
surrender to the Corporation, in the manner and at the place designated
of a share certificate or share certificates representing the number of
Series J Preference Shares to be redeemed from such holder and (iv)
instructions as to how to specify to the Corporation the number of Series
J Preference Shares to be redeemed as provided in this Part 4 and the
number of shares to be converted into Common Shares as provided in Part 5
hereof.
4.3 Upon receipt of the Redemption Notice, any Eligible Holder (as
defined in Section 5.2 hereof) shall have the right to convert into
Common Shares that number of Series J Preference Shares not called for
redemption in the Redemption Notice.
4.4 On or before the Redemption Date in respect of any Series J
Preference Shares, each holder of such shares shall surrender the
required certificate or certificates representing such shares to the
Corporation, in the manner and at the place designated in the Redemption
Notice, and upon the Redemption Date, the Redemption Price for such
shares shall be made payable, in the manner provided in Section 5.5
hereof, to the order of the person whose name appears on such certificate
or certificates as the owner thereof, and each surrendered share
certificate shall be canceled and retired. If a share certificate is
surrendered and all the shares evidenced thereby are not being redeemed
(as described below), the Corporation shall cause the Series J Preference
<PAGE>
Shares which are not being redeemed to be registered in the names of the
persons whose names appear as the owners on the respective surrendered
share certificates and deliver such certificate to such person.
4.5 On the Redemption Date in respect of any Series J Preference Shares
or prior thereto, the Corporation shall deposit with any bank or trust
company having a capital and surplus of at least U. S. $50,000,000, as a
trust fund, a sum equal to the aggregate Redemption Price of all such
shares called for redemption (less the aggregate Redemption Price for
those Series J Preference Shares in respect of which the Corporation has
received notice from the Eligible Holder thereof of its election to
convert Series J Preference Shares into Common Shares), with irrevocable
instructions and authority to the bank or trust company to pay, on or
after the Redemption Date, the Redemption Price to the respective holders
upon the surrender of their share certificates. The deposit shall
constitute full payment for the shares to their holders, and from and
after the date of the deposit the redeemed shares shall be deemed to be
no longer outstanding, and holders thereof shall cease to be shareholders
with respect to such shares and shall have no rights with respect thereto
except the rights to receive from the bank or trust company payments of
the Redemption Price of the shares, without interest, upon surrender of
their certificates thereof. Any funds so deposited and unclaimed at the
end of one year following the Redemption Date shall be released or repaid
to the Corporation, after which the former holders of shares called for
redemption shall be entitled to receive payment of the Redemption Price
in respect of their shares only from the Corporation.
Part 5 - Conversion.
5.1 For the purposes of conversion, the Series J Preference Shares shall
be valued at $1,000 per share ("Value"), and, if converted, the Series J
Preference Shares shall be converted into such number of Common Shares of
the Company $.01 par value (the "Conversion Shares") as is obtained by
dividing the aggregate Value of the shares of Series J Preference Shares
being so converted by the "Average Stock Price" per share of the
Conversion Shares (the "Conversion Price"), subject to adjustment
pursuant to the provisions of this Part 5. For purposes of this Part 5,
the "Average Stock Price" means .85 of the average daily closing bid
prices of Common Shares for the period of 5 consecutive trading days
immediately preceding the date of the conversion of the Series J
Preference Shares in respect of which such Average Stock Price is
determined, unless the Average Stock Price for such period is in excess
of $3.00 in which case it shall be .80 of the Average Stock Price, and
unless the Average Stock Price for such period is in excess of $4.00 in
which case it shall be .75 of the Average Stock Price. In any event,
the minimum conversion price shall be $1.16.
5.2 Any holder of Series J Preference Shares (an "Eligible Holder") may
at any time commencing 41 days after the issuance of any Series J
Preference Shares convert up to 50% of his holdings of Series J
Preference Shares and any unconverted balance after 60 days in accordance
with this Part 5.
<PAGE>
5.3 The conversion right by Section 5.2 hereof may be exercised only by
an Eligible Holder of Series J Preference Shares, in whole or in part, by
the surrender of the share certificate or share certificates representing
the Series J Preference Shares to be converted at the principal office of
the Corporation (or at such other place as the Corporation may designate
in a written notice sent to the holder by first-class mail, postage
prepaid, at its address shown on the books of the Corporation) against
delivery of that number of whole Common Shares as shall be computed by
dividing (1) the aggregate Value of the Series J Preference Shares so
surrendered, if any, by (2) the Conversion Price in effect at the date of
the conversion. Each Series J Preference Share certificate surrendered
for conversion shall be endorsed by its holder. In the event of any
exercise of the conversion right of the Series J Preference Shares
granted herein (i) share certificates representing the Common Shares
purchased by virtue of such exercise shall be delivered to such holder
within 5 days of notice of conversion free of restrictive legend or stop
transfer orders, and (ii) unless the Series J Preference Shares has been
fully converted, a new share certificate representing the Series J
Preference Shares not so converted, if any, shall also be delivered to
such holder within 5 days of notice of conversion. Any Eligible Holder
may exercise its right to convert the Series J Preference Shares by
telecopying an executed and completed Notice of Conversion to the
Corporation, and within 72 hours thereafter, delivering the original
Notice of Conversion and the certificate representing the Series J
Preference Shares to the Corporation by express courier. Each date on
which a Notice of Conversion is telecopied to and received by the
Corporation in accordance with the provisions hereof shall be deemed a
Conversion Date. The Corporation will transmit the Common Shares
certificates issuable upon conversion of any Series J Preference Shares
(together with the certificates representing the Series J Preference
Shares not so converted) to the Eligible Holder via express courier
within five business days after the conversion date if the Corporation
has received the original Notice of Conversion and Series J Preference
Shares certificate being so converted by such date.
5.4 All Common Shares which may be issued upon conversion of Series J
Preference Shares will, upon issuance, be duly issued, fully paid and
nonaccessible and free from all taxes, liens, and charges with respect to
the issue thereof. At all times that any Series J Preference Shares are
outstanding, the Corporation shall have authorized, and shall have
reserved for the purpose of issuance upon such conversion, a sufficient
number of Common Shares to provide for the conversion into Common Shares
of all Series J Preference Shares then outstanding.
5.5 The number of Common Shares issued upon conversion of Series J
Preference Shares and the Conversion Price shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
5.5.1 Change of Designation of the Common Shares or the rights,
privileges, restrictions and conditions in respect of the Common
Shares or division of the Common Shares into Series. In the case of
any amendment to the Articles to change the designation of the
Common Shares or the rights, privileges, restrictions or conditions
in respect of the Common Shares or division of the Common Shares
into series the rights of the holders of the Series J Preference
Shares shall be adjusted so as to provide that upon conversion
thereof the holder of the Series J Preference Shares being converted
<PAGE>
shall procure, in lieu of each Common Share theretofore issuable
upon such conversion, the kind and amount of shares, other
securities, money and property receivable upon such designation,
change or division by the holder of one Common Share issuable upon
such conversion had conversion occurred immediately prior to such
designation, change or division. The Series J Preference Shares
shall be deemed thereafter to provide for adjustments which shall be
as nearly equivalent as may be practicable to the adjustments
provided for in this Part 5. The provisions of this subsection
5 . 5.1 shall apply in the same manner to successive
reclassifications, changes, consolidations and mergers.
5.5.2. If the Corporation, at any time while any of the Series J
Preference Shares are outstanding, shall pay a dividend payable in
Common Shares, the Conversion Price shall be adjusted, as of the
date the Corporation shall take a record of the holders of its
Common Shares for the purpose of receiving such dividend, (or if no
such record is taken, as of the date of payment of such dividend),
to that price determined by multiplying the Conversion Price
therefor in effect by a fraction (1) the numerator of which shall be
the total number of Common Shares outstanding immediately prior to
such dividend, and (2) the denominator of which shall be the total
number of Common Shares outstanding immediately after such dividend,
(plus in the event that the Corporation paid cash for fractional
shares, the number of additional shares which would have been
outstanding had the Corporation issued fractional shares in
connection with said dividend.
5.6 Whenever the Conversion Price shall be adjusted pursuant to Section
5.5 hereof, the Corporation shall make a certificate signed by its
President or a Vice President and by its Treasurer, Assistant Treasurer,
Secretary of Assistant Secretary, setting forth, in reasonable detail,
the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description
of the basis on which the Board of Directors made any determination
hereunder), and the Conversion Price after giving effect to such
adjustment, and shall cause copies of such certificates to be mailed (by
first-class mail, postage prepaid) to each holder of Series J Preference
Shares at its address shown on the books of the Corporation. The
Corporation shall make such certificate and mail it to each such holder
promptly after each adjustment.
5.7 No fractional Common Shares shall be issued in connection with any
conversion of Series J Preference Shares.
5.8 No Series J Preference Shares which have been converted into Common
Shares shall be reissued by the Corporation; provided, however, that each
such share, after being retired and canceled, shall be restored to the
status of an authorized but unissued Preference Share without designation
as to series and may thereafter be issued as a Preference Share not
designated as Series J Preference Share.
<PAGE>
Part 6 - Amendment.
6.1 In addition to any requirement for a series vote pursuant to the
General Corporation Laws in respect of any amendment to the rights,
privileges, restrictions and conditions attaching to the Series J
Preference Shares, the rights, privileges, restrictions and conditions
attaching to the Series J Preference Shares may be amended only if the
Corporation has obtained the affirmative vote at a duly called and held
meeting of a majority of the Series J Preference Shares or written
consent by the holders of a majority of the Series J Preference Shares
then outstanding.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AT SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FOR FISCAL QUARTER ENDED SEPTEMBER 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,409,365
<SECURITIES> 0
<RECEIVABLES> 386,027
<ALLOWANCES> 0
<INVENTORY> 709,746
<CURRENT-ASSETS> 9,129,863
<PP&E> 1,370,660
<DEPRECIATION> 774,635
<TOTAL-ASSETS> 14,002,328
<CURRENT-LIABILITIES> 1,267,265
<BONDS> 0
<COMMON> 290,490
0
141,927
<OTHER-SE> 11,889,401
<TOTAL-LIABILITY-AND-EQUITY> 14,002,328
<SALES> 2,090,383
<TOTAL-REVENUES> 2,090,383
<CGS> 2,005,071
<TOTAL-COSTS> 2,005,071
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,833
<INCOME-PRETAX> 498,913
<INCOME-TAX> 0
<INCOME-CONTINUING> 498,913
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 498,913
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
