FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-3315
PUBLICARD, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0991870
(State of incorporation) (I.R.S. Employer
Identification No.)
One Post Road, Fairfield, CT 06430
(Address of principal executive offices)
(203) 254-3900
(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 .
Number of shares of Common Stock outstanding as of September 30, 1998:
13,291,597
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(in thousands of dollars)
September 30, December 31,
1998 1997
(unaudited)
ASSETS
Current assets:
Cash, including short-term investments of
$8,917 in 1998 and $11,779 in 1997 $10,024 $13,077
Trade receivables, less allowance for doubtful accounts 4,162 3,935
Inventories 2,744 2,461
Other 284 691
Total current assets 17,214 20,164
Property, plant and equipment:
Land 234 234
Buildings 2,373 2,331
Machinery and equipment 3,903 3,555
Less - accumulated depreciation (2,606) (2,197)
3,904 3,923
Goodwill 2,824 2,672
Other assets 1,777 1,412
$25,719 $28,171
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 134 $ 134
Trade accounts payable 1,286 1,091
Accrued liabilities 5,257 5,331
Total current liabilities 6,677 6,556
Long-term debt 1,039 1,138
Other non-current liabilities 8,500 9,604
Total liabilities 16,216 17,298
Shareholders' equity:
Common shares, $0.10 par value,
Authorized, 40,000,000 shares
Issued - 16,951,849 shares in 1998 and 16,551,849
shares in 1997 1,695 1,655
Additional paid-in capital 50,475 49,915
Accumulated deficit (since January 1, 1984) (34,460) (32,816)
Common shares held in treasury, at cost (8,207) (7,881)
Total shareholders' equity 9,503 10,873
$ 25,719 $ 28,171
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(in thousands of dollars except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Sales and revenues:
Sales of goods $ 4,302 $ 4,166 $ 12,587 $ 13,238
Revenues from services 2,150 2,487 6,993 6,41
6,452 6,653 19,580 19,650
Costs and expenses:
Cost of sales 3,123 2,830 8,920 9,195
Cost of services 1,510 1,565 4,716 4,224
General and administrative
expenses 1,722 1,783 5,287 5,580
Selling expenses 335 301 1,016 897
Warrant expense - 768 - 768
6,690 7,247 19,939 20,664
Income (loss) from operations (238) (594) (359) (1,014)
Other (income) expenses:
Interest income (134) (175) (420) (525)
Interest expense 76 91 245 291
Cost of pensions - nonoperating 202 172 641 597
Other expense, net 347 (17) 819 272
491 71 1,285 635
Income (loss) from continuing
operations (729) (665) (1,644) (1,649)
Gain on sale of discontinued
operations - 609 - 609
Net income (loss) $ (729) $ (56) $ (1,644) $ (1,040)
Earnings (loss) per common share:
Continuing operations $ (.06) $ (.05) $ (.13) $ (.11)
Discontinued operations - .05 - .04
$ (.06) $ - $ (.13) $ (.07)
Weighted average shares
outstanding 13,291,602 13,598,413 13,124,601 14,222,336
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(in thousands of dollars except share data)
(unaudited)
Accumulated
Common Shares Additional Deficit Common Share-
Shares Paid-in Since Treasury holders'
Issued Amount Capital 1-1-84 Shares (1) Equity
Balance -
December 31, 1997 16,551,849 $1,655 $49,915 $(32,816) $(7,881) $10,873
Issuance of
common shares 400,000 40 560 - - 600
Purchase of
treasury shares - - - - (326) (326)
Net loss - - - (1,644) - (1,644)
Balance -
Sept. 30, 1998 16,951,849 $1,695 $50,475 $(34,460) $(8,207) $9,503
(1) Represents 3,660,252 and 3,440,352 of common shares held in treasury at
September 30, 1998 and December 31, 1997, respectively.
<PAGE>
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(in thousands of dollars)
(unaudited)
Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net income (loss) $ (1,644) $ (1,040)
Adjustments to reconcile loss to net
cash used in continuing operations:
Depreciation and amortization 492 590
Warrant expense - 768
Changes in operating assets and
liabilities, excluding effect of acquisition:
Trade receivables (222) (1,061)
Inventories (233) 134
Other current assets 407 (45)
Other assets (15) (29)
Trade accounts payable 195 (321)
Accrued liabilities (108) (1,411)
Other non-current liabilities (1,104) ( 781)
Net cash used in operating activities (2,232) (3,196)
Cash flows from investing activities:
Payments and advances for business acquisitions (664) -
Proceeds from sale of discontinued operations 28 1,164
Capital expenditures (360) (269)
Net cash provided by (used in) investing activities (996) 895
Cash flows from financing activities:
Repayments of term loans and notes payable (99) (457)
Proceeds from the issuance of common shares 600 965
Purchase of treasury stock (326) (2,980)
Net cash provided by (used in) financing activities 175 (2,472)
Net decrease in cash (3,053) (4,773)
Cash - beginning of period 13,077 18,318
Cash - end of period $ 10,024 $ 13,545
<PAGE>
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect all
normal and recurring adjustments that are, in the opinion of management,
necessary to present fairly the financial position of PubliCARD, Inc. and
subsidiary companies as of September 30, 1998 and the results of their
operations and their cash flows for the three and nine months ended September
30, 1998 and 1997. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
Cash Flow Information
Cash paid for interest during the nine months ended September 30, 1998 and
1997 was approximately $322,000 and $381,000, respectively. No cash was paid
for income taxes during the first nine months of 1998 and 1997.
Earnings (loss) per common share
During 1997, the Company adopted FASB Statement 128 Earnings Per Share.
Basic net income (loss) per common share is based on net income divided by the
weighted average number of common shares outstanding during each period.
Diluted net income (loss) per common share assumes issuance of the net
incremental shares from stock options and warrants at the later of the
beginning of the year or date of issuance. Diluted net income (loss) per
share was not computed for 1998 and 1997 as the effect of stock options and
warrants were antidilutive.
Note 2 - INVENTORIES
Inventories at September 30, 1998, and December 31, 1997, consisted of the
following:
September 30, December 31,
1998 1997
(in thousands)
Raw materials and supplies $ 1,849 $ 1,407
Work in process 273 282
Finished goods 622 772
$ 2,744 $ 2,461
Note 3 - ACQUISITIONS
In February 1998, the Company entered a joint venture, Greenwald Intellicard,
Inc., to develop, manufacture and market smart card systems for the commercial
laundry and other industries. Greenwald Intellicard was formed upon the
acquisition of the assets and intellectual property of Intellicard Systems,
Ltd. The initial cash investment totalled $314,000. The Company has fixed
price options aggregating $400,000 to increase its ownership interest in
Greenwald Intellicard to 80% over the next two years.
On September 18, 1998, the Company announced that it executed a letter of
intent to acquire 50% of Leapfrog Smart Products, Inc., with a provision for
ultimately increasing its ownership to 100%. Consummation of the acquisition is
subject to, among other things, negotiation and execution of mutually
satisfactory definitive acquisition agreement and satisfaction or waiver of the
conditions that may be specified in that agreement.
Note 4 - STOCKHOLDERS' EQUITY
In August 1996, the Board of Directors of the Company authorized the
repurchase of up to 1,000,000 shares of the Company's common stock. The Board
of Directors increased the Company's share repurchase authorization to 3,300,000
shares in 1997. On April 30, 1998, the Company announced the conclusion of the
common stock buy-back program. The Company repurchased 3,094,100 shares of
common stock under the buy-back program for an aggregate cost of $4,270,000.
In March 1998, the Company initiated an odd-lot buy-back offer allowing
holders of less than 100 shares a convenient method of selling their shares of
the Company's common stock. A total of 7,990 shares were tendered under the
offer which expired on April 3, 1998.
In July 1998, the Company's shareholders approved the extension of the
Company's shareholders' rights plan to August 8, 1998.
In July 1997, shareholders of the Company approved an extension and
modification of certain outstanding warrants to purchase 2,311,220 shares of the
Company's common stock. The warrants were originally issued in connection with
a 1986 subordinated note offering. A non-cash charge to income of $768,000 was
recorded in 1997 based on the fair value of the extended and unexercised
warrants.
Note 5 - INCOME TAXES
As of September 30, 1998, approximately $80,000,000 of U.S. tax loss
carryforwards (subject to review by the Internal Revenue Service), expiring from
1998 through 2018, were available to offset future taxable income. As a result
of a corporate revaluation during 1984, tax benefits resulting from the
utilization in subsequent years of net operating loss carryforwards existing as
of the date of the corporate revaluation will be excluded from the results of
operations and directly credited to additional paid-in capital when realized.
As of September 30, 1998, approximately $5,000,000 of the Company's U.S. tax
loss carryforwards predated the corporate revaluation.
As of September 30, 1998, deferred tax assets of approximately $30,000,000,
principally relating to the tax benefit of the Company's U.S. tax loss
carryforwards, were offset by a full valuation allowance. As of September 30,
1998, approximately $2,000,000 of deferred tax assets predated the corporate
revaluation. Subsequent adjustments to the valuation allowance with respect to
the deferred tax assets which predated the corporate revaluation would be
directly credited to additional paid-in capital.
In the third quarter of 1997, the Company reversed $609,000 of tax reserves
provided in 1996 relating to the disposition of certain subsidiaries.
Note 6 - ENVIRONMENTAL LITIGATION
On April 12, 1996, a Consent Decree among the Company, the Environmental
Protection Agency, the U.S. Department of Justice and the Pennsylvania
Department of Environmental Protection ("PADEP") was entered by the U.S.
District Court for the Eastern District of Pennsylvania which resolved all of
the United States' and PADEP's claims against the Company for recovery of costs
incurred in responding to releases of hazardous substances at a facility
previously owned and operated by the Company. Pursuant to the Consent Decree,
the Company will pay a total of $14,350,000 plus interest to the United States
and Commonwealth of Pennsylvania. Through September 30, 1998, the Company has
made principal payments aggregating $10,992,000. Further payments totaling
$3,358,000 plus interest will be made to the United States and Commonwealth of
Pennsylvania over the next four years.
Note 7 - OTHER EXPENSE
On April 15, 1998, the Company executed a letter of intent to purchase
substantially all of the assets of a group of five businesses from Katy
Industries, Inc. On August 5, 1998, the Company announced that the letter of
intent terminated due to the inability of the parties to reach agreement on
certain aspects of the transaction. A charge of $563,000 was recorded in the
second quarter of 1998 for costs associated with the terminated transaction
incurred through June 30, 1998. An additional charge of $343,000 was recorded
in the third quarter of 1998 for costs incurred relating to this transaction
subsequent to June 30, 1998 and through the date of the letter of intent
termination. These costs primarily consist of legal, environmental and financing
related fees.
Note 8 - SUBSEQUENT EVENT
On October 30, 1998, the Company executed a definitive merger agreement to
acquire 100% of Tritheim Technologies, Inc. for approximately $9,000,000 in the
Company's common stock, and certain other consideration. Consummation of the
transaction is subject to the approval of Tritheim's shareholders and other
customary conditions.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Overview
On September 18, 1998, the Company announced the execution of letters of
intent to acquire interests in two unrelated companies, Tritheim Technologies,
Inc. and Leapfrog Smart Products, Inc., involved in the smart card industry.
The proposed investments in Tritheim and Leapfrog will mark a significant
expansion of the Company's participation in the relatively new but rapidly
growing U.S. smart card industry and complement the investment made earlier
this year in Greenwald Intellicard which is also in the smart card industry.
On October 30, 1998, the Company executed a definitive merger agreement to
acquire 100% of Tritheim Technologies, Inc. for approximately $9,000,000 in the
Company's common stock, and certain other consideration. Consummation of the
transaction is subject to the approval of Tritheim's shareholders and other
customary conditions. Tritheim, located in Tarpon Springs, Florida, has
developed both hardware and software smart card products. Its hardware products
include serial, parallel and PCMCIA smart card readers, smart port docking
stations and smart card reader chipsets. Its software products include smart
card software development tools for developing smart card applications, PC
security software, Internet security smart card software, Internet purchase
terminal software and Internet automatic teller software.
On September 18, 1998, the Company announced that it executed a letter of
intent to acquire 50% of Leapfrog Smart Products, Inc., with a provision for
ultimately increasing its ownership to 100% upon the occurrence of certain
events. Consummation of the acquisition is subject to, among other things,
negotiation and execution of a mutually satisfactory definitive acquisition
agreement and satisfaction or waiver of the conditions that may be specified in
that agreement. Leapfrog, with offices in Orlando and Tampa, Florida, is a
designer, developer and implementer of smart card applications and related
database systems. Leapfrog has developed a number of plug-and-play software
programs for the Internet, medical, governmental and hospitality industries.
On October 29, 1998, the Company's board of directors approved a name
change for the Company from "Publicker Industries Inc." to "PubliCARD, Inc."
The name change, which became effective on November 2, 1998, was initiated to
more clearly convey a consistent overall image and the strategic direction of
the Company.
On October 23, 1998, the Company filed an application for trading its
shares on the Nasdaq SmallCap Market. The Company's shares have been trading
on the over-the-counter bulletin board. The Company's application is subject
to the review and approval of The Nasdaq Stock Market. There can be no
assurances regarding the timing of Nasdaq's decision or that the application
will ultimately be approved.
Operating Results - Third Quarter
PubliCARD's consolidated sales and revenues of $6,452,000 for the third
quarter of 1998 decreased by approximately 3% from $6,653,000 for the third
quarter of 1997. The decline was due principally to reduced volume at the
Company's services segment. Despite the decline in sales and revenues, cost of
sales and services increased from $4,395,000 in 1997 to $4,633,000 in 1998
principally as a result of higher costs at the Company's manufacturing segment.
General and administrative expenses for the third quarter of 1998 were
$1,722,000 compared to $1,783,000 in 1997. The Company's loss from operations
for the third quarter of 1998 totaled $238,000 compared to a loss of $594,000
for the third quarter of 1997. The third quarter 1997 results included a
non-cash charge to income of $768,000 related to the extension and modification
of certain common stock purchase warrants.
The Company reported a net loss of $729,000, or $.06 per share, for the
third quarter of 1998 compared to a net loss of $56,000 for the third quarter of
1997. The net loss for 1997 included a loss from continuing operations of
$665,000, or $.05 per share, and income from discontinued operations of
$609,000, or $.05 per share, related to the reversal of certain tax reserves
provided in 1996 on the disposition of several subsidiaries.
On April 15, 1998, the Company executed a letter of intent to purchase
substantially all of the assets of a group of five businesses from Katy
Industries, Inc. On August 5, 1998, the Company announced that the letter of
intent terminated due to the inability of the parties to reach agreement on
certain aspects of the transaction. A charge of $563,000 was recorded in the
second quarter of 1998 for costs associated with the terminated transaction
incurred through June 30, 1998. An additional charge of $343,000 was recorded
in the third quarter of 1998 for costs incurred relating to this transaction
subsequent to June 30, 1998 and through the date of the letter of intent
termination. These costs primarily consist of legal, environmental and financing
related fees.
Sales for the Company's manufacturing segment (which consists of one
subsidiary company, Greenwald Industries, Inc.) for the third quarter of 1998
were $4,302,000 compared to $4,166,000 for the third quarter of 1997. This
segment had income from operations of $691,000 for the third quarter of 1998
compared to $805,000 for the same period in 1997. In February 1998, Greenwald
Industries entered into a joint venture to develop, manufacture and market smart
card systems for the commercial laundry and other industries. The new entity,
Greenwald Intellicard, Inc., is located in Boynton Beach, Florida. Costs
associated with this investment amounted to $314,000. The third quarter 1998
results included Greenwald Intellicard operating losses of approximately
$126,000.
Revenues for the Company's services segment (which consists of one
subsidiary company, Orr-Schelen-Mayeron & Associates, Inc.) decreased by
approximately 14% to $2,150,000 for the third quarter of 1998 compared to
$2,487,000 for the third quarter of 1997. A decrease in chargeability and a
$100,000 charge associated with a contract dispute accounted for the decline
in revenues. The services segment had a loss from operations for the third
quarter of 1998 of $32,000 compared to income of $205,000 for the same period
in 1997.
Operating Results - Nine months
PubliCARD's consolidated sales and revenues were $19,580,000 for the first
nine months of 1998 compared to $19,650,000 for the first nine months of 1997.
Cost of sales and services was $13,636,000 in 1998 compared to $13,419,000 in
1997. General and administrative expenses for the first nine months of 1998
decreased by approximately 5% to $5,287,000 from $5,580,000 in 1997 as a result
of overhead expense reductions. The Company's loss from operations for the
first nine months of 1998 totaled $359,000 compared to a loss of $1,014,000
for 1997.
The Company reported a net loss of $1,644,000, or $.13 per share, for the
first nine months of 1998 compared to a net loss of $1,040,000, or $.07 per
share, for 1997. The 1998 results include a charge of $906,000 related to the
terminated transaction with Katy Industries. The net loss for 1997 included a
loss from continuing operations of $1,649,000, or $.11 per share, and income
from discontinued operations of $609,000, or $.04 per share, related to the
reversal of certain tax reserves provided in 1996 on the disposition of several
subsidiaries.
Sales for the Company's manufacturing segment for the first nine months of
1998 were $12,587,000 compared to $13,238,000 for 1997. The decrease in sales
was due primarily to a reduction in mechanical coin handling equipment sales.
This segment had income from operations of $1,833,000 for the first nine months
of 1998 compared to $2,323,000 for the same period in 1997. The 1998 nine
month results included $266,000 of Greenwald Intellicard start-up losses.
Revenues for the Company's services segment increased by approximately 9%
to $6,993,000 for the first nine months of 1998 compared to $6,412,000 for
1997. An increase in production employee headcount and improved efficiencies
accounted for the improvement in revenues versus 1997. The services segment
had income from operations for the first nine months of 1998 of $153,000
compared to $93,000 for the same period in 1997.
Liquidity
During the first nine months of 1998, cash, including short-term
investments, decreased by $3,053,000 to $10,024,000 at September 30, 1998.
Operating activities consumed cash of $2,232,000, investing activities
consumed cash of $996,000 and financing activities provided cash of $175,000.
Operating activities principally consisted of the loss from operations coupled
with the annual payment required under the environmental litigation settlement.
Investing activities consisted of acquisition costs associated with the
Greenwald Intellicard investment and pre-closing advances to Tritheim
Technologies and Leapfrog Smart Products aggregating $664,000 and capital
expenditures of $360,000. Financing activities principally consisted of
proceeds from the issuance of common shares upon the exercise of stock options
of $600,000 offset by treasury stock purchases of $326,000.
As discussed above, the Company has executed a definitive agreement to
acquire 100% of Tritheim and has signed a letter of intent to acquire a 50%
interest in Leapfrog. It is not certain that either of these transactions will
ultimately be consummated. However, if consummated, in addition to providing
ongoing funding of operating activities, the Company would be obligated to
extinguishing certain obligations of Tritheim and Leapfrog immediately after
closing aggregating approximately $800,000. Both Tritheim and Leapfrog have
products which are commercially viable, but to date have not generated a
significant volume of sales and, thus have been generating operating losses. It
is expected that the companies would require ongoing funding to support the
expansion of sales and marketing, administration and continuing new product
development.
In April 1996, the Consent Decree that settled the Company's environmental
litigation with the United States and the Commonwealth of Pennsylvania was
entered by the U.S. District Court for the Eastern District of Pennsylvania, and
became effective. Pursuant to the Consent Decree, the Company will pay a total
of $14,350,000 plus interest to the United States and Commonwealth of
Pennsylvania. Through September 30,1998, the Company has made principal
payments aggregating $10,992,000. Further payments totaling $3,358,000 plus
interest will be made to the United States and the Commonwealth of Pennsylvania
over the next four years.
During the first nine months of 1998, the Company's capital expenditures
totaled $360,000. The Company has not entered into any material commitments
for capital expenditures and retains the ability to increase or decrease capital
expenditure levels as required. The Company anticipates that it will be able to
fund its capital expenditures during 1998 with its available cash resources as
well as through capital equipment financing.
At September 30, 1998, approximately $80 million of U.S. tax loss
carryforwards (subject to review by the Internal Revenue Service), expiring from
1998 through 2018, were available to offset future taxable income.
Year 2000
Many computer systems were not designed to handle any dates beyond the year
1999, and therefore, computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The Company is still
assessing the impact of the year 2000 issue on its internal systems, including
information technology and non-IT systems. Corrective actions, including
modifying and upgrading existing computer hardware and software, have been
completed in certain instances or are expected to be completed by the second
quarter of 1999. While management expects all systems to be year 2000
compliant, there can be no assurance that all such modifications will be
successful or that the failure to ensure year 2000 compliance will not have a
material adverse impact on the Company. Anticipated spending for these
modifications and upgrades are not expected to have a significant impact on
the Company's ongoing results of operations.
The Company has certain key relationships with suppliers and other third
parties. If these third parties fail to adequately address the year 2000 issue
for products and services they provide to the Company, this could have a
material adverse impact on the Company's operations and financial results.
The Company is undertaking steps to identify its vendors and confirm their
ability to provide products and service through the change to 2000. At this
time the Company cannot determine the impact the year 2000 issue will have on
these third parties and, as such, can give no assurance that the failure to
ensure year 2000 compliance will not have a material adverse effect on the
Company.
Contingency plans will be developed if it appears the Company or its key
suppliers or third parties service providers will not be year 2000 compliant,
and such noncompliance is expected to have a material adverse impact on the
Company's operations.
Outlook
The Company's primary objective for 1998 is to identify a suitable
acquisition candidate or candidates. As of October 31, 1998, the Company had
approximately $10,000,000 in cash on hand. The Company intends to use such
funds, together with stock and other potential borrowings, to seek out and
acquire one or more businesses. As discussed above, the Company has signed a
definitive agreement to acquire Tritheim and executed a letter of intent to
acquire Leapfrog . There can be no assurance that the transaction with Tritheim
will be consummated or that the Company and Leapfrog will enter into a
definitive agreement or ultimately consummate the proposed acquisition. In
addition to the aforementioned agreement and letter of intent, the Company
continues to review and consider potential acquisition candidates. It has not
yet identified any specific additional acquisition candidates or determined
the amount or source of any indebtedness which would be incurred to finance
future acquisitions.
Special Note Regarding Forward-Looking Statements: A number of statements
contained in this discussion and analysis are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 that involve
risks and uncertainties that could cause actual results to differ materially
from those expressed or implied in the applicable statements. These risks and
uncertainties include but are not limited to: the Company's ability to complete
the acquisitions of Tritheim and Leapfrog described above and to successfully
implement its acquisition strategy including the identification, financing and
consummation of any acquisition transaction; the listing of the Company's
shares on the Nasdaq SmallCap Market; Greenwald's dependance on the mechanical
coin meter market and its potential vulnerability to technological
obsolescence; OSM's dependence on key personnel and general economic conditions
in the Midwest.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
General Litigation
Various legal proceedings are pending against the Company. The Company
considers all such proceedings to be ordinary litigation incident to the
character of its business. Certain claims are covered by liability insurance.
The Company believes that the resolution of those claims to the extent not
covered by insurance will not, individually or in the aggregate, have a material
adverse effect on the financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 14, 1998, an annual meeting of the shareholders of the Company was
held at which directors were elected to serve until their successors shall have
been elected and shall have qualified. The appointment of the Company's outside
auditors for the year ending December 31, 1998 was also ratified. The number of
votes cast for, against or withheld/abstained and the number of broker non-votes
with regard to each nominee or matter are set forth below:
Withheld/ Broker
For Against Abstained Non-votes
Election of directors:
Harry I. Freund 9,110,539 N/A 1,244,058 -
Jay S. Goldsmith 9,110,539 N/A 1,244,058 -
Clifford B. Cohn 9,111,439 N/A 1,243,158 -
David L. Herman 9,110,014 N/A 1,244,583 -
L.G. Schafran 9,107,939 N/A 1,246,658 -
James J. Weis 9,111,539 N/A 1,243,058 -
Ratification of Auditors 9,578,002 761,818 14,777 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
Exhibit 3.1: Amended and Restated Articles of Incorporation, amended and
restated through November 2, 1998.
Exhibit 27: Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K:
Form 8-K Dated September 17, 1998, relating to the extension of the
Registrant's shareholder rights plan.
<PAGE>
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PUBLICARD, INC.
(Registrant)
Date: November 9, 1998 /s/ James J. Weis
James J. Weis, President and
Chief Executive Officer
/s/ Antonio L. DeLise
Antonio L. DeLise, Vice President-
Finance, Principal Financial and
Accounting Officer
Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF PUBLICKER INDUSTRIES INC.
Article First.The name of the Corporation shall be PUBLICARD,
INC., and the address of its registered office is 3223 South Delaware Avenue,
Philadelphia, Pennsylvania 19102.
Article Second. The purposes of the Corporation are to have
unlimited power to engage in and to do any or all lawful business (including,
without limitation, the manufacturing, warehousing, selling, exporting,
importing, handling and otherwise trading and dealing in alcohols, chemicals and
kindred goods and materials of all kinds and types, and any and all by-products
and derivatives thereof) for which corporations may be incorporated under the
Business Corporation Law.
Article Third.Said Corporation is to exist perpetually.
Article Fourth. The aggregate number of shares which the Corporation
shall have authority to issue shall be 41,136,566 of which 136,566 shares shall
be Preferred Stock without par, 1,00,000 shares shall be Class A Preferred Stock
without par value and 40,000,000 shares shall be Common Stock of the par value
of $.10 each.
The following is a description of each class and a statement of the
preferences, qualifications, limitations, restrictions, and the special or
relative rights granted to or imposed upon the shares of each class:
PREFERRED STOCK
(1)The Preferred Stock is senior and superior to the Class A Preferred Stock
and the Common Stock, and the Class A Preferred Stock and the Common Stock are
subject to all the rights, privileges, preferences and priorities of the
Preferred Stock as herein set forth.
(2)The shares of the Preferred Stock may be divided into and issued from time
to time in one or more series, in any manner permitted by law and as may be
determined from time to time by the Board of Directors, each series to be so
designated as to distinguish the shares thereof from the shares of all other
series and classes. All shares of each series shall be alike in every
particular. All shares of the Preferred Stock shall be identical, without
distinction between the shares of different series, except as to the following
relative rights and preferences, in respect of any or all of which there may be
variations between different series, namely:
(a)The rate of dividend;
(b)The premium or premiums, if any, payable upon redemption;
(c)The premium or premiums, if any, payable in the event of voluntary
liquidation, dissolution or winding up;
(d)The sinking fund provisions, if any, for the redemption or purchase
of shares; and
(e)The terms and conditions on which shares may be converted in the
event the shares of any series are issued with the privilege of conversion.
Authority is hereby expressly granted to and vested in the Board of
Directors to establish at any time and from time to time, by resolution or
resolutions, one or more series of Preferred Stock and, within the limitations
set forth in this Article or prescribed by law, to fix by resolution or
resolutions the relative rights and preferences of any series so established,
and, without further authorization from the shareholders, except as provided in
paragraph (6)(b) of this Article, to cause shares of any such series to be
issued for any consideration permitted by law. Authority is also hereby
expressly granted to and vested in the Board of Directors to increase from
time to time the number of shares of any particular series already established
by providing that any unissued shares of Preferred Stock shall constitute
part of such series, or to decrease the number of shares of any particular
series already established by providing that any unissued shares previously
assigned to such series shall not constitute part thereof, or to classify or
reclassify any unissued shares of Preferred Stock by fixing or altering the
terms thereof in respect of the above mentioned relative rights and preferences
and by assigning the same to an existing or newly created series from time to
time before the issuance of such shares.
(3)The Preferred Stock of each series shall receive, and the
Corporation shall be bound to pay thereon, dividends at the rate per annum fixed
for such series as herein provided, and no more, payable in cash
quarterly-yearly on the fifteenth days of March, June, September and December
in each year (the periods between such dates, commencing on such dates, are
herein designated as "dividend periods"). Such dividends shall be payable as
and when declared by the Board of Directors out of the surplus of the
Corporation legally available for the payment thereof. Such dividends shall be
cumulative, but arrears thereof shall be paid without interest. Such dividends
shall accrue on each share from the first day of the dividend period in which
such share is issued, except that if any share is issued after the record
date fixed for determining the Preferred Shareholders entitled to the dividend
for the dividend period during which such share is issued, dividends on such
share shall accrue from the first day of the dividend period next following.
Such dividends on the Preferred Stock shall be deemed to accrue from day to
day, regardless of whether or not the Corporation shall have surplus
available for the payment thereof. In case Preferred Stock of more than
one series is outstanding, the Corporation in making any dividend payment
upon Preferred Stock shall make such dividend payable ratably upon all
outstanding shares of Preferred Stock of all series in proportion to the amount
of the cumulative dividends (including arrears, if any) to which each
outstanding share of Preferred Stock of every series is entitled upon the
date of such dividend payment.
(4)In no event, so long as any Preferred Stock is outstanding,
shall any dividend whatsoever be declared or paid, nor shall any distribution
(by purchase, redemption, payment to any sinking fund or otherwise) be made,
on the Common Stock or on any other class of shares of the Corporation ranking
junior to the Preferred Stock (other than a dividend or distribution in Common
Stock or other class of shares of the Corporation ranking junior to the
Preferred Stock),
(a)unless the quarter-yearly dividends on the Preferred
Stock for all past quarter-yearly dividend periods shall have been paid and the
quarter-yearly dividend on the Preferred Stock for the current quarter-yearly
dividend period shall have been paid or declared and set apart in full for
payment;
(b)unless the Corporation has made all payments, including payments in
default, if any, under the requirements of all sinking funds, if any, for the
Preferred Stock, due prior to or at the time of such declaration, payment
or distribution;
(c)unless, after giving effect to the payment of the
proposed dividend or distribution, the aggregate amount of (i) all such
dividends and all such distributions declared or paid subsequent to December
31, 1944 and to and including the date of payment of the proposed dividend
or distribution, plus (ii) all dividends on the Preferred Stock and any other
shares of the Corporation ranking prior to or on a parity with the Preferred
Stock paid or accrued subsequent to December 31, 1944 and to and including the
date of payment of the proposed dividend or distribution, and plus (iii) all
payments to the sinking fund, if any, for the Preferred Stock or for any other
shares of the Corporation ranking prior to or on a parity with the Preferred
Stock made or due subsequent to December 31, 1944 and to and including the date
of payment of the proposed dividend or distribution, shall not exceed the
sum of
(A)the consolidated net earnings (less any deficits) of the
Corporation and its subsidiaries subsequent to December 31, 1944 and to and
including the date of payment of the proposed dividend or distribution, plus
(B)the aggregate net cash consideration received by the
Corporation from the issue and sale of shares of Common Stock and any other
shares of the Corporation ranking junior to the Preferred Stock (including
treasury shares) made subsequent to December 31, 1944 and to and including the
date of payment of the proposed dividend or distribution; and
(d)unless, after giving effect to the payment of the
proposed dividend or distribution, the consolidated net current assets of the
Corporation and its subsidiaries shall be not less than $10,000,000.
Nothing contained in subparagraphs (c) and (d) above shall prevent
the payment of any such dividend or distribution within sixty (60) days after
the date of declaration or resolution of the Board of Directors of the
Corporation authorizing the payment thereof if at the date of such declaration
or resolution the provisions of subparagraphs (c) and (d) have been complied
with, and in determining whether such provisions have been complied with the
Board of Directors may rely on financial statements of the Corporation and its
subsidiaries to a date not more than ninety (90) days preceding the date of such
declaration or resolution and shall take into account the anticipated results
from the operations of the Corporation and its subsidiaries from the date of
such financial statements to the date of payment of the proposed dividend or
distribution.
(5)So long as any of the Preferred Stock shall remain outstanding, and
unless the vote or consent of a greater number of shares of the Preferred
Stock shall then be required by law, the consent of the holders of at
least a majority in amount of the Preferred Stock at the time outstanding, given
in person or by proxy, either in writing (if permitted by law) or at a meeting
at which the holders of the Preferred Stock shall vote separately as a class,
shall be necessary for the increase in the authorized amount of Preferred Stock;
or the creation, authorization or increase in the authorized amount of any
shares of the Corporation ranking on a parity with the Preferred Stock.
(6)So long as any of the Preferred Stock shall remain
outstanding, and unless the vote or consent of a greater number of shares of the
Preferred Stock shall then be required by law, the consent of the holders of at
least two-thirds (2/3) in amount of the Preferred Stock at the time outstanding,
given in person or by proxy, either in writing (if permitted by law) or at a
meeting at which the holders of the Preferred Stock shall vote separately as a
class, shall be necessary for effecting or validating any one or more of the
following:
(a)The creation, authorization, issuance or increase in the
authorized amount of any shares of the Corporation ranking prior to the
Preferred Stock.
(b)The issue, sale or other disposition by the Corporation
of any shares of Preferred Stock in excess of an initial issue of 100,000
shares, or any shares of the Corporation ranking on a parity with the Preferred
Stock.
(i)unless immediately thereafter the consolidated net tangible assets of
the Corporation and its subsidiaries shall be at least equal to 166-2/3% of
the sum of the aggregate principal amount of all outstanding consolidated
funded debt of the Corporation and its subsidiaries, plus the aggregate
par or involuntary liquidation value in the case of shares without par
value of all shares of Preferred Stock and shares of the Corporation ranking
prior to or on a parity with the Preferred Stock to be outstanding immediately
after such issue, sale or other disposition; and
(ii)unless the consolidated net earnings of the
Corporation and its subsidiaries for a period of any twelve consecutive calendar
months occurring within the period of eighteen consecutive calendar months
immediately preceding the calendar month in which such issue, sale or other
disposition is made, and the annual average of such consolidated net earnings of
the Corporation and its subsidiaries for the last three fiscal years preceding
the date of such issue, sale or other disposition, shall in each case have been
at least equal to 250% of the aggregate annual dividend requirements on the
Preferred Stock and all shares of the Corporation ranking prior to or on a
parity with the Preferred Stock to be outstanding immediately after such
issue, sale or other disposition;
provided, however, that in making the computations required by the above
provisions there shall be excluded all consolidated funded debt, Preferred Stock
and shares of the Corporation ranking prior to or on a parity with the Preferred
Stock to be retired upon any such issue, sale or other disposition or held in
the treasury for retirement, and there shall be excluded from tangible
assets the amount thereof required for any such retirement.
Nothing contained in this subparagraph (b) or subparagraphs (c)(i)
or (c)(ii) next following shall prevent any such issue, sale or other
disposition or the creation, issuance or assumption of any funded debt within
sixty (60) days after the date of the adoption of any resolution of the Board
of Directors of the corporation authorizing any such transaction, if at the
date of such resolution the provisions of this subparagraph (b) or subparagraphs
(c)(i) or (c)(ii), whichever is applicable, have been complied with, and in
determining whether such provisions have been complied with the Board of
Directors may rely on financial statements of the Corporation and its
subsidiaries to a date not more than ninety (90) days preceding the date of
such resolution and shall take into account the anticipated results from the
operations of the Corporation and its subsidiaries from the date of such
financial statements to the proposed date of the consummation of any such
transaction.
(c)The creation, issuance or assumption by the Corporation or any
subsidiary of any funded debt, provided, however, that this restriction
shall not prevent:
(i)the creation, issuance or assumption by the
Corporation of any funded debt if immediately thereafter the consolidated net
tangible assets of the Corporation and its subsidiaries shall be at least equal
to 166-2/3% of the sum of the aggregate principal amount of all consolidated
funded debt of the Corporation and its subsidiaries plus the aggregate par or
involuntary liquidation value in the case of shares without par value of all
shares of Preferred Stock and shares of the Corporation ranking prior to or on
a parity with the Preferred Stock to be outstanding immediately after such
creation, issuance or assumption; provided, however, that there shall be
excluded all consolidated funded debt, Preferred Stock and shares of the
Corporation ranking prior to or on a parity with the Preferred Stock to be
retired upon any such creation, issuance or assumption or held in the treasury
for retirement, and there shall be excluded from tangible assets the amount
thereof required for any such retirement; or
(ii)the creation, issuance or assumption by a wholly-
owned subsidiary of the Corporation of any funded debt authorized by the Board
of Directors of the Corporation if immediately thereafter (A) the provisions of
subparagraph (c)(i) above with respect to the creation, issuance or assumption
of funded debt by the Corporation are compiled with, and (B) the net tangible
assets of such wholly-owned subsidiary shall be at least equal to 166-2/3% of
its funded debt to be outstanding immediately after such creation, issuance or
assumption, excluding, however, any funded debt of such wholly-owned subsidiary
to be retired upon any such creation, issuance or assumption or held in its
treasury for retirement and excluding from tangible assets the amount thereof
required for any such retirement; or
(iii)the creation by any subsidiary of any funded debt
for issuance to, and the issuance or sale thereof to, the Corporation, but the
Corporation shall not, without the consent of the holders of the Preferred Stock
as required by this paragraph (6), sell or otherwise dispose of funded debt of
a subsidiary, except to such subsidiary for retirement, unless prior thereto or
at the same time all obligations, indebtedness, shares and other securities
whatsoever of such subsidiary owned by the Corporation and any one or more of
its subsidiaries are sold or disposed of; provided, however, that any
wholly-owned subsidiary may create, issue or assume any funded debt pursuant to
the provisions of subparagraph (c)(ii) above or the Corporation may sell or
otherwise dispose of funded debt of a wholly-owned subsidiary if the
provisions of said subparagraph (c)(ii) above are complied with at the time
of any such sale or disposition; or
(iv)the extension, renewal or refunding at any time
and from time to time of any funded debt permitted under the provisions of this
paragraph (6) or outstanding on July 15, 1945 or the extension, renewal or
refunding by any subsidiary of any funded debt existing at the time it becomes
a subsidiary of the Corporation; provided, however, that the funded debt
incurred upon any such extention, renewal or refunding shall not exceed the
aggregate principal amount of the funded debt so extended, renewed or refunded
and provided further that the mortgages or other liens, if any, created upon
any such extension, renewal, or refunding shall not cover any property other
than that covered by the mortgages or liens so extended, renewed or refunded.
(d)The giving by the Corporation or any subsidiary of any
guarantee or other similar obligation for the payment of any dividend, debt or
other obligation whatsoever of any other corporation, person or persons;
provided, however, that this restriction shall not prevent the Corporation or
any subsidiary from guaranteeing or becoming surety for the performance of any
contract or other obligation of a subsidiary, including any guarantee or other
similar obligation by the Corporation of funded debt of a wholly-owned
subsidiary if the provisions of subparagraph (c)(ii) above are complied with at
the time of the giving of such guarantee or obligation but excluding any other
contract or obligation of a subsidiary for the repayment of money borrowed,
or the extension, renewal or refunding of any such obligation.
(e)The issuance by any subsidiary of preference shares
except to the Corporation or the issuance by any subsidiary of shares of any
other class unless the Corporation or one or more of its subsidiaries shall
forthwith acquire such part of such additional shares as may be necessary in
order that the proportionate ownership of the Corporation and its subsidiaries
in such class shall be maintained, provided, however, that any subsidiary may
issue and sell any such shares for the purpose of qualifying any person to serve
as a director of any such subsidiary.
(f)The sale or other disposition by the Corporation or any
subsidiary of any shares or other securities whatsoever issued by any subsidiary
except to the Corporation, one or more of its wholly-owned subsidiaries and/or
the issuing subsidiary for retirement unless prior thereto or at the same time
all obligations, indebtedness, shares and other securities whatsoever of such
subsidiary owned by the Corporation and any one or more of its subsidiaries are
sold or disposed of; provided, however, that the Corporation may sell or
otherwise dispose of funded debt of a wholly-owned subsidiary if the provisions
of subparagraph (c)(ii) above are complied with at the time of any such sale or
disposition.
(g)The amendment, alteration or repeal of any of the provisions of the
Articles of Incorporation or of any certificate or statement amendatory
thereof or supplementary thereto, which affects adversely the rights
and preferences of the Preferred Stock or of the holders thereof; provided,
however, that if any such amendment, alteration or repeal affects adversely the
rights and preferences of any particular series of Preferred Stock without
proportionately affecting adversely the rights and preferences of the
outstanding shares of all series, then like consent by the holders of at least
two-thirds ( ) in amount of the Preferred Stock of such particular series at
the time outstanding shall also be necessary for effecting or validating
any such amendment, alteration or repeal.
(h)The sale, lease or conveyance by the Corporation of all
or substantially all of its property or business or the voluntary parting with
the control thereof, or the voluntary liquidation, dissolution or winding up of
the business of the Corporation, or the merger or consolidation of the
Corporation and any other corporation, except with a wholly-owned subsidiary
corporation; provided, however, that this restriction shall not prevent any of
the foregoing if simultaneously therewith all outstanding shares of the
Preferred Stock shall be redeemed or called for redemption and the redemption
price deposited with a bank or trust company has hereinafter provided in
paragraph (7) of this Article, or otherwise retired.
(7)At the option of the Board of Directors, the Corporation may
at any time or from time to time redeem the whole or any part of the Preferred
Stock by paying therefor in cash $100 per share and an amount equal to unpaid
cumulative dividends accrued thereon to and including the date of redemption,
and, in the case of shares of any series entitled to a premium, the amount of
such premium, such sum being sometimes hereinafter referred to as the
"redemption price". Redemption may be made of shares of one or more particular
series or of all series as the Board of Directors shall determine. In case of
the redemption of only part of the outstanding shares of any series, such
redemption shall be effected by lot or pro rata in such manner as the Board of
Directors may determine. At least thirty (30) days previous notice by mail,
postage prepaid, shall be given to the holders of record of the Preferred
Stock to be redeemed, such notice to be addressed to each such shareholder at
his post office address as shown by the records of the Corporation. On or
after the date of redemption stated in such notice, each holder of Preferred
Stock called for redemption shall surrender his certificate for such stock to
the Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the redemption price. In case less than all
shares represented by such surrendered certificates are redeemed, a new
certificate shall be issued representing the unredeemed shares. If such notice
of redemption shall have been duly given, and if on or before the redemption
date funds adequate for the redemption shall have been set aside so as to be
and continue available therefor, then, notwithstanding that certificates
representing any shares of Preferred Stock so called for redemption shall not
have been surrendered, the dividends thereon shall cease to accrue after the
date of redemption and all rights with respect to the shares so called for
redemption shall forthwith after such redemption date cease except only the
right of the holders to receive the redemption price without interest. At
any time after giving notice of redemption as aforesaid, of all or any part
of the Preferred Stock, the Corporation may deposit with a bank or trust
company in the City and State of New York having a capital and surplus
aggregating not less than $5,000,000 as a trust fund for the benefit of
holders of shares called for redemption, an amount in cash sufficient
to pay the redemption price of such shares. From and after the making of such
deposit such shares shall not be deemed to be outstanding for any purpose, and
the rights of the holders thereof shall be limited to the right to receive the
redemption price upon the surrender of the certificates. Any money deposited by
the Corporation for the redemption of the Preferred Stock and unclaimed at the
end of a period of six years from the date of such deposit shall be repaid to
the Corporation upon its request, expressed in a resolution of its Board of
Directors, after which repayment the holders of the Preferred Stock shall look
only to the Corporation for payment of the redemption price. Subject to the
provisions hereof the Board of Directors shall have authority to prescribe the
manner in which the Preferred Stock shall be redeemed from time to time. No
shares of Preferred Stock redeemed shall be reissued or otherwise disposed
of and no Preferred Stock shall be issued in lieu thereof and the Corporation
shall from time to time cause all shares redeemed to be retired in the manner
provided by law.
(8)Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the Preferred Stock shall be
entitled, before any distribution is made to the Common Stock or any shares of
the Corporation ranking junior to the Preferred Stock, to be paid the sum of
$100 per share, and an amount equal to all unpaid cumulative dividends,
whether earned or declared or not, which have accrued thereon to the date of
distribution upon liquidation, and, if such liquidation, dissolution or winding
up is voluntary, in the case of shares of any series entitled to a premium,
the amount of such premium; and the Preferred Stock shall not be entitled to any
further payment. In case the net assets of the Corporation are insufficient
to pay all outstanding shares of Preferred Stock of all series the full
amount to which they are respectively entitled, then the entire net assets of
the Corporation shall be distributed ratably to all outstanding shares of
Preferred Stock of all series in proportion to their full preferential amounts
(including cumulative dividends and premium, if any) to which each such share
is entitled.
(9)Except as otherwise specifically provided in this Article or
as otherwise expressly required by law, the Preferred Stock shall not have any
rights to vote for the election of directors or for any other purpose and the
Preferred Stock shall not be entitled to any notice of any meeting of
shareholders, provided, however, that if and whenever four quarterly dividends
(whether or not consecutive) payable on the Preferred Stock shall be in default,
in whole or in part, then the holders of the Preferred Stock, voting separately
as a class, shall, at the next annual meeting of shareholders and thereafter, be
solely entitled to elect one-third of the total number of directors of the
Corporation (or if one-third of the total number results in a fraction, then the
next higher integral number of directors) and the holders of the Common Stock,
voting separately as a class shall be solely entitled to elect the remaining
directors.
At any meeting at which the holders of the Preferred Stock shall be
entitled to elect directors, the holders of a majority of the then outstanding
shares of the Preferred Stock, whether present in person or by proxy, shall be
sufficient to constitute a quorum for the election of, and a plurality of the
votes of the holders of the Preferred Stock so present at any such meeting at
which there shall be such a quorum, shall be sufficient to elect the directors
to be elected by the holders of the Preferred Stock.
In case of any vacancy or vacancies in the Board of Directors through
death, resignation, disqualification, removal or other causes occurring among
the directors elected at any time by the holders of the Common Stock, the
remaining director(s) elected by the vote of the holders of the Common Stock,
although less than a majority of the directors elected by the Common Stock,
may elect a successor(s) to hold office for the unexpired term of the
director(s) whose place shall be vacant and until the next election of
directors by shareholders. In case of any such vacancy or vacancies in the
Board of Directors occurring among the directors elected by the holders of
the Preferred Stock, the remaining directors(s) elected by the vote of the
holders of the Preferred Stock, although less than a majority of the directors
elected by the Preferred Stock, may elect a successor(s) to hold office for
the unexpired term of the director(s) whose place shall be vacant and until
the next election of directors by shareholders.
Upon the payment in full of all dividends in default on the Preferred
Stock at the time of such payment, and provided also that the quarter-yearly
dividend on the Preferred Stock for the current quarter-yearly dividend period
shall have been paid or declared and set apart in full for such payment, and
provided also that all payments in default under the requirements of the sinking
fund, if any, for the Preferred Stock have been paid in full, the voting powers
of the holders of the Preferred Stock for the election of directors shall
terminate and such voting powers shall continue exclusively in the holders of
the Common Stock, always subject, however, to the same provisions for the
vesting of such voting powers in the holders of the Preferred Stock in cash
of any future similar default or defaults in the payment of dividends.
The holders of shares of stock entitled to vote in the election of
directors of the Corporation shall not be entitled to cumulate votes for the
purpose of such election.
(10)No holder of Preferred Stock shall be entitled, as such, as
a matter of right, to subscribe for or purchase any part of any new or
additional issue of shares of the Corporation of any class whatsoever, or of
securities convertible into shares of the Corporation of any class whatsoever,
whether now or hereafter authorized, or whether issued for cash, property or
services.
(11)For the purpose of this Article the following terms shall have
the following meanings unless the context shall otherwise indicate:
(a)Consolidated Net Earnings: The term "consolidated net
earnings" shall mean the balance remaining after deducting from the consolidated
earnings and other income and profits (excluding gains from the sale, conversion
or write-up of capital assets, less tax adjustments attributable thereto, and
excluding for any accounting period beginning after December 31, 1944, all
refunds of taxes attributable to transactions consummated prior to that date) of
the Corporation and its subsidiaries, all expenses, charges and reserves
(excluding losses from the sale, conversion or write-down of capital assets,
less tax adjustments attributable thereto, and excluding for any accounting
period beginning after December 31, 1944 any taxes paid, or reserves therefor,
attributable to transactions consummated prior to that date) of every character
which may properly be deducted in determining consolidated profit and loss in
accordance with generally accepted principles of accounting. For the purpose of
this paragraph the term "capital assets" shall mean all assets other than
current assets and shall include investments in securities.
(b)Consolidated Current Assets: The term "consolidated
current assets" shall mean such assets of the Corporation and its subsidiaries
as may properly be so classified in accordance with generally accepted
principles of accounting, consolidated in accordance with such principles, but
excluding, however, the aggregate amount of such assets subject to purchase
money mortgages or any other purchase money liens expressly excluded by the
provisions of subparagraph (e) below from the determination of consolidated
funded debt of the Corporation and its subsidiaries.
(c)Current Liabilities: The term "current liabilities"
shall mean such liabilities as may properly be so classified in accordance with
generally accepted principles of accounting, including the aggregate amount of
all purchase money mortgages and all other purchase money liens (whether or not
the Corporation or any one or more of its subsidiaries shall be personally
liable for the payment thereof) to the extent of payments on account thereof
due within one year from the date as of which the determination of current
liabilities is made. The term "consolidated current liabilities" shall mean
the consolidated current liabilities of the Corporation and its subsidiaries,
consolidated in accordance with generally accepted principles of accounting.
(d)Consolidated Net Current Assets: The term "consolidated
net current assets" shall mean the consolidated current assets of the
Corporation and its subsidiaries less the consolidated current liabilities of
the Corporation and its subsidiaries.
(e)Funded Debt: The term "funded debt" shall mean all debt
maturing by its terms more than one year from the date as of which the
determination of funded debt is made and such other debt as may properly be
classified as funded debt in accordance with generally accepted principles of
accounting, but excluding, however, the aggregate amount of all purchase money
mortgages and all other purchase money liens payable by their terms more than
one year from the date as of which the determination of funded debt is made, if
neither the Corporation nor any subsidiary shall be personally liable for the
payment thereof. The term "consolidated funded debt" shall mean all funded debt
of the Corporation and its subsidiaries, consolidated in accordance with
generally accepted principles of accounting.
(f)Tangible Assets: The term "tangible assets" shall mean
all assets at their net balance sheet values (after deducting related
depreciation and other valuation reserves), including, without limitation,
indebtedness and securities owned (including claims for post-war refunds of
excess profit taxes) and prepaid expenses, excluding, however, treasury shares,
rights in patents, trademarks and copyrights, goodwill, unamortized debt
discount and expense and other items of similar nature and excluding the
aggregate amount of such assets subject to purchase money mortgages or any
other purchase money liens expressly excluded by the provisions of
subparagraph (e) above from the determination of consolidated funded debt of
the Corporation and its subsidiaries.
(g)Net Tangible Assets: The term "net tangible assets" shall mean
tangible assets less current liabilities and less all other liabilities
(including all reserves) other than funded debt and all purchase money
mortgages and other purchase money liens expressly excluded by the provisions
of subparagraph (e) above from the determination of funded debt. The term
"consolidated net tangible assets" shall mean the net tangible assets of the
Corporation and its subsidiaries, consolidated in accordance with generally
accepted principles of accounting.
(h)Subsidiary: The term "subsidiary" or "subsidiaries"
shall be deemed to mean and include any corporation not less than 66-2/3% of the
voting shares (not including shares having voting power only upon the happening
of an event of default) of which is at the time owned, directly or indirectly,
by the Corporation.
(i)Wholly-Owned Subsidiary: The term "wholly-owned
subsidiary" shall be deemed to mean and include any corporation, of which all
shares (except directors' qualifying shares) of every class whatsoever and all
option rights and securities convertible into or evidencing the right to
purchase any such shares are at the time owned by the Corporation and/or by
one or more other corporations of which all such shares, option rights and
convertible securities are at the time owned by the Corporation.
Whenever in this Article reference is made to shares of the
Corporation ranking prior to or junior to, or on a parity with, the Preferred
Stock, such reference shall be deemed to apply to shares ranking prior or junior
to, or on a parity with, the Preferred Stock as to dividends or assets.
The Board of Directors may, but shall not be required to, obtain the
certificate of any firm of independent, certified or public accountants selected
by it (who may be the accountants who regularly audit the books of the
Corporation) in regard to any computations referred to in this Article, and said
certificate shall be conclusive evidence as to such computations and any
computations so made shall be binding upon and conclusive as to all shareholders
of the Corporation.
CLASS A PREFERRED STOCK
(12)Unless the context demands otherwise, reference to "Preferred
Stock" shall not be deemed to refer to "Class A Preferred Stock" and references
to "Class A Preferred Stock" shall not be deemed to refer to "Preferred Stock."
(13)Subject to all the rights, privileges, preferences and
priorities of the Preferred Stock, as set forth above, up to 1,000,000 shares of
Class A Preferred Stock without par value may be issued by the Board of
Directors in one or more series. Class A Preferred Stock in each such series
shall have full, limited, multiple, fractional or no voting rights, and such
designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights, and other special or relative rights
as shall be fixed from time to time by resolution of the Board of Directors
providing for the issue of such shares.
(14)Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the Preferred Stock has
been paid in full the sum of $100 per share and an amount equal to all unpaid
cumulative dividends, whether earned or declared or not, accrued thereon to the
date of distribution upon liquidation, and, in the case of shares of any series
entitled to premiums, the amount of such premium, the Class A Preferred Stock
shall be paid in full all amounts to which it is entitled on redemption
including accrued but unpaid dividends and premiums if any, to the extent
that remaining net assets of the Corporation are available for such payment.
COMMON STOCK
(15)The Common Stock is junior to the Preferred Stock and the
Class A Preferred Stock and is subject to all the rights, privileges,
preferences and priorities of the Preferred Stock and the Class A Preferred
Stock as herein set forth.
(16)Subject to all the rights of the Preferred Stock and the Class
A Preferred Stock, dividends may be paid on the Common Stock as and when
declared by the Board of Directors out of the surplus of the Corporation
legally available for the payment thereof.
(17)Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the Preferred Stock has
been paid in full the sum of $100 per share and an amount equal to all unpaid
cumulative dividends, whether earned or declared or not, accrued thereon to the
date of distribution upon liquidation, and, in the case of shares of any series
entitled to a premium, the amount of such premium, and after the Class A
Preferred Stock shall be paid in full all amounts to which it is entitled upon
redemption, including accrued but unpaid dividends and premiums, if any, the
remaining net assets of the Corporation shall be distributed pro rata to the
Common Stock.
(18)Except to the extent that any resolution of the Board of
Directors providing for the issue of any series of Class A Preferred Stock
expressly provides for voting rights with respect to such series of Class A
Preferred Stock, and except to the extent, if any, that the law may prohibit the
denial by the Articles of Incorporation as amended of the right to vote to the
Preferred Stock or the Class A Preferred Stock and except as expressly provided
in the Articles of Incorporation as amended with respect to the Preferred Stock,
the Common Stock shall have the exclusive voting rights for the election of
directors and for all other purposes, each holder of Common Stock on the date
fixed for determining shareholders entitled to vote being entitled to one vote
for each share thereof held of record by him, with the right of cumulative
voting in all elections of directors as provided in paragraph (9) of this
Article; and, except as otherwise required by law or as expressly provided
in the Articles of Incorporation as amended or in any resolution of the Board
of Directors providing for the issue of any series of Class A Preferred Stock,
any action whatsoever shall be effective or valid if taken or authorized by
the affirmative vote or a majority in number of the aggregate number of votes
to which the holders of all of the shares of Common Stock shall be entitled
without any vote or consent by the holders of the Preferred Stock or the
Class A Preferred Stock; provided, however, that this provision shall not be
construed to require the authorization by such affirmative vote of the Common
Stock in any case where under the laws applicable to this Corporation the
action in question may be taken without such authorization.
(19)No holder of Common Stock shall be entitled, as such, as a
matter of right, to subscribe for or purchase any new or additional issue of
shares of Preferred Stock or Class A Preferred Stock or of any new class of
shares or of any option rights or securities convertible into or evidencing the
right to purchase Preferred Stock or Class A Preferred Stock or any such new
class of shares, whether now or hereafter authorized, or whether issued for
cash, property or services. The Corporation may, in any manner permitted by
law, issue shares of Common Stock, whether now or hereafter authorized, or of
any new class of Common Stock, or option rights or securities convertible
into or evidencing the right to purchase such shares, for any consideration
other than money without first offering the same for subscription to the
holders of the then outstanding Common Stock and no holder of Common Stock
shall be entitled, as such, as a matter of right, to subscribe for or purchase
any such shares, option rights or convertible securities so to be issued.
$4.75 PREFERRED STOCK
Article Fifth.
(1)There is established a series of the Preferred Stock of the
Corporation, the designation of which shall be "$4.75 Preferred Stock"; and the
relative rights and preferences of such series are hereby fixed and determined
as follows:
(a)The rate of dividends upon the shares of $4.75 Preferred Stock shall
be $4.75 per annum.
(b)The premium payable upon the redemption of shares of the $4.75
Preferred Stock, otherwise than by the sinking fund, shall be $1 per share.
(c)The premium payable on shares of the $4.75 Preferred Stock in the
event of voluntary liquidation, dissolution or winding up of the Corporation
shall be $1 per share.
(d)The $4.75 Preferred Stock shall be entitled to the benefit of a
sinking fund as set forth in this paragraph (d). On or before September 1
of each year (herein called the "sinking fund payment date") commencing with
the year 1946, so long as any shares of $4.75 Preferred Stock remain
outstanding, the Corporation shall make available as a sinking fund for
the redemption of the $4.75 Preferred Stock a sum of money equal to 10% of the
consolidated net earnings of the Corporation and its subsidiaries (as defined in
paragraph (11) of Article Fourth of the Articles of Incorporation of the
Corporation, as amended) for the twelve months' period ended December 31 next
preceding the sinking fund payment date after deducting from said consolidated
net earnings an amount equal to the full dividend requirements for such twelve
months' period on all shares of $4.75 Preferred Stock outstanding during such
period; but in no event shall such sum of money be in excess of an amount
sufficient to so redeem on October 15 next following 4% of the largest amount of
$4.75 Preferred Stock at any time outstanding prior to such September 1. Such
sinking fund payments shall be cumulative. The money made available as a
sinking fund shall be applied to the redemption on said October 15 of shares
of $4.75 Preferred Stock determined by lot at the following prices plus in
each case accrued dividends to the redemption date: $2 if redeemed on or
before October 15, 1950, and $1 if redeemed thereafter; provided, however,
that if the moneys in the sinking fund on any September 1 (including the
payment made on that date) shall not be sufficient to redeem at least 250
shares, then the Corporation, at its election, need not redeem any shares on
the next succeeding October 15 and such moneys shall be added to the next
sinking fund payment unless used in the meantime to purchase shares of $4.75
Preferred Stock at the best prices obtainable by the Corporation considering
the amount purchased, not exceeding, however, the then applicable sinking
fund redemption price. In any year the Corporation, instead of making
available all or part of said sum in cash, may surrender to the sinking fund,
not later than September 1, shares of $4.75 Preferred Stock which, after
being outstanding, have been purchased or otherwise acquired by the
Corporation and have not previously been surrendered to the sinking fund and
the Corporation shall be credited against the cash sinking fund requirements
of that year with a sum equal to the cost of such shares, not exceeding,
however, the redemption price as of the next succeeding October 15.
No sinking fund payment shall be made if there is an existing default
in the payment of dividends on the $4.75 Preferred Stock, except that $4.75
Preferred Stock purchased by the Corporation prior to any existing default may
be surrendered to the sinking fund. During the continuance of any such default
in the payment of dividends no moneys in the sinking fund shall be used to
purchase or redeem $4.75 Preferred Stock except moneys required to redeem shares
of $4.75 Preferred Stock designated for redemption in any notice of redemption
given prior to any such default and purchases pursuant to a pro rata offering to
the holders of all outstanding $4.75 Preferred Stock. No $4.75 Preferred Stock
surrendered to the sinking fund shall be reissued or otherwise disposed of and
no $4.75 Preferred Stock shall be issued in lieu thereof and the Corporation may
from time to time cause all shares so surrendered to be retired in the manner
provided by law. After all shares of $4.75 Preferred Stock have been so retired
any balance remaining in the sinking fund shall become part of the general funds
of the Corporation.
The provisions of paragraph (7) of Article Fourth of the Articles
of Incorporation of the Corporation, as amended, relating to the method of
redemption of $4.75 Preferred Stock shall be applicable to the redemption of
shares by the sinking fund.
(2)Of the one hundred thirty-six thousand five hundred sixty-six
(136,566) shares of Preferred Stock authorized by the Articles of Incorporation
of the Corporation, as heretofore amended, thirty-six thousand five hundred
sixty-six (36,566) shares are hereby assigned to the series established by
Section 1 of this Article, designated "$4.75 Preferred Stock," and established
as said series.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9 -MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,024
<SECURITIES> 0
<RECEIVABLES> 4,251
<ALLOWANCES> 89
<INVENTORY> 2,744
<CURRENT-ASSETS> 17,214
<PP&E> 6,510
<DEPRECIATION> 2,606
<TOTAL-ASSETS> 25,719
<CURRENT-LIABILITIES> 6,677
<BONDS> 1,039
<COMMON> 1,695
0
0
<OTHER-SE> 7,808
<TOTAL-LIABILITY-AND-EQUITY> 25,719
<SALES> 19,580
<TOTAL-REVENUES> 19,580
<CGS> 13,636
<TOTAL-COSTS> 6,303
<OTHER-EXPENSES> 1,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 245
<INCOME-PRETAX> (1,644)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,644)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,644)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
