<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NO. 0-16117
UNSI Corporation
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 22-2661940
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
c/o Forstmann-Leff Associates, Inc.,
55 East 52nd Street, New York, New York 10055
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-407-9450
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
(TITLE OF CLASS)
CHECK WHETHER THE ISSUER (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15 (D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH
SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2)
HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes X No
CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF
REGULATION S-B NOT CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY
AMENDMENT TO THIS FORM 10-KSB. [ ]
As of December 31, 1996, 2,210,000 shares of Common Stock were outstanding. As
there is no public trading in the Company's Common Stock, the aggregate market
value of the shares held by non-affiliates of the issuer is not reported.
The issuer's revenues for its most recent fiscal year were $20,652.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Pursuant to the Asset Purchase Agreement among Investor's
Fiduciary Services, Inc. ("IFSI"), UNSI Corporation (the "Company"), Peter Lusk
and CDA Investment Technologies, Inc. ("CDA"), dated as of September 5, 1995
(the "Agreement"), IFSI, a wholly owned subsidiary of UNSI Corporation, sold
substantially all of its assets (the "Purchased Assets") to CDA. Such assets
constituted substantially all of the Company's non-cash operating assets. The
purchase price for the Purchased Assets, subject to post-closing adjustments,
was $2,249,600, consisting of $358,600 in the assumption of IFSI liabilities and
a cash payment of approximately $1,691,000. CDA deposited $200,000 of the cash
proceeds into an escrow account to meet IFSI's potential indemnification
obligations under the Agreement, and to provide security for the collection of
IFSI accounts receivable included in the Purchased Assets. The Escrow Agreement
provided for the release of the escrowed funds in stages over an 18 month
period, commencing with the closing. As of September 30, 1996, the Company had
received $115,017 of such escrow funds and anticipates that it will receive an
additional $67,950 of such escrow funds. The Agreement also provides for two
additional payments of $375,000 each, in the event that certain conditions are
satisfied. CDA made the first payment of $375,000 in January 1997. The Company
does not anticipate that it will satisfy the conditions entitling it to the
second $375,000 payment. See Note B of Notes to the Company's consolidated
financial statements.
As a result of this transaction, the Company is no longer
engaged in any operating activities other than the investment of its cash and
the search for possible merger or acquisition opportunities. No such
opportunities have been definitively identified at this time and there can be no
assurance that such opportunities will be identified or that such transactions,
if and when effected, will benefit the Company.
During the fiscal year ended June 30, 1996, Live Picture, Inc.
("LPI"), a California corporation engaged as a developer of digital imaging
software for use on personal computers and the Internet borrowed $350,000 from
the Company. In connection with this loan, the Company received warrants to
acquire shares of LPI's capital stock. In September 1996, the Company converted
such loan (including accrued interest) into approximately 201,093 shares of LPI
Series C Preferred Stock (the "LPI Securities").
EMPLOYEES
As the Company does not engage in any operating activities, it
has no employees.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal executive office is located at: c/o
Forstmann-Leff Associates, Inc., 55 East 52nd Street, New York, New York 10055.
The Company does not pay rent for the use of this facility.
-2-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
See Notes G and M of Notes to the Company's consolidated
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There has been no established trading market for the Company's
Common Stock for at least the past two years. As of December 31, 1996, there
were approximately 35 record holders of the Company's Common Stock. The Company
has not paid any cash dividends on its Common Stock since its inception, and it
does not anticipate paying any cash dividends thereon in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
As a result of the sale of the IFSI assets and because the
Company does not have any other operating activity, the Company's consolidated
financial statements have been presented on a discontinued basis.
Results of operations
During the years ended June 30, 1996 and 1995, interest
income, the principal source of the Company's revenue was $20,652 and $16,730,
respectively. Selling, general and administrative expenses ("SG&A") for the
years ended June 30, 1996 and 1995 were $154,177 and $290,759, respectively.
These expenses decreased in fiscal 1996 by approximately 47% from fiscal 1995 as
a result of the sale of IFSI and the decrease in bad debt expense. SG&A in
fiscal 1996 and 1995 includes approximately $139,469 and $230,805, respectively,
of bad debt expense associated with the write-off of non-trade receivables. Bad
debt expense decreased in fiscal by 1996 because the Company had written off a
significant amount of its non-trade receivables in fiscal 1995. See "Item 12.
Certain Relationships and Related Transactions" and Note C of Notes to the
Company's consolidated financial statements. Approximately $83,000 and
$78,000 of the interest expense for fiscal 1996 and fiscal 1995, respectively,
related to the PIK Debentures (as defined) was paid through the issuance of
additional PIK Debentures .
-3-
<PAGE>
The Company's loss from discontinued operations decreased by
approximately 80% from the prior year inasmuch as the fiscal 1996 results only
include losses from IFSI's operations through the date of sale. The Company had
net earnings of $1,542,842 in fiscal 1996 as a result of the sale of IFSI's
assets. The Company does not anticipate that it will generate earnings or
positive cash flow (other than the receipt of $375,000 in January 1997 from
CDA) in the immediate future.
Liquidity and Capital Resources
As of June 30, 1996, the Company had total current assets of
$387,144 (exclusive of $350,000 in note receivable from LPI which was converted
into LPI Securities subsequent to year end). The Company's cash position at the
end of fiscal 1996 increased by $92,534 from the beginning of the fiscal year as
a result of the cash generated by the sale of the assets of IFSI.
The Company currently engages in no operating activities other
than the investment of its cash and the search for possible merger or
acquisition opportunities. Accordingly, the Company's expenditures consist
primarily of interest expense (which with respect to the PIK Debentures is paid
through the issuance of additional PIK debentures and the balance of which is
owed to Peter Lusk, the payment of which he has deferred) and professional fees.
The Company's working capital is sufficient to meet its near term operating
needs and it has no commitments for any material capital expenditures, other
than as reflected in its consolidated financial statements and the notes
thereto. The Company however, has not determined (other than through the
acquisition of a profitable business entity) how it will satisfy the
indebtedness related to the PIK Debentures that mature in 1999 or the
indebtedness owed to Mr. Lusk. (See Notes B (2), D and E of Notes to the
Company's consolidated financial statements.)
ITEM 7. FINANCIAL STATEMENTS.
Page No.
Index to Consolidated Financial Statements 4
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheet, June 30, 1996 and 1995 F-2
Consolidated Statements of Operations, years
ended June 30, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Deficiency, years
ended June 30, 1996 and 1995 F-5
Consolidated Statements of Cash Flows, years
ended June 30, 1996 and 1995 F-6
Notes to Consolidated Financial Statements, years
ended June 30, 1996 and 1995 F-8
-4-
<PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
UNSI CORPORATION AND SUBSIDIARY
June 30, 1996 and 1995
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
UNSI Corporation
We have audited the accompanying consolidated balance sheets of UNSI Corporation
(a Delaware corporation) and Subsidiary as of June 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' deficiency and cash
flows for each of the two years in the period ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note B to the accompanying consolidated financial statements, on
September 5, 1995, the Company sold all of its operating assets. As a result,
the Company has no active operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of UNSI Corporation
and Subsidiary as of June 30, 1996 and 1995, and the consolidated results of
their operations and their consolidated cash flows for each of the two years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles.
Atlanta, Georgia
December 9, 1996
F-1
<PAGE>
UNSI Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS (Note B)
1996 1995
------------ -----------
CURRENT ASSETS
Cash and cash equivalents $ 192,569 $ 100,035
Trading securities - at market (Note A-5) 69,815 -
Accounts receivable - 115,346
Escrowed sale proceeds (Note B) 116,333 -
Convertible note receivable (Note L) 350,000 -
Other current assets 8,427 3,300
----------- ---------
Total current assets 737,144 218,681
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation - 284,036
OTHER ASSETS
Other 31,500 39,358
----------- ---------
$ 768,644 $ 542,075
=========== ===========
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY (Note B)
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 9,480 $ 292,265
Unearned revenue - 194,587
Accrued expenses (Note K) 113,457 221,114
Income taxes payable (Note J) 30,000 -
Marketing commissions payable (Note G) 84,700 84,700
Capitalized lease obligations,
current portion (Note F) - 580
Notes and advances payable to related
parties - current portion (Notes D and K) 9,793 853,996
----------- -----------
Total current liabilities 247,430 1,647,242
----------- -----------
LONG-TERM OBLIGATIONS,
LESS CURRENT PORTION
Notes payable to stockholder (Notes D and K) 438,325 438,325
7-7.125% pay-in-kind convertible debentures (Note E) 1,276,952 1,193,413
5% subordinated convertible debenture (Note D) 331,250 331,250
----------- ---------
2,046,527 1,962,988
----------- ---------
COMMITMENTS AND CONTINGENCIES
(Notes B, F, G and M) - -
STOCKHOLDERS' DEFICIENCY (Notes B and H)
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares issued or outstanding - -
Common stock, $.01 par value; 10,000,000 shares
authorized; 2,210,000 shares issued
and outstanding 22,100 22,100
Additional contributed capital 369,932 369,932
Accumulated deficit (1,917,345) (3,460,187)
---------- ---------
Total stockholders' deficiency (1,525,313) (3,068,155)
---------- ---------
$ 768,644 $ 542,075
=========== ===========
</TABLE>
F-3
<PAGE>
UNSI Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30,
(Note B)
<TABLE>
<CAPTION>
1996 1995
------------ --------
<S> <C> <C>
Interest income $ 20,652 $ 16,730
------------ -----------
20,652 16,730
Costs and expenses
Selling, general and administrative expenses (Note G) 154,177 290,759
Unrealized loss on trading securities 28,442 -
Interest (Note K) 163,242 165,401
------------ -----------
345,861 456,160
------------ ------------
Loss from continuing operations
before income taxes (325,209) (437,430)
Loss from discontinued operations (256,933) (1,304,056)
Gain on disposal of discontinued operations,
net of $30,000 of income taxes 2,124,984 -
------------ ------------
NET EARNINGS (LOSS) $ 1,542,842 $ (1,743,486)
============ ==========
Earnings (loss) per common and common equivalent share (Note I)
Loss from continuing operations $ (.04) $ (.20)
Discontinued operations .22 (.59)
----------- ------------
$ .18 $ (.79)
=========== ============
Earnings per common share - assuming full dilution
Loss from continuing operations $ (.03)
Discontinued operations .15
-----------
$ .12
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
UNSI Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Common stock Additional
(Note H) contributed Accumulated
Shares Par value capital deficit Total
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994 2,210,000 $22,100 $369,932 $(1,716,701) $(1,324,669)
Net loss for the year - - - (1,743,486) (1,743,486)
-------------- --------- ------------ ---------- ----------
Balance, June 30, 1995 2,210,000 22,100 369,932 (3,460,187) (3,068,155)
Net earnings for the year - - - 1,542,842 1,542,842
-------------- --------- ------------ ---------- ----------
Balance, June 30, 1996 2,210,000 $22,100 $369,932 $(1,917,345) $(1,525,313)
========= ====== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
UNSI Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
<TABLE>
<CAPTION>
1996 1995
------------- ---------
<S> <C> <C>
Reconciliation of net earnings (loss) to net cash used in operating activities:
Net earnings (loss) $ 1,542,842 $ (1,743,486)
Adjustments to reconcile net earnings (loss) to
net cash used in operating activities:
Depreciation - 66,901
Expenses paid through issuance of pay-in-kind
debentures 83,539 78,073
Bad debt expense 139,469 230,805
Loss on sale of equipment - 9,219
Gain on disposal of discontinued operations (2,154,984) -
Unrealized loss on investments 28,442 -
Changes in assets and liabilities net of effects of sale of IFSI
assets:
Decrease (increase) in accounts receivable 43,672 440
Decrease (increase) in other current assets (7,369) 22,064
Increase in interest due from affiliated entities
and an individual - (11,463)
Increase in other assets - (29,572)
Increase (decrease) in accounts payable (98,152) 238,335
(Decrease) increase in unearned revenue 45,427 (31,551)
Increase in accrued expenses (107,657) 146,325
Increase in income taxes payable 30,000 -
------------ ------------
Total adjustments (1,997,613) 719,576
------------ ------------
Net cash used in operating activities (454,771) (1,023,910)
Cash flows from investing activities:
Capital expenditures - (218,638)
Proceeds from sale of equipment - 5,822
Advances to affiliated entities - (69,625)
Proceeds from sale of assets 1,811,439 -
Advances on notes receivable (350,000) -
Investment in trading securities (69,815) -
------------ ------------
Net cash provided (used) in investing activities 1,391,624 (282,441)
</TABLE>
F-6
<PAGE>
UNSI Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended June 30,
<TABLE>
<CAPTION>
1996 1995
--------------- ---------
<S> <C> <C>
Cash flows from financing activities:
Principal payments under capital lease obligations (116) (9,578)
Proceeds from (payments on) note payable to bank - (250,000)
Proceeds from issuance of notes payable to
an entity (700,000) 700,000
Net advances from (payments to) principal stockholder (144,203) 64,000
Proceeds from issuance of 7% pay-in-kind
convertible debentures - 175,340
------------ ------------
Net cash provided by financing activities (844,319) 679,762
------------ ------------
Net (decrease) increase in cash and cash equivalents 92,534 (626,589)
------------ -------------
Cash and cash equivalents, beginning of year 100,035 726,624
------------ ------------
Cash and cash equivalents, end of year $ 192,569 $ 100,035
============ ============
Cash paid during the year for:
Interest $ 91,014 $ -
Noncash Investing and Financing Activities:
Pay-in-kind debentures totaling $83,539 and $78,073 were issued in 1996 and
1995, respectively, in lieu of payment of interest in cash on the then
outstanding 7-7.125% pay-in-kind debentures.
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
UNSI Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Description of Business
UNSI Corporation and its wholly owned subsidiary, Investors' Fiduciary
Services, Inc. (hereinafter collectively referred to as the "Company"),
provided, until September 5, 1995, proxy advisory and related services to
institutional investors and fund managers (see Note B).
2. Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid debt instruments, purchased with a maturity of
three months or less, to be cash equivalents. The Company maintains a high
percentage of its cash balances in one financial institution located in New
York City, New York. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. Amounts held at this financial
institution in excess of $100,000 are uninsured.
3. Property and Equipment
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives. Leasehold improvements are amortized over the lives of the
respective leases, or the service lives of the improvements, whichever is
less. Leased property under capital leases is amortized over the lives of the
respective leases, or the service lives of those leases which substantially
transfer ownership. The straight-line method of depreciation is followed for
substantially all assets for financial reporting purposes, but accelerated
methods are used for tax purposes.
4. Income Taxes
The Company accounts for income taxes under the liability method as provided
for in Statement of Financial Accounting Standards (SFAS) No. 109, ACCOUNTING
FOR INCOME TAXES. Under the liability method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities, as measured by the enacted
tax rates which will be in effect when these differences reverse. Deferred
tax expense is the result of changes in deferred tax assets and liabilities.
The principal types of differences between assets and liabilities for
financial statement and tax return purposes are accumulated depreciation and
unearned revenue.
F-8
<PAGE>
UNSI Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
5. Trading Securities
Investments in trading securities are recorded at fair value.
6.Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
7. Reclassifications
Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation.
NOTE B - SALE OF ASSETS AND CERTAIN LIABILITIES OF IFSI
1. Sale of IFSI
On September 5, 1995, the Company sold all of its operating assets, with
concomitant assumption by CDA Investment Technologies, Inc. of essentially
all liabilities associated with IFSI's operating activities. The base
purchase price of $2,249,600 was comprised of assumption of liabilities of
the Company of approximately $365,000 and payment of cash to the Company of
approximately $1,691,000. Additionally, the purchaser placed $200,000 of the
sales proceeds in an escrow account. This $200,000 is being paid to the
Company by the escrow agent over an eighteen month period commencing on the
closing of this transaction, subject to payment from this account of any
unrecorded liabilities related to pre-transaction date activity which arise.
At June 30, 1996, $66,667 has been paid to the Company. The Company has
recorded the remaining escrow account, net of unrecorded liabilities related
to pre-transaction date activity of $17,000, as an asset as of the date of
the sale transaction. Subsequent to June 30, 1996, an additional payment of
$66,667, less the $17,000 adjustment, was paid to the Company.
F-9
<PAGE>
UNSI Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996 and 1995
NOTE B - SALE OF ASSETS AND CERTAIN LIABILITIES OF IFSI - Continued
Following is a presentation of the computation of the gain on the sale of
IFSI assets:
Net book value of assets sold $ 344,421
Unearned revenue recorded for which future
services from the Company are not required (240,014)
---------
Net book value of IFSI assets sold 104,407
Consideration received, inclusive of the
assumption of $348,263 of liabilities 2,259,391
---------
Gain on sale of IFSI assets before income taxes $2,154,984
=========
The IFSI operations have been reported as a discontinued operation at June
30, 1996. The Company's prior year's operating results have been restated to
reflect discontinued operations.
Additionally, the Company could receive up to an additional $750,000 on the
sale of the aforementioned operating assets, subject to the achievement by
the buyer of certain customer retention and product development goals set
forth in the sale agreement. This contingent consideration has not been
recorded as part of the sale price, and would be recognized by the Company
prospectively as achievement against such customer retention and product
development goals is determined.
The purchaser has submitted a report which indicates the first of two goals
necessary for conditional payments was not met as of September 30, 1996.
Subsequently, an agreement was reached between the Company and the purchaser
in which a payment of $375,000 will be made to the Company.
2. Future Operations
As reflected in the accompanying financial statements, the Company has a
stockholders' deficiency of $1,525,313 at June 30, 1996. Accordingly in the
absence of a resumption of profitable operating activities, the Company will
not be able to meet all its obligations to its creditors and debenture
holders. It is, however, management's intentions to identify and acquire a
business in order for operations to resume.
F-10
<PAGE>
UNSI Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996 and 1995
NOTE C - AMOUNTS DUE FROM OTHER ENTITIES AND INDIVIDUALS
During 1995, the Company determined that a total of $230,805 in non-trade
notes receivable, advances, and accrued interest to be of doubtful
collectibility, based on past payment patterns. Accordingly, this amount was
charged to expense in 1995. During 1996, an additional amount of $139,469 was
charged to expense of which $134,551 was due from an entity, a director of
which is the principal stockholder of the Company. These notes and advances
are all due on demand and continue to bear interest at approximately 10% per
annum.
NOTE D - OBLIGATIONS TO RELATED PARTIES (See Note B-2)
1. Notes and Advances Payable to Principal Stockholder
Notes and advances payable to the Company's principal stockholder totaled
$448,118 at June 30, 1996. These amounts bear interest at 5% per annum and
are currently due, based on the conditions for repayment set forth in the
note payable agreements and presumed in the advances. Included in notes and
advances payable outstanding at June 30, 1995 was a $100,000 short term note
payable in connection with a bridge financing (see Note D-2). This note bore
interest at 24.5% per annum and was repaid subsequent to year-end, including
accrued interest. In connection with the issuance of this notes payable, the
Company issued to the principal stockholder Series C and Series D warrants
for the purchase of 312,150 shares of the Company's common stock (see Note
H-5) subject to adjustment as provided for therein. Accrued interest on these
notes and advances payable at June 30, 1996 and June 30, 1995 totaled $6,564
and $10,136, respectively. The principal stockholder has agreed to defer
payment of $438,325 of the amounts due him until such time as the Company's
pay-in-kind debentures have been converted or redeemed.
2. Short-Term Notes Payable to Debenture Holder
Short-term notes payable of $700,000 were outstanding at June 30, 1995 to an
entity which holds a significant portion of the Company's 7-7.125%
pay-in-kind debentures. These notes payable were issued in connection with a
bridge financing which took place during fiscal 1995, bore interest at 24.5%
per annum, were repaid subsequent to year-end. Accrued interest on these
notes payable, which totaled $48,732 at June 30, 1995, was also paid
subsequent to year-end. In connection with the issuance of certain of these
notes payable during 1995, the Company issued to the entity Series C and
Series D warrants for the purchase of 2,185,049 shares of the Company's
common stock (see Note H-5) subject to adjustment as provided for herein.
F-11
<PAGE>
UNSI Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996 and 1995
NOTE D - OBLIGATIONS TO RELATED PARTIES (See Note B-2) - Continued
3. Subordinated Convertible Debenture
The Company issued a 5% subordinated convertible debenture, with an
outstanding balance at June 30, 1996 and 1995, of $331,250, to the principal
stockholder. The 5% subordinated convertible debenture, due January 2, 1999,
is convertible into 1,650,000 shares of common stock of the Company and
1,000,000 shares of the Company's Series B preferred stock, with antidilution
provisions applicable. It cannot be converted in part. The Company has not
paid the interest due on this debenture. However, the principal stockholder
has waived the applicable provision of the debenture related to this previous
non-payment and has agreed to payment of principal as originally set forth in
the debenture, with prior and current interest due on the next interest due
date.
NOTE E - PAY-IN-KIND CONVERTIBLE DEBENTURES (See Note B-2)
The 7-7.125% pay-in-kind convertible debentures, which have an outstanding
balance at June 30, 1996 and 1995, of $1,276,952 and $1,193,413,
respectively, and are due May 31, 1999, are convertible into shares of common
stock of the Company at the rate of one share of common stock for each $.4524
principal amount of debenture, with antidilution provisions applicable.
Interest on these debentures can, at the option of the Company, be paid in
the form of additional issuance of similar convertible debentures, provided
that no additional pay-in-kind convertible debentures can be issued to
satisfy interest requirements subsequent to November 30, 1998. The debentures
will bear interest at the greater of 7-7.125% or the applicable annually
compounded federal rate for debt instruments (5.188% at June 30, 1996).
These debentures can be converted into common stock at the option of the
debenture holder at any time prior to May 31, 1999, but are subject to
mandatory conversion into shares of the Company's common stock upon the
achievement by the Company's "profitability" as defined. Generally,
profitability is defined to be equal to the achievement of revenues in excess
of $1,500,000 in any twelve month period (provided that within that twelve
month period, a three month period shall show positive net earnings).
F-12
<PAGE>
UNSI Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996 and 1995
NOTE F - LEASES
1. Capitalized Lease Obligations
The Company leased certain of its operating equipment under leases which were
capitalized. The leases, which were noncancelable and expired in 1996, were
assumed by the buyer in the sale of IFSI assets, as described more fully at
Note B.
2. Operating Leases
Additionally, the Company leased office space under agreements expiring
through December 1996. As part of the asset sale agreement discussed more
fully at Note B, all obligations associated with these leases were
transferred to the buyer. As of the date of closing, the Company has no
further obligation with respect to these operating leases.
NOTE G - MARKETING COMMISSIONS PAYABLE
IFSI had previously entered into a marketing partnership with another firm,
whereby that firm was paid a percentage of the first year revenues accruing
to IFSI from clients referred by the other firm. Additionally, the other firm
owned 30,000 shares of common stock of IFSI, representing 50% of the total
shares of common stock outstanding at the time the marketing partnership was
terminated. IFSI reached an agreement with the other firm to settle
outstanding commissions to be paid under this arrangement, which ceased in
fiscal year 1993, totaling $84,700. Pursuant to this settlement, the
Company's principal stockholder and key members of management of IFSI
purchased the other firm's outstanding shares prior to the recapitalization
of the Company. While final payment of these accrued marketing commissions
payable has not been made, management believes that ultimate settlement will
not materially vary from the amount recorded at June 30, 1996.
NOTE H - STOCKHOLDERS' EQUITY
1. Series B Convertible Preferred Stock
As of December 31, 1993, the Company authorized 1,000,000 shares of Series B
convertible preferred stock. Each of these shares is convertible into one
share of the Company's common stock, at the option of the future holder. No
shares of Series B convertible preferred stock were issued or outstanding at
June 30, 1996.
F-13
<PAGE>
UNSI Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996 and 1995
NOTE H - STOCKHOLDERS' EQUITY - Continued
2. Common Stock
At June 30, 1996, a total of 9,316,254 shares of common stock should have
been reserved for conversion of 5% subordinated and 7-7.125% pay-in-kind
debentures, stock options, stock warrants, and the possible future conversion
of the unissued Series B preferred stock.
3. Stock Options
At January 3, 1994, a total of 500,000 shares of common stock was reserved
under UNSI Corporation's stock option plan. This plan became the Company's
plan upon the Company's recapitalization which occurred on that date. At
January 3, 1994, options for 155,000 shares were outstanding and the balance
of 345,000 shares was available for future grants. No options were granted in
the period from January 3, 1994 to June 30, 1994. A total of 20,000 options
were granted in the year ended June 30, 1995. No options were exercised or
canceled in the period from January 3, 1994 to June 30, 1995. At June 30,
1995, options for 175,000 shares were outstanding, and the balance of 325,000
shares was available for future grant. During the year ended June 30, 1996,
10,000 options were granted and 10,000 options granted in 1995 were retired.
At June 30, 1996, options for 175,000 shares were outstanding, and the
balance of 325,000 shares were available for future grant.
Option prices range from $.12 to $1.00 per share, the equivalent of not less
than 100% of the fair market value at the date of grant. Upon the exercise of
options, the proceeds are credited to the common stock account to the extent
of the par value of the shares issued, and the proceeds in excess of par
value are credited to the additional contributed capital account.
4. Series A and B Warrants to Purchase Common Shares
During 1994, the Company issued a Series A warrant to one of its directors
for the purchase of 100,000 shares of the Company's common stock. The Series
A warrant, which is exercisable at the option of the holder, expires on
December 31, 1998, and carries an exercise price of $.25 per share, with
antidilution provisions applicable. Additionally, the Company reserved
3,750,001 shares of common stock for issuance upon exercise of three Series B
warrants. The Series B warrants expire on December 31, 2005, and carry an
exercise price of $.125 per share, with antidilution provisions applicable.
During 1996, 2,678,563 shares were retired with respect to two of the Series
B warrants.
F-14
<PAGE>
UNSI Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996 and 1995
NOTE H - STOCKHOLDERS' EQUITY - Continued
5. Series C and D Warrants to Purchase Common Shares
During 1995, the Company issued Series C and Series D warrants to its
principal stockholder and a debenture holder in consideration for certain
notes and advances payable as described at Note E. The Series C and D
warrants provide for the purchase of the aggregate of 1,617,199 and 880,000
shares, respectively, of the Company's common stock at an exercise price of
$.10 per share. The exercise price and number of shares of common stock
issuable upon exercise of these warrants is subject to adjustment as more
fully described therein. The Series C and Series D warrants are exercisable
at the option of the holder in the period from January 4, 1995 through
January 19, 2000.
NOTE I - EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per common share is based on the average number of
shares of common stock and common stock equivalents outstanding during the
year. The stock warrants (see Note H-4,5) have been considered to be common
stock equivalents and converted at the beginning of the year. Fully diluted
earnings (loss) per common share is based on the assumption that all
convertible debentures (see Notes D and E) were converted at the beginning of
the year. The computations assume the elimination of interest expense, net of
income tax, on the debentures. At June 30, 1995, the exercise of stock
options and warrants would have been antidilutive.
NOTE J - INCOME TAXES
The Company has recognized current income tax expense for 1996 of
$30,000 due to the affects of alternative minimum tax arising from the sale
of IFSI assets.
No income tax expense was recognized in fiscal 1995 due to the losses it
sustained. The statutory federal tax rate was 35% for the year ended June 30,
1996 and 1995. The Company's effective tax rate was 6% for the year ended
June 30, 1996 as a result of the use of certain of the Company's loss
carryforward. The Company had no tax liability in 1995 as a result of
operating losses. At June 30, 1996, an operating loss carryforward of
approximately $614,000, expiring through 2011, is available to offset future
taxable income for financial reporting purposes. Tax regulations limit the
utilization of net operating loss carryforwards. Therefore, the Company may
be required to pay income taxes in future years even though significant
carryforward benefits exist.
F-15
<PAGE>
UNSI Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996 and 1995
NOTE J - INCOME TAXES - Continued
Deferred tax assets and liabilities at June 30, 1996 and 1995, consisted of
the following:
1996 1995
--------- --------
Deferred tax assets:
Unearned revenue $ - $ 75,889
Net operating loss carryforwards 614,088 1,400,885
-------- ---------
614,088 1,476,774
Less valuation allowance (614,088) (1,458,375)
-------- ---------
- 18,399
Deferred tax liabilities - excess of tax depreciation
over depreciation recognition for financial
statement purposes - (18,399)
-------- ---------
Total $ - $ -
======== =========
The Federal income tax returns of the Company have not been examined in
recent years. Management believes adequate provision has been made for any
adjustments which might be assessed at some future date.
NOTE K - RELATED PARTY TRANSACTIONS
A summary of outstanding amounts due to and from related parties at June 30,
1996 and 1995 is as follows:
1996 1995
----------- ---------
Notes and advances payable to principal stockholder $ 448,118 $ 592,321
Short-term notes payable to debenture holder - 700,000
Accrued interest due to related parties 47,902 83,643
5% subordinated convertible debenture due to
principal stockholder 331,250 331,250
A summary of related party transactions during each of the years in the
two-year period ended June 30, 1996 is as follows:
1996 1995
----------- --------
Interest expense on related party indebtedness $19,294 $77,854
F-16
<PAGE>
UNSI Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996 and 1995
NOTE L - CONVERTIBLE NOTE RECEIVABLE
In March, 1996, the Company purchased a one-year $350,000 6% convertible
subordinated note issued by Live Picture, Inc. (an unrelated party). This
note is convertible, at the options of the Company, into shares of preferred
stock of Live Picture, Inc. In conjunction with this transaction, the Company
also received five-year warrants to purchase additional shares of preferred
stock of the issuer.
Subsequent to the year ended June 30, 1996, the Company converted the note
into 201,093 shares of preferred stock. With respect to these shares, the
Company and the principal stockholder of the Company entered into an
agreement, expiring June 30, 1998, whereby the Company has the right to
require the principal stockholder to purchase these shares at $1.80 per
share. The principal stockholder has the option to purchase the shares from
the Company at $2.00 per share through December 31, 1996, with the purchase
price increasing by $.20 per share for each successive six-month period
thereafter.
NOTE M - LITIGATION
The Company is a party in a lawsuit which has arisen in the normal course of
business involving an assertive claim of $24,000. In the opinion of
management, the ultimate outcome of the lawsuit will not have a material
impact, if any, on the Company's financial statements.
F-17
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Name Age Positions and Offices
Peter A. Lusk 57 Chairman of the Board
Kenneth L. Dowd, Jr. 56 Director and President
Fred S. Katz 56 Director
Peter A. Lusk was elected to serve as a director of the
Company in 1990, and has served as Chairman of the Board of Directors since
1991. For more than the past five years, he has been an officer of
Forstmann-Leff Associates, Inc., a money manager for institutional investors.
Kenneth L. Dowd, Jr. has served as President and a director of
the Company since January 1994. He has served as a Managing Director of Cowen &
Company, an investment banking firm and as chief executive officer of its asset
management group since December 2, 1996. During 1996, Mr. Dowd served as a
senior advisor to Rogers Casey, an investment consulting firm. Prior thereto Mr.
Dowd had, since 1991, served as Managing Director of Warren Management
Consultants ("WMCI"), a management consulting firm.
Fred Katz was elected to serve as a director of the Company in
1991. Mr. Katz has served as a principal of First Taconic Capital Corporation, a
merchant banker, since 1996. Prior thereto Mr. Katz had, since 1991, served as a
managing director of Whale Securities Co., a broker/dealer. Mr. Katz serves as a
director of Aquagenics, Inc., a company engaged in the water purification
business.
All directors hold office until the next annual meeting of
stockholders or until their successors have been elected and qualified. Except
for the grant of Director Options (as defined), directors are not compensated
for any services provided as a director. Non-management directors serving in
such capacity on January 1 are entitled to receive options to acquire 10,000
shares of Common Stock (the "Director Options"). Officers serve at the
discretion of the Board of Directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Two reports, with respect to two automatic grants to Fred Katz of non-qualified
stock options, were not filed on a timely basis. Two reports, with respect to
two transactions engaged in by Mr. Lusk were not filed on a timely basis.
-5-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Mr. Lusk, the Company's chief executive officer, was not paid
salary or bonus during the past three fiscal years. See "Item 12. Certain
Relationship and Related Transactions" for further information with respect to
transactions between the Company and Mr. Lusk. None of the Company's other
officers received salary and bonus in excess of $100,000 during the past three
fiscal years.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Set forth below is information as of December 31, 1996
concerning the stock ownership of all persons known to the Company to own
beneficially 5% or more of the Company's Common Stock, each director of the
Company owning stock, and all officers and directors of the Company as a group.
All shares are beneficially owned and sole investment and voting power is held
by the person named below unless otherwise indicated.
<TABLE>
<CAPTION>
Percentage
Beneficial owner (1) Amount of Shares of Class
- ---------------- ---------------- --------
<S> <C> <C>
Peter A. Lusk 4,120,258 (2) 79.9%
Kenneth L. Dowd, Jr. - -
Fred S. Katz 162,400 (3) 6.9%
Murray Koppelman 139,800 6.3%
825 Third Avenue
New York, NY 10022
M&A Investments, Inc. 3,450,504 (4) 61.0%
120 Senlac Drive
Carrollton, Texas 75006
All officers and 4,372,658 (1)(2) 80.8%
directors as a group
(two persons owning stock)
</TABLE>
(1) Unless otherwise indicated, the address for the individuals identified
above, all of whom, except for Mr. Koppelman and M&A Investments, Inc.
("M&A"), are directors of the Company, is c/o Forstmann-Leff
Associates, Inc., 55 East 52nd Street, New York, New York 10055.
(2) Includes (a) options to acquire 10,000 shares of Common Stock, (b)
2,650,000 shares of Common Stock issuable upon conversion of the
Company's 5% convertible subordinated
-6-
<PAGE>
debenture due 1999 (inclusive of 1,000,000 share of Common Stock
issuable upon conversion of the Series B Preferred Stock issuable upon
conversion of such debenture), (c) Series C Warrants to acquire 202,150
shares of Common Stock, (d) Series D Warrants to acquire 110,000 shares
of Common Stock and (e) 1,148,108 shares of Common Stock. Does not
include Series B Warrants to acquire 1,071,438 shares of Common Stock.
The number of shares issuable upon exercise of the Series C and Series
D Warrants is subject to adjustment based upon, among other things, the
number of outstanding rights or warrants to acquire Common Stock. The
number of shares set forth above does not give effect to such
adjustment.
(3) Includes options and warrants to acquire 40,000 and 100,000 shares of
Common Stock, respectively.
(4) Includes (a) 1,265,455 shares of Common Stock issuable upon conversion
of the Company's Pay-In-Kind Debentures due 1999 ("PIK Debentures"),
(b) 1,415,049 shares of Common Stock issuable upon exercise of Series C
Warrants, and (c) 770,000 shares of Common Stock issuable upon exercise
of Series D Warrants. The number of shares issuable upon exercise of
the Series C and Series D Warrants is subject to adjustment based upon,
among other things, the number of outstanding rights or warrants to
acquire Common Stock. The number of shares set forth above does not
give effect to such adjustment.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To provide the Company with liquidity with respect to its LPI
Securities, the Company and Peter Lusk entered into an agreement dated June 27,
1996, providing that through June 30, 1998 the Company had the right to require
Mr. Lusk to purchase the LPI Securities and entitling Mr. Lusk with the option
to purchase the LPI Securities from the Company. Mr. Lusk is entitled to
purchase the LPI Securities at a price equal to $2.00 per share through December
31, 1996, with the purchase price increasing by $.20 per share for each
successive six month period thereafter and the Company is entitled to require
Mr. Lusk to purchase the Securities for $1.80 per share.
At June 30, 1995, MVS Incorporated ("MVS"), an entity in which
Mr. Lusk is a director and stockholder, had borrowed an aggregate of $173,443
(inclusive of accrued interest)(the "Initial Loan") from the Company. The
Company determined for fiscal 1995 that the Initial Loan was not collectible.
During the year ended June 30, 1996, the Company advanced to MVS (the "Second
Loan") an additional $134,551 (inclusive of interest that accrued on such
advances and interest that accrued on the Initial Loan). For fiscal 1996, the
Company determined that the Second Loan was not collectible. The Initial Loan
and the Second Loan are unsecured, payable on demand and bear interest at the
rate of ten percent per annum. See Note C of Notes to the Company's consolidated
financial statements.
The Company borrowed an aggregate of $700,000 from M&A in
fiscal 1995 (the "M&A Loan"). The M&A Loan, as well as the Additional Lusk Loan
(as defined herein), bore interest at 24.5% per annum. The M&A Loan, including
accrued interest of $80,781 at the date of repayment, was repaid in September
1995. In connection with its loan, M&A was issued five year
-7-
<PAGE>
warrants to acquire 2,185,049 shares of Common Stock, subject to adjustment. As
a condition to making $200,000 of such loans, M&A required that Peter Lusk lend
the Company an aggregate of $100,000 (the "Additional Lusk Loan"). The
Additional Lusk Loan, including accrued interest of $5,672 at the date of
repayment, were repaid in September 1995. In connection with the Additional Lusk
Loan, Mr. Lusk was issued five year warrants to acquire 312,150 shares of Common
Stock, subject to adjustment. See "Item 11. Security Ownership of Certain
Beneficial Owners and Management" and Note H (5) of Notes to the Company's
consolidated financial statements.
In January 1994, in connection with the acquisition of IFSI, the
Company issued its 5% subordinated convertible debenture in principal amount of
$331,250 to Mr. Lusk. Interest of $16,562 accrued on this debenture during
fiscal 1996. Mr. Lusk has agreed to defer repayment of this debenture and the
accumulated accrued interest balance of $41,338 (through the end of fiscal 1996)
until the Company's PIK Debentures are repaid or converted.
In January 1994, IFSI issued its 5% promissory note in the principal
amount of $438,825 to Mr. Lusk. Interest of $21,916 accrued on this note during
fiscal 1996. Mr. Lusk has agreed to defer repayment of this note and the
accumulated accrued interest balance of $56,982 (through the end of fiscal 1996)
until the Company's PIK Debentures are repaid or converted.
From time to time, Mr. Lusk has advanced funds to the Company (in
addition to the Additional Lusk Loan) to meet its short-term cash requirements.
During fiscal 1995, such loans were made for an aggregate of $64,700. Repayments
to Mr. Lusk of $100,700 were made during fiscal 1995, leaving an aggregate
balance at June 30, 1995, of $53,996, plus unpaid accrued interest of $3,833.
During fiscal 1996, Mr. Lusk did not advance any money to the Company.
Repayments to Mr. Lusk during fiscal 1996 were made for an aggregate of $44,203,
leaving a balance at June 30, 1996 of $9,793, plus unpaid and accrued interest
of $6,564. All of such advances bore interest at the rate of 5% per annum.
-8-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a)Exhibit Index
2.1 - Agreement and Plan of Merger dated as of January 3,
1994 by and among UNSI Corporation, IFSI Acquisition,
Inc. and Investors' Fiduciary Services, Inc. ("IFSI") (1)
2.2 - Agreement of Purchase and Sale dated as of September 5,
1995 by and among Investors' Fiduciary Services, Inc.,
UNSI Corporation, Peter Lusk and CDA Investment Technologies,
Inc. (7)
3.1 - Restated Certificate of Incorporation. (2)
3.2 - By laws of the Registrant. (3)
3.3 - Certificate of Amendment to the Company's Restated Certificate
of Incorporation (4)
4.1 - Series A Warrant. (1)
4.2 - Form of Series B Warrant (including exhibits A through D
thereto). (1)
4.3 - 5% Subordinated Convertible Debenture Due January 2, 1999. (1)
4.4 - Certificate of Designations, Preferences and Rights of the
Company in respect of Series B Preferred Stock. (1)
4.5 - 5% Promissory Note issued by Investors' Fiduciary Services, Inc.
to Peter Lusk (the "IFSI Note"). (1)
4.6 - Guaranty of the IFSI Note. (1)
4.7 - Form of 7% Pay-in-Kind Convertible Debenture due May 31, 1999. (8)
4.8 - Registrant's Series C Warrant (WC-4).(9)
4.9 - Registrant's Series C Warrant (WC-5).(9)
4.10 - Registrant's Series D Warrant (WD-4).(9)
4.11 - Registrant's Series D Warrant (WD-5).(9)
4.12 - Registrant's Series E 7.12% Additional Convertible Debenture dated
May 31, 1999.
4.13 - Registrant's Series F 7% Additional PIK Convertible Debenture dated
May 31, 1999.
10.1 - Consulting Agreement and Option Agreement between the Company
and David Bondon. (5)
10.2 - 1986 Stock Option Plan, as amended. (6)
10.6 - Demand note issued by Registrant to United States Trust Company
of New York. (8)
10.7 - Agreement dated June 27, 1996 between the Company and Peter Lusk.
21.1 - Subsidiaries of the Registrant. (8)
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the last
quarter of the period covered by this report.
(1) Incorporated by reference to the corresponding exhibit of the
Registrant's Current Report on Form 8-K for January 3, 1994.
(2) Incorporated by reference to exhibit 3(a) of the Registrant's
Registration Statement on Form S-18 (File No. 33-11874).
(3) Incorporated by reference to the exhibit 3(b) of Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1988.
(4) Incorporated by reference to exhibit 3.3 of the Registrant's Current
Report on Form 8-K for May 29, 1991.
-9-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED).
(5) Incorporated by reference to exhibit 10(e) of the Registrant's
Registration Statement on Form S-18 (File No. 33-11874).
(6) Incorporated by reference to exhibit 10(j) of the Registrant's Annual
Report on Form 10-K for the year ended June 30, 1988.
(7) Incorporated by reference to exhibit 2.1 of the Registrant's Current
Report on Form 8-K dated September 5, 1995.
(8) Incorporated by reference to the corresponding exhibit of the
Registrant's Annual Report on Form 10- KSB for the fiscal year ending
June 30, 1994.
(9) Incorporated by reference to the corresponding exhibit of the
Registrant's Annual Report on Form 10- KSB for the fiscal year ending
June 30, 1995.
-10-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: February 3, 1997
UNSI CORPORATION
By: /s/Peter Lusk
Peter Lusk, Chairman of the Board
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By:/s/Peter Lusk
Peter Lusk, Chairman of the Board of Directors
(Principal Executive Officer and Principal
Financial and Accounting Officer)
Date: February 3, 1997
By:/s/Fred Katz
Fred Katz, Director
Date: February 3, 1997
By:/s/Kenneth L. Dowd, Jr.
Kenneth L. Dowd, Jr., Director
Date: February 3, 1997
-11-
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
UNSI CORPORATION
EXHIBITS TO THE ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
COMMISSION FILE NO. 0-16117
<PAGE>
Exhibit
Number Description
4.12 - Registrant's Series E 7.12% Additional PIK Convertible Debenture dated
May 31, 1999.
4.13 - Registrant's Series F 7% Additional PIK Convertible
Debenture dated May 31, 1999.
10.7 - Agreement dated June 27, 1996 between the Registrant and Peter A. Lusk.
Exhibit 4.12
Series E Debenture -
NEITHER THIS SERIES E 7.12% ADDITIONAL PIK CONVERTIBLE DEBENTURE DUE MAY 31,
1999 (THE "DEBENTURE"), THE ADDITIONAL DEBENTURES ("ADDITIONAL DEBENTURES") NOR
THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS DEBENTURE OR ANY
ADDITIONAL DEBENTURE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT"), AND NEITHER THIS DEBENTURE NOR ANY ADDITIONAL DEBENTURE NOR SUCH SHARES
MAY BE SOLD, ENCUMBERED OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE
DELIVERED AN OPINION OF LEGAL COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
UNSI Corporation
Series E 7.12% Additional PIK Convertible Debenture
Due May 31, 1999
$__________ New York, New York
May 31, 1995
UNSI Corporation, a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company"), for value received,
hereby promises to pay to the order of _____________ or registered assigns (the
"Registered Holder"), the principal sum of ________________________ Dollars
($__________) on May 31, 1999 or such earlier date as may be applicable pursuant
to Article 2 of this Debenture (the "Maturity Date"). Simple interest shall
accrue on the unpaid principal amount of this Debenture from the date hereof
until Maturity (computed on the basis of a 365 day year, using the number of
days actually elapsed) at the rate of seven and twelve-one hundredths (7.12%)
percent per annum, and shall be payable in arrears on May 31 of each year,
commencing May 31, 1996 and at Maturity. Payments of principal and interest
shall be made at the Payment Address (as such term is defined herein) in lawful
money (except as otherwise provided herein) of the United States of America.
This Debenture is one of an authorized issue of the Company's
Series E 7.12% Additional PIK Convertible Debentures due May 31, 1999 (the
"Debentures"), issued pursuant to Article 1 of the Prior Debentures (as defined)
in satisfaction of the interest payment obligation that
-1-
<PAGE>
has accrued on the Prior Debentures from June 1, 1994 through May 31, 1995. The
term "Prior Debentures" refers to the 7% Pay-In-Kind Convertible Debentures due
May 31, 1999 issued as of June 1, 1994 pursuant to the Private Placement
Memorandum dated as of April 5, 1994, as amended (the "Memorandum"). Except as
specifically stated herein or as the context otherwise requires, the term
"Debentures" shall include the Debentures, the Prior Debentures and the
Additional Debentures (as such term is defined in the Prior Debentures).
ARTICLE 1
The Company's Right to Deliver Additional Debentures
in Lieu of Cash in Payment of Accrued Interest
(a) Delivery of Additional Debentures in Payment of Accrued Interest. At the
option of the Company, any interest accruing on the Debentures may be paid in
Additional Debentures in the manner set forth below; provided, however, that no
Additional Debenture may be issued in satisfaction of any interest payment made
less than one hundred eighty (180) days prior to May 31, 1999. The Additional
Debentures shall be in the same form as the Debentures provided, however, that
the Additional Debentures shall (i) bear interest at the greater of seven
percent (7%) per annum or the then applicable federal rate for debt instruments
(compounded annually) with the maturity of the applicable Additional Debenture;
(ii) bear interest from the issuance date of such Additional Debentures (i.e.,
the applicable interest payment date) and not from the date hereof; and (iii)
shall contain such other terms and conditions (or eliminate terms and conditions
contained herein) as the Company, in good faith, determines is appropriate.
(b) Election to Deliver Additional Debentures. The Company may exercise its
option to deliver Additional Debentures in payment of all or any part of such
accrued interest by notice to the Registered Holders of the Debentures on the
applicable interest payment date, which notice shall be dated not later than
applicable interest payment date, shall state that the Company has elected to
deliver Additional Debentures in lieu of cash payment of all or part of such
accrued interest and shall be accompanied by the Additional Debentures and a
check in payment of any part of the accrued interest being paid in cash.
(c) Amount of Additional Debentures Deliverable. The principal amount of
Additional Debentures deliverable pursuant to this Article 1 shall be equal to
the amount of interest payable on this Debenture on the applicable interest
payment date less the amount of interest paid in cash (if any) on this Debenture
on such interest payment date.
(d) Payment of Interest in Cash or Additional Debentures. The Company may pay
all or any part of accrued interest on this Debenture by delivery of Additional
Debentures. Any payment of interest made partly in cash and partly in Additional
Debenture shall be made pro rata to each Registered Holder of the Debentures on
the applicable interest payment date; provided, however, that if the Company has
not satisfied any condition to the issuance of Additional Debentures to any
particular
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Registered Holder(s) as required under paragraph (e) of this Debenture, then the
Company shall pay interest wholly in cash to such Registered Holder(s).
(e) Conditions to Delivering Additional Debentures. The right of the Company to
deliver Additional Debentures pursuant to this Article 1 with respect to any
payment of interest to any Registered Holder shall be subject to the conditions
that (i) the Additional Debentures shall have been registered or qualified or,
in the opinion of counsel to the Company, exempt from registration or
qualification under federal securities laws; and (ii) the Additional Debentures
and shares of Common Stock issuable upon conversion of such Additional
Debentures have been duly authorized and would, upon issuance, be validly
issued, fully paid and non-assessable.
ARTICLE 2
Default and Acceleration
If the Company shall fail to pay the principal of, or interest
on, the Debentures as and when due and payable, then, the Registered Holders of
at least fifty (50%) percent of the then outstanding principal amount of
Debentures (inclusive of the principal amount then outstanding on the Prior
Debentures and the Additional Debentures) may, by written notice to the Company,
declare the principal amount of all of the Debentures (including the Prior
Debentures and the Additional Debentures), together with all interest thereon,
to be forthwith due and payable, whereupon, unless such default in payment is
cured within 30 days of the date such notice is given, the date of such notice
shall become the new Maturity Date and the principal amount of all of the
Debentures (including the Prior Debentures and the Additional Debentures) and
all such interest shall become and be forthwith due and payable without
presentment, demand, protest, or further notice of any kind, all of which are
hereby expressly waived by the Company.
ARTICLE 3
Conversion of Debentures.
(a) Optional Conversion of Debentures. Subject to and upon compliance with the
provisions of this Article 3, the Registered Holder of this Debenture shall have
the right, at such Holder's option, at any time prior to 5:00 P.M., New York
City time on May 31, 1999 to convert the unpaid principal amount of this
Debenture into fully paid and nonassessable shares of Common Stock of the
Company. Shares of Common Stock issuable upon conversion of this Debenture, the
Prior Debentures and all Additional Debentures shall be referred to herein as
"Debenture Shares."
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(b) Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion.
(i) In order to exercise the optional conversion privilege, the holder
of this Debenture shall surrender the Debenture at the address of the Company
specified herein, and together with notice specifying the portion of the
principal amount of this Debenture which the Registered Holder elects to
convert. The number of shares of Common Stock issuable upon conversion shall be
determined by dividing the amount of principal being converted by the conversion
price in effect at such time. Such Registered Holder shall thereupon be deemed
the holder of the shares of Common Stock so issued, and the principal amount on
the Debenture, to the extent so converted, shall be deemed to have been paid in
full. If a Debenture shall have been converted in part, the Registered Holder
shall be entitled to a new Debenture representing the unpaid principal balance
of such Debenture remaining after deducting the principal amount of the
Debenture converted.
(ii) As promptly as practicable after the surrender of such Debenture
and the receipt of such notice, the Company shall issue and shall deliver at
such office to such holder, or on his written order, a certificate or
certificates for the number of full shares issuable upon the conversion of such
Debenture or portion thereof in accordance with the provisions of this Article
3. The person in whose name any certificate or certificates for shares of Common
Stock shall be issuable upon conversion shall be deemed to have become on said
conversion date the holder of record of the shares represented thereby.
(iii) Any accrued but unpaid interest with respect to a Debenture
converted pursuant to this Article 3 shall be paid upon such conversion, either
in cash or, in lieu of cash, in such number of shares of the Company's Common
Stock as equals the interest payment due at the date of conversion divided by
the conversion price in effect on such date.
(c) No Cash Payments in Lieu of Fractional Shares. No fractional shares of stock
or scrip representing fractional shares shall be issued upon conversion of
Debentures. In the event the conversion of any Debenture would result in the
issuance of a fractional share, the number of shares issuable upon such
conversion shall be rounded up to the nearest whole share. If more than one
Debenture shall be surrendered for conversion at one time by the same holder,
the number of full shares which shall be issuable upon conversion shall be
computed on the basis of the aggregate principal amount of the Debentures (or
specified portions thereof to the extent permitted hereby) so surrendered.
(d) Conversion Price. The conversion price shall be $.4524 per share, subject
to adjustment as provided herein.
(e) Adjustment of Conversion Price. The conversion price shall be adjusted from
time to time as follows:
(i) In case the Company shall on any one or more occasions after the
date of the Memorandum (1) pay a dividend or make a distribution in shares of
its capital stock (whether shares of Common Stock or of capital stock of any
other class) to all holders of its Common Stock, (2)
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subdivide its outstanding Common Stock, or (3) combine its outstanding Common
Stock into a smaller number of shares, the conversion price in effect
immediately prior thereto shall be adjusted so that the holder of any Debenture
thereafter surrendered for conversion shall be entitled to receive the number of
shares of capital stock of the Company which he would have owned or have been
entitled to receive after the happening of any of the foregoing events had such
Debenture been converted immediately prior to the happening of such event. Any
adjustment made pursuant to this subparagraph (e)(i) of this Article 3 shall
become effective immediately after the record date in the case of a dividend or
distribution or the effective date in the case of a subdivision or combination.
If, as a result of an adjustment made pursuant to this subparagraph (e)(i) of
this Article 3, the holder of any Debenture thereafter surrendered for
conversion shall become entitled to receive shares of two (2) or more classes of
capital stock of the Company, the Board of Directors (whose determination shall
be conclusive and shall be described in a written statement delivered to the
Registered Holders of the Debentures at their respective Payment Addresses)
shall determine the allocation of the adjusted conversion price between or among
shares of such classes of capital stock.
(ii) No adjustment in the conversion price shall be required unless
such adjustment would require an increase or decrease of at least two percent
(2%) in such price; provided, however, that any adjustments which by reason of
this subparagraph (e)(ii) of this Article 3 are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
adjustments under this Article 3 shall be made to the nearest whole share.
Anything in this Article 3 to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the conversion price, in addition to those
required by this Article 3, as it in its discretion shall determine to be
advisable in order that any stock dividends, subdivision of shares, distribution
of rights to purchase stock or securities, or distribution of securities
convertible into or exchangeable for stock hereafter made by the Company to its
stock holders shall not be taxable.
(iii) Whenever the conversion price is adjusted as herein provided, the
Company shall promptly deliver to the holders of the Debentures at their
respective Payment Addresses, a certificate certified by the Company's principal
financial and/or accounting officer setting forth: (1) the conversion price
after such adjustment; (2) a brief statement of the facts requiring such
adjustment; and (3) the date such adjustment becomes effective.
(f) Reclassification, Reorganization or Merger. In case of any reclassification,
capital reorganization or other change of outstanding shares of Common Stock of
the Company, or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock or the class issuable upon conversion of this Debenture) or in
case of any sale, lease or conveyance to another corporation of the property of
the Company as an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the holder of this
Debenture shall have the right thereafter by converting this Debenture, to
acquire the kind and amount of shares of stock and other securities and property
receivable upon such event by a holder of the number of shares of Common Stock
which might have been acquired upon conversion of this Debenture immediately
prior to such event. Any such provision shall include
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provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Debenture.
ARTICLE 4
Registration under the Securities Act of 1933.
(a) Piggyback Registration Rights. During the period commencing as of the date
hereof through May 31, 1999, the Company shall advise the Registered Holder of
this Debenture or the Debenture Shares or any then holder of the Debenture or
Debenture Shares (such persons being collectively referred to herein as
"holders") by written notice at least two weeks prior to the filing of any
registration statement under the Act (other than a registration statement on
Form S-4, Form S-8 or subsequent similar forms) that the Company intends to file
a registration statement covering securities of the Company and will upon the
request of any such holder, include in any such registration statement such
information as may be required to permit a public offering of the Debenture
Shares; provided, however, that if the registration statement relates to a
public offering by the Company of its securities and any managing underwriter
advises the Company that it believes the inclusion in the offering of securities
being sold by the holder would adversely affect the ability of the Company to
complete the public offering, then the holder will agree to reduce the number of
Debenture Shares to be registered to a number of shares which, when aggregated
with all other Debenture Shares (with such reductions to be made pro rata by
Debenture Shareholders) shall be not less than ten percent (10%) of the number
of shares being offered by the Company and the holder will further agree not to
make any sales of the securities so included for a period of ninety (90) days
from the effective date of such registration statement. The Company shall keep
such registration statement current for a period of up to nine (9) months from
the conclusion of such ninety (90) day period; provided, however, that the
Company shall not be required to keep the registration statement effective
beyond the date after which the registration statement must be amended to
include updated audited financial statements. The Company shall supply
prospectuses, qualify the Debenture and the Debenture Shares for sale in such
states as such holder reasonably designates and furnish indemnification in the
manner as set forth in of this Article 4. Such holders shall furnish information
and indemnification in the manner set forth in of this Article 4.
(b) Other Provisions Pertaining to Registration Rights. The following provision
of this Article 4 shall also be applicable:
(i) Within twenty (20) business days after receiving any such notice
pursuant to paragraph (a) of this Article 4, the Company shall give notice to
the other holders of Debentures and Debenture Shares, advising that the Company
is proceeding with such registration and offering to include therein the
Debenture Shares of such other holders, provided that they shall furnish the
Company with such appropriate information (relating to the intentions of such
holders) in connection therewith as the Company shall request in writing.
Following the effective date of such registration statement, the Company shall,
upon the request of any holder of Debentures and/or Debenture
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Shares, forthwith supply such number of prospectuses meeting the requirements of
the Act as shall be requested by such holder to permit such holder to make a
public distribution of all Debenture Shares from time to time offered or sold by
such holder, provided that such holder shall from time to time furnish the
Company with such appropriate information (relating to the intentions of such
holder) in connection therewith as the Company shall request in writing. The
Company shall also use its best efforts to qualify the Debenture Shares for sale
in such states as the holders shall reasonably request.
(ii) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under paragraphs (a) and (b) of this
Article 4. Any holder whose Debenture Shares are included in any such
registration statement pursuant to this Article 4 shall, however, bear the fees
of his own counsel and accountants and any transfer taxes or underwriting
discounts or commissions applicable to the Debenture Shares sold by him pursuant
thereto.
(iii) The Company shall indemnify and hold harmless each such holder
from and against any and any losses, claims, damages and liabilities caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereto or any
registration statement under the Act or any prospectus included therein required
to be filed or furnished by reason of this Article 4 or any application or other
filing under any state securities law caused by any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading to which such holder may become subject under the Act,
the Securities Exchange Act of 1934, as amended, or other Federal or state
statutory law or regulation, at common law or otherwise, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission which is based upon information furnished or required to be
furnished to the Company by any such holder or any underwriter expressly for use
therein; provided, however, that any such holder shall at the same time
indemnify the Company, its directors, each officer signing the related
registration statement, each person, if any, who controls the Company within the
meaning of such Act and each other Holder, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in any registration statement or any prospectus required to be
filed or furnished by reason of this Article 4 or caused by any omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, insofar as such losses, claims, damages
or liabilities are caused by any untrue statement or omission is based upon
information furnished to the Company by any such holder expressly for use
therein.
(c) Continuing Nature of Obligation. The Company's agreements with
respect to the Debentures or Debenture Shares in this Article 4 shall continue
in effect regardless of the conversion and surrender of this Debenture.
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ARTICLE 5
Miscellaneous
(a) Notice to Company. Notice shall be given to the Company by certified mail,
return receipt requested. Notices to the Company shall be addressed to UNSI
Corporation, c/o Forstmann-Leff Associates, Inc, 55 East 52nd Street, New York,
New York 10055, Attention: Peter A. Lusk, Chairman of the Board, or such other
address as the Company may, from time to time advise the Registered Holders.
Notices to Registered Holders shall be addressed to their respective Payment
Addresses and shall be given by certified mail, return receipt requested.
Notices shall be deemed given on the date mailed.
(b) Governing Law. This Debenture shall be governed by the laws of the State of
New York applicable to agreements executed and to be performed wholly within
such state.
(c) Rights of Debenture Holder. Nothing in this Debenture shall be construed to
modify, amend or limit in any way the right of any holder of this Debenture to
bring an action against the Company in the event the Company fails to pay
principal of and interest on this Debenture when due, and if the holder of this
Debenture shall be required to commence a legal proceeding to enforce payment of
this Debenture, the Company shall pay the holder's reasonable legal fees and
expenses.
(d) Register. The Company shall keep at its principal office a register in which
the Company maintains a list of names and addresses of the holders of the
Debentures, (and any subsequent transfer or assignment) (the "Payment
Addresses")and shall provide for the registration of transfer of Debentures.
Until otherwise advised by the Registered Holder of this Debenture in accordance
with paragraph (a) of this Article 5, the Company may treat the person in whose
name this Debenture is registered as the Registered Holder of such Debenture for
the purpose of receiving payment of principal and interest on such Debenture,
and for all other purposes relating to this Debenture.
UNSI CORPORATION
By:
------------------------------
Peter A. Lusk, Chairman of the
Board of Directors
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NOTICE OF CONVERSION
[To be Signed Only Upon Conversion
of Part or All of Debentures]
UNSI CORPORATION
The undersigned, the holder
of the foregoing Debenture, hereby surrenders such Debenture for conversion into
shares of Common Stock of UNSI CORPORATION to the extent of $___________ *
unpaid principal amount of due on such Debenture, and requests that the
certificates for such shares be issued in the name of _______________, and
delivered to ______________, whose address is ________________________.
DATED:
- ----------------------------
(Signature)
(Signature must conform
in all respects to name of holder as specified on the face of the Debenture.)
- ---------
* Insert here the unpaid principal amount of the Debenture (or, in the
case of a partial conversion, the portion thereof as to which the
Debenture is being converted). In the case of a partial conversion, a
new Debenture will be issued and delivered, representing the
unconverted portion of the unpaid principal amount of this Debenture,
to or upon the order of the holder surrendering such Debenture.
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Exhibit 4.13
Series F Debenture -
NEITHER THIS 7% SERIES F ADDITIONAL PIK CONVERTIBLE DEBENTURE DUE MAY 31, 1999
(THE "DEBENTURE"), THE ADDITIONAL DEBENTURES ("ADDITIONAL DEBENTURES") NOR THE
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS DEBENTURE OR ANY
ADDITIONAL DEBENTURE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT"), AND NEITHER THIS DEBENTURE NOR ANY ADDITIONAL DEBENTURE NOR SUCH SHARES
MAY BE SOLD, ENCUMBERED OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE
DELIVERED AN OPINION OF LEGAL COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
UNSI Corporation
Series F 7% Additional PIK Convertible Debenture
Due May 31, 1999
$__________ New York, New York
May 31, 1996
UNSI Corporation, a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company"), for value received,
hereby promises to pay to the order of ______________ or registered assigns (the
"Registered Holder"), the principal sum of ______________________ Dollars
($_________) on May 31, 1999 or such earlier date as may be applicable pursuant
to Article 2 of this Debenture (the "Maturity Date"). Simple interest shall
accrue on the unpaid principal amount of this Debenture from the date hereof
until Maturity (computed on the basis of a 365 day year, using the number of
days actually elapsed) at the rate of seven (7%) percent per annum, and shall be
payable in arrears on May 31 of each year, commencing May 31, 1997 and at
Maturity. Payments of principal and interest shall be made at the Payment
Address (as such term is defined herein) in lawful money (except as otherwise
provided herein) of the United States of America.
This Debenture is one of an authorized issue of the Company's
Series F 7% Additional PIK Convertible Debentures due May 31, 1999 (the
"Debentures"), issued pursuant to Article 1 of the Prior Debentures (as defined)
in satisfaction of the interest payment obligation that
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has accrued on the Prior Debentures from June 1, 1995 through May 31, 1996. The
term "Prior Debentures" refers to the 7% Pay-In-Kind Convertible Debentures due
May 31, 1999 issued as of June 1, 1994 pursuant to the Private Placement
Memorandum dated as of April 5, 1994, as amended (the "Memorandum"). Except as
specifically stated herein or as the context otherwise requires, the term
"Debentures" shall include the Debentures, the Prior Debentures, the Series E
Debentures dated May 31, 1995 and the Additional Debentures (as such term is
defined in the Prior Debentures).
ARTICLE 1
The Company's Right to Deliver Additional Debentures
in Lieu of Cash in Payment of Accrued Interest
(a) Delivery of Additional Debentures in Payment of Accrued Interest. At the
option of the Company, any interest accruing on the Debentures may be paid in
Additional Debentures in the manner set forth below; provided, however, that no
Additional Debenture may be issued in satisfaction of any interest payment made
less than one hundred eighty (180) days prior to May 31, 1999. The Additional
Debentures shall be in the same form as the Debentures provided, however, that
the Additional Debentures shall (i) bear interest at the greater of seven
percent (7%) per annum or the then applicable federal rate for debt instruments
(compounded annually) with the maturity of the applicable Additional Debenture;
(ii) bear interest from the issuance date of such Additional Debentures (i.e.,
the applicable interest payment date) and not from the date hereof; and (iii)
shall contain such other terms and conditions (or eliminate terms and conditions
contained herein) as the Company, in good faith, determines is appropriate.
(b) Election to Deliver Additional Debentures. The Company may exercise its
option to deliver Additional Debentures in payment of all or any part of such
accrued interest by notice to the Registered Holders of the Debentures on the
applicable interest payment date, which notice shall be dated not later than
applicable interest payment date, shall state that the Company has elected to
deliver Additional Debentures in lieu of cash payment of all or part of such
accrued interest and shall be accompanied by the Additional Debentures and a
check in payment of any part of the accrued interest being paid in cash.
(c) Amount of Additional Debentures Deliverable. The principal amount of
Additional Debentures deliverable pursuant to this Article 1 shall be equal to
the amount of interest payable on this Debenture on the applicable interest
payment date less the amount of interest paid in cash (if any) on this Debenture
on such interest payment date.
(d) Payment of Interest in Cash or Additional Debentures. The Company may pay
all or any part of accrued interest on this Debenture by delivery of Additional
Debentures. Any payment of interest made partly in cash and partly in
Additional Debenture shall be made pro rata to each Registered
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Holder of the Debentures on the applicable interest payment date; provided,
however, that if the Company has not satisfied any condition to the issuance of
Additional Debentures to any particular Registered Holder(s) as required under
paragraph (e) of this Debenture, then the Company shall pay interest wholly in
cash to such Registered Holder(s).
(e) Conditions to Delivering Additional Debentures. The right of the Company to
deliver Additional Debentures pursuant to this Article 1 with respect to any
payment of interest to any Registered Holder shall be subject to the conditions
that (i) the Additional Debentures shall have been registered or qualified or,
in the opinion of counsel to the Company, exempt from registration or
qualification under federal securities laws; and (ii) the Additional Debentures
and shares of Common Stock issuable upon conversion of such Additional
Debentures have been duly authorized and would, upon issuance, be validly
issued, fully paid and non-assessable.
ARTICLE 2
Default and Acceleration
If the Company shall fail to pay the principal of, or interest
on, the Debentures as and when due and payable, then, the Registered Holders of
at least fifty (50%) percent of the then outstanding principal amount of
Debentures (inclusive of the principal amount outstanding on the Prior
Debentures, the Series E Debentures and the Additional Debentures) may, by
written notice to the Company, declare the principal amount of all of the
Debentures (including the Prior Debentures, the Series E Debentures and the
Additional Debentures), together with all interest thereon, to be forthwith due
and payable, whereupon, unless such default in payment is cured within 30 days
of the date such notice is given, the date of such notice shall become the new
Maturity Date and the principal amount of all of the Debentures (including the
Prior Debentures, the Series E Debentures and the Additional Debentures) and all
such interest shall become and be forthwith due and payable without presentment,
demand, protest, or further notice of any kind, all of which are hereby
expressly waived by the Company.
ARTICLE 3
Conversion of Debentures.
(a) Optional Conversion of Debentures. Subject to and upon compliance with the
provisions of this Article 3, the Registered Holder of this Debenture shall have
the right, at such Holder's option, at any time prior to 5:00 P.M., New York
City time on May 31, 1999 to convert the unpaid principal amount of this
Debenture into fully paid and nonassessable shares of Common Stock of the
Company. Shares of Common Stock issuable upon conversion of this Debenture, the
Prior
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Debentures, the Series E Debentures and all Additional Debentures shall be
referred to herein as "Debenture Shares."
(b) Exercise of Conversion Privilege; Issuance of Common Stock on Conversion.
(i) In order to exercise the optional conversion privilege, the holder
of this Debenture shall surrender the Debenture at the address of the Company
specified herein, and together with notice specifying the portion of the
principal amount of this Debenture which the Registered Holder elects to
convert. The number of shares of Common Stock issuable upon conversion shall be
determined by dividing the amount of principal being converted by the conversion
price in effect at such time. Such Registered Holder shall thereupon be deemed
the holder of the shares of Common Stock so issued, and the principal amount on
the Debenture, to the extent so converted, shall be deemed to have been paid in
full. If a Debenture shall have been converted in part, the Registered Holder
shall be entitled to a new Debenture representing the unpaid principal balance
of such Debenture remaining after deducting the principal amount of the
Debenture converted.
(ii) As promptly as practicable after the surrender of such Debenture
and the receipt of such notice, the Company shall issue and shall deliver at
such office to such holder, or on his written order, a certificate or
certificates for the number of full shares issuable upon the conversion of such
Debenture or portion thereof in accordance with the provisions of this Article
3. The person in whose name any certificate or certificates for shares of Common
Stock shall be issuable upon conversion shall be deemed to have become on said
conversion date the holder of record of the shares represented thereby.
(iii) Any accrued but unpaid interest with respect to a Debenture
converted pursuant to this Article 3 shall be paid upon such conversion, either
in cash or, in lieu of cash, in such number of shares of the Company's Common
Stock as equals the interest payment due at the date of conversion divided by
the conversion price in effect on such date.
(c) No Cash Payments in Lieu of Fractional Shares. No fractional shares of stock
or scrip representing fractional shares shall be issued upon conversion of
Debentures. In the event the conversion of any Debenture would result in the
issuance of a fractional share, the number of shares issuable upon such
conversion shall be rounded up to the nearest whole share. If more than one
Debenture shall be surrendered for conversion at one time by the same holder,
the number of full shares which shall be issuable upon conversion shall be
computed on the basis of the aggregate principal amount of the Debentures (or
specified portions thereof to the extent permitted hereby) so surrendered.
(d) Conversion Price. The conversion price shall be $.4524 per share, subject
to adjustment as provided herein.
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(e) Adjustment of Conversion Price. The conversion price shall be adjusted from
time to time as follows:
(i) In case the Company shall on any one or more occasions after the
date of the Memorandum (1) pay a dividend or make a distribution in shares of
its capital stock (whether shares of Common Stock or of capital stock of any
other class) to all holders of its Common Stock, (2) subdivide its outstanding
Common Stock, or (3) combine its outstanding Common Stock into a smaller number
of shares, the conversion price in effect immediately prior thereto shall be
adjusted so that the holder of any Debenture thereafter surrendered for
conversion shall be entitled to receive the number of shares of capital stock of
the Company which he would have owned or have been entitled to receive after the
happening of any of the foregoing events had such Debenture been converted
immediately prior to the happening of such event. Any adjustment made pursuant
to this subparagraph (e)(i) of this Article 3 shall become effective immediately
after the record date in the case of a dividend or distribution or the effective
date in the case of a subdivision or combination. If, as a result of an
adjustment made pursuant to this subparagraph (e)(i) of this Article 3, the
holder of any Debenture thereafter surrendered for conversion shall become
entitled to receive shares of two (2) or more classes of capital stock of the
Company, the Board of Directors (whose determination shall be conclusive and
shall be described in a written statement delivered to the Registered Holders of
the Debentures at their respective Payment Addresses) shall determine the
allocation of the adjusted conversion price between or among shares of such
classes of capital stock.
(ii) No adjustment in the conversion price shall be required unless
such adjustment would require an increase or decrease of at least two percent
(2%) in such price; provided, however, that any adjustments which by reason of
this subparagraph (e)(ii) of this Article 3 are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
adjustments under this Article 3 shall be made to the nearest whole share.
Anything in this Article 3 to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the conversion price, in addition to those
required by this Article 3, as it in its discretion shall determine to be
advisable in order that any stock dividends, subdivision of shares, distribution
of rights to purchase stock or securities, or distribution of securities
convertible into or exchangeable for stock hereafter made by the Company to its
stock holders shall not be taxable.
(iii) Whenever the conversion price is adjusted as herein provided, the
Company shall promptly deliver to the holders of the Debentures at their
respective Payment Addresses, a certificate certified by the Company's principal
financial and/or accounting officer setting forth: (1) the conversion price
after such adjustment; (2) a brief statement of the facts requiring such
adjustment; and (3) the date such adjustment becomes effective.
(f) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case
-5-
<PAGE>
of any consolidation or merger of the Company with or into another corporation
(other than a merger with a subsidiary in which merger the Company is the
continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock or
the class issuable upon conversion of this Debenture) or in case of any sale,
lease or conveyance to another corporation of the property of the Company as an
entirety, the Company shall, as a condition precedent to such transaction, cause
effective provisions to be made so that the holder of this Debenture shall have
the right thereafter by converting this Debenture, to acquire the kind and
amount of shares of stock and other securities and property receivable upon such
event by a holder of the number of shares of Common Stock which might have been
acquired upon conversion of this Debenture immediately prior to such event. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Debenture.
ARTICLE 4
Registration under the Securities Act of 1933.
(a) Piggyback Registration Rights. During the period commencing as of the date
hereof through May 31, 1999, the Company shall advise the Registered Holder of
this Debenture or the Debenture Shares or any then holder of the Debenture or
Debenture Shares (such persons being collectively referred to herein as
"holders") by written notice at least two weeks prior to the filing of any
registration statement under the Act (other than a registration statement on
Form S-4, Form S-8 or subsequent similar forms) that the Company intends to file
a registration statement covering securities of the Company and will upon the
request of any such holder, include in any such registration statement such
information as may be required to permit a public offering of the Debenture
Shares; provided, however, that if the registration statement relates to a
public offering by the Company of its securities and any managing underwriter
advises the Company that it believes the inclusion in the offering of securities
being sold by the holder would adversely affect the ability of the Company to
complete the public offering, then the holder will agree to reduce the number of
Debenture Shares to be registered to a number of shares which, when aggregated
with all other Debenture Shares (with such reductions to be made pro rata by
Debenture Shareholders) shall be not less than ten percent (10%) of the number
of shares being offered by the Company and the holder will further agree not to
make any sales of the securities so included for a period of ninety (90) days
from the effective date of such registration statement. The Company shall keep
such registration statement current for a period of up to nine (9) months from
the conclusion of such ninety (90) day period; provided, however, that the
Company shall not be required to keep the registration statement effective
beyond the date after which the registration statement must be amended to
include updated audited financial statements. The Company shall supply
prospectuses, qualify the Debenture and the Debenture Shares for sale in such
states as such holder reasonably
-6-
<PAGE>
requests and furnish indemnification in the manner as set forth in of this
Article 4. Such holders shall furnish information and indemnification in the
manner set forth in of this Article 4.
(b) Other Provisions Pertaining to Registration Rights. The following provision
of this Article 4 shall also be applicable:
(i) Within twenty (20) business days after receiving any such notice
pursuant to paragraph (a) of this Article 4, the Company shall give notice to
the other holders of Debentures and Debenture Shares, advising that the Company
is proceeding with such registration and offering to include therein the
Debenture Shares of such other holders, provided that they shall furnish the
Company with such appropriate information (relating to the intentions of such
holders) in connection therewith as the Company shall request in writing.
Following the effective date of such registration statement, the Company shall,
upon the request of any holder of Debentures and/or Debenture Shares, forthwith
supply such number of prospectuses meeting the requirements of the Act as shall
be requested by such holder to permit such holder to make a public distribution
of all Debenture Shares from time to time offered or sold by such holder,
provided that such holder shall from time to time furnish the Company with such
appropriate information (relating to the intentions of such holder) in
connection therewith as the Company shall request in writing. The Company shall
also use its best efforts to qualify the Debenture Shares for sale in such
states as the holders shall reasonably request.
(ii) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under paragraphs (a) and (b) of this
Article 4. Any holder whose Debenture Shares are included in any such
registration statement pursuant to this Article 4 shall, however, bear the fees
of his own counsel and accountants and any transfer taxes or underwriting
discounts or commissions applicable to the Debenture Shares sold by him pursuant
thereto.
(iii) The Company shall indemnify and hold harmless each such holder
from and against any and any losses, claims, damages and liabilities caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereto or any
registration statement under the Act or any prospectus included therein required
to be filed or furnished by reason of this Article 4 or any application or other
filing under any state securities law caused by any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading to which such holder may become subject under the Act,
the Securities Exchange Act of 1934, as amended, or other Federal or state
statutory law or regulation, at common law or otherwise, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission which is based upon information furnished or required to be
furnished to the Company by any such holder or any underwriter expressly for use
therein; provided, however, that any such holder shall at the same time
indemnify the Company, its directors, each officer signing the related
registration statement, each person, if any, who controls the Company within the
meaning of such Act and each other Holder,
-7-
<PAGE>
from and against any and all losses, claims, damages and liabilities caused by
any untrue statement of a material fact contained in any registration statement
or any prospectus required to be filed or furnished by reason of this Article 4
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or omission is based upon information furnished to the Company by any such
holder expressly for use therein.
(iv) Neither the giving of any notice by any such majority holder nor
the making of any request for prospectuses shall impose any upon such majority
holder or owner making such request any obligation to sell any Debentures or
Debenture Shares, or exercise any Debentures.
(c) Continuing Nature of Obligation. The Company's agreements with respect to
the Debentures or Debenture Shares in this Article 4 shall continue in effect
regardless of the conversion and surrender of this Debenture.
ARTICLE 5
Miscellaneous
(a) Notice to Company. Notice shall be given to the Company by certified mail,
return receipt requested. Notices to the Company shall be addressed to UNSI
Corporation, c/o Forstmann-Leff Associates, Inc, 55 East 52nd Street, New York,
New York 10055, Attention: Peter A. Lusk, Chairman of the Board, or such other
address as the Company may, from time to time advise the Registered Holders.
Notices to Registered Holders shall be addressed to their respective Payment
Addresses and shall be given by certified mail, return receipt requested.
Notices shall be deemed given on the date mailed.
(b) Governing Law. This Debenture shall be governed by the laws of the State of
New York applicable to agreements executed and to be performed wholly within
such state.
(c) Rights of Debenture Holder. Nothing in this Debenture shall be construed to
modify, amend or limit in any way the right of any holder of this Debenture to
bring an action against the Company in the event the Company fails to pay
principal of and interest on this Debenture when due, and if the holder of this
Debenture shall be required to commence a legal proceeding to enforce payment of
this Debenture, the Company shall pay the holder's reasonable legal fees and
expenses.
(d) Register. The Company shall keep at its principal office a register in which
the Company maintains a list of names and addresses of the holders of the
Debentures, (and any subsequent transfer or assignment) (the "Payment
Addresses")and shall provide for the registration of transfer of Debentures.
Until otherwise advised by the Registered Holder of this Debenture in accordance
-8-
<PAGE>
with paragraph (a) of this Article 5, the Company may treat the person in whose
name this Debenture is registered as the Registered Holder of such Debenture for
the purpose of receiving payment of principal and interest on such Debenture,
and for all other purposes relating to this Debenture.
UNSI CORPORATION
By:
------------------------------
Peter A. Lusk, Chairman of the
Board of Directors
-9-
<PAGE>
NOTICE OF CONVERSION
[To be Signed Only Upon Conversion
of Part or All of Debentures]
UNSI CORPORATION
The undersigned, the holder of the
foregoing Debenture, hereby surrenders such Debenture for conversion into shares
of Common Stock of UNSI CORPORATION to the extent of $_____________ * unpaid
principal amount of due on such Debenture, and requests that the certificates
for such shares be issued in the name of __________________, and delivered to
__________________, whose address is ___________________.
DATED:
- -----------------------------------------
(Signature)
(Signature must conform in all
respects to name of holder as specified on the face of the Debenture.)
* Insert here the unpaid principal amount of the Debenture (or, in the
case of a partial conversion, the portion thereof as to which the
Debenture is being converted). In the case of a partial conversion, a
new Debenture will be issued and delivered, representing the
unconverted portion of the unpaid principal amount of this Debenture,
to or upon the order of the holder surrendering such Debenture.
-10-
Exhibit 10.7
UNSI Corporation
c/o Forstmann-Leff Associates, Inc.
55 East 52nd Street
New York, New York 10055
June 27, 1996
Mr. Peter A. Lusk
447 East 57th Street
New York, New York 10022
Dear Mr. Lusk:
Pursuant to the Note Purchase Agreement dated March 21, 1996
(the "Agreement") between Live Picture, Inc., a California corporation ("Live
Picture"), and UNSI Corporation, a Delaware corporation ("UNSI"), UNSI purchased
Live Picture's $350,000 principal amount convertible promissory note dated March
21, 1996 (the "Note") and warrants (the "Warrants") to acquire capital stock of
Live Picture. Live Picture is currently conducting a private placement offering
of shares of its Series C Preferred Stock (the "Preferred Stock") at a price of
$2.00 per share. In accordance with the Agreement, UNSI has decided to exercise
its rights to exchange and/or convert the Note's principal and accrued interest
for shares of Live Picture's Preferred Stock (the "Securities") at the rate of
$1.80 per share. To ensure liquidity of its position in the Securities, you
hereby grant UNSI an option to sell the Securities to you in consideration for
having the option to purchase the Securities from UNSI on the terms and
conditions set forth herein.
1. UNSI shall have the right to sell to you, and you shall
have the right to purchase from UNSI, at any time after the date hereof and
prior to July 1, 1998, some or all of the Securities at the purchase prices per
share set forth below. During the period commencing the date hereof through
December 31, 1996, your purchase price to purchase the Securities from UNSI
shall equal $2.00 per share (subject to adjustment in the event of a stock
dividend, stock split, recombination or like occurrence) and for each successive
six month period thereafter (through June 30, 1998), such purchase price shall
increase an additional $.20 per share (subject to adjustment in the event of a
stock dividend, stock split, recombination or like occurrence). During the
period commencing the date hereof through June 30,
<PAGE>
Mr. Peter A. Lusk
June 27, 1996
Page 2
1998, UNSI shall be entitled to sell you the Securities at a purchase price
equal to $1.80 per share (subject to adjustment in the event of a stock
dividend, stock split, recombination or like occurrence). The foregoing rights
shall be exercised by a written notice and the closing of any purchase or sale
pursuant to either party's exercise of its respective options shall occur as
promptly as practicable, and in any event within fifteen (15) business days
after the date such notice is delivered.
2. All notices, requests and demands are to be given or made
to the parties at the addresses set forth above or to such other address as
either party may designate by notice in accordance with the provisions of this
paragraph and shall be deemed on the date notice is sent by certified mail, hand
delivery or facsimile telecopy. This agreement and the legal relations between
the parties hereto shall be governed by and construed in accordance with the
laws of the State of New York, applicable to contracts made and to be enforced
in such state.
Kindly acknowledge your agreement to the foregoing by signing
your name where indicated below.
UNSI Corporation
By: /s/Kenneth L. Dowd
Kenneth L. Dowd, Jr., President
/s/ Peter A. Lusk
Peter A. Lusk
<PAGE>
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<PERIOD-END> JUN-30-1996
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<SECURITIES> 69,815
<RECEIVABLES> 466,333
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0
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