SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: Commission File No.:
May 31, 1996 0-16442
FIRST TEAM SPORTS, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-1545748
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1201 Lund Boulevard
Anoka, Minnesota 55303
(Address of principal executive offices)
Registrant's telephone number, including area code:
(612) 576-3500
--------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes__x__ No_____
---------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,742,467 shares of Common
Stock, $.01 par value per share, outstanding as of July 8, 1996.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS
May 31, 1996 and February 29, 1996
May 31, February 29,
ASSETS 1996 1996
----------- -----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,476,281 $ 2,166,863
Receivables:
Trade, less allowance for
doubtful accounts of $595,000 at
May 31, 1996 and $486,000 at
February 29 1996 25,591,135 16,228,666
Income taxes -- 155,146
Inventory 23,810,053 22,813,850
Prepaid expenses 896,137 960,079
Deferred income taxes 827,000 827,000
----------- -----------
Total current assets $52,600,606 $43,151,604
----------- -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
at cost
Land $ 600,000 $ 600,000
Building 5,032,932 4,825,740
Production equipment 4,145,724 4,069,078
Office furniture and equipment 1,628,234 1,509,120
Warehouse equipment 321,159 315,509
Vehicles 46,925 46,925
----------- -----------
$11,774,974 $11,366,372
Less accumulated depreciation 1,843,189 1,511,689
----------- -----------
$ 9,931,785 $ 9,854,683
----------- -----------
OTHER ASSETS
License agreements, less accumulated
amortization of $2,604,000 at May
31, 1996 and $2,459,000 at February
29, 1996 $ 2,500,278 $ 2,645,268
Other 310,468 306,247
----------- -----------
$ 2,810,746 $ 2,951,515
----------- -----------
$65,343,137 $55,957,802
=========== ===========
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
May 31, 1996 and February 29, 1996
May 31, February 29,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1996
--------- ---------
(Unaudited)
CURRENT LIABILITIES
Notes payable to bank $11,934,250 $ 5,268,000
Current maturities of
long-term debt 928,980 943,060
Accounts payable, trade 8,584,738 9,462,883
Accrued expenses 2,091,294 2,532,676
Income taxes 1,314,156 --
----------- -----------
Total current liabilities $24,853,418 $18,206,619
----------- -----------
LONG-TERM DEBT,
less current maturities $ 6,671,715 $ 6,880,360
----------- -----------
DEFERRED INCOME TAXES $ 440,000 $ 440,000
----------- -----------
DEFERRED REVENUE $ 600,000 $ 600,000
----------- -----------
SHAREHOLDERS' EQUITY
Common Stock, par value $.01 per
share; authorized 10,000,000
shares; issued and outstanding
5,738,293 shares at May 31, 1996,
and 5,721,000 shares at February 29, 1996 $ 57,383 $ 57,210
Additional paid-in capital 9,488,619 9,396,802
Retained earnings 23,232,002 20,376,811
$32,778,004 $29,830,823
----------- -----------
$65,343,137 $55,957,802
=========== ===========
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For Three Months Ended May 31, 1996 and 1995
Three months ended
May 31,
1996 1995
----------- ----------
Net sales $ 30,586,799 $ 30,776,464
Cost of goods sold 21,504,002 21,257,180
------------ ------------
Gross profit $ 9,082,797 $ 9,519,284
------------ ------------
Operating expenses:
Selling $ 2,390,553 $ 2,593,206
General and
administrative 1,936,794 2,044,912
------------ ------------
$ 4,327,347 $ 4,638,118
Operating income $ 4,755,450 $ 4,881,166
Other income
(expense):
Interest income -- --
Interest expense (323,260) (263,959)
Other -- --
Income before income
taxes $ 4,432,190 $ 4,617,207
Income taxes 1,577,000 1,735,000
------------ ------------
Net income for the
period $ 2,855,190 $ 2,882,207
============ ============
Net income per
common share $ 0.48 0.48
============ ============
Weighted average
number of common
shares outstanding
including Common
Share equivalents 5,989,214 6,038,944
============ ============
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Three Months Ended May 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
May 31, May 31,
1996 1995
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,855,190 2,882,207
Adjustments required to reconcile net
income to net cash provided by (used in)
operating activities:
Depreciation 331,500 153,000
Amortization 144,990 175,679
Loss on retirement of equipment -- --
Deferred income taxes -- (150,000)
Change in assets and liabilities:
Receivables (9,362,469) (1,679,879)
Inventories (996,203) 3,067,661
Prepaid expense 63,942 4,541
Accounts payable (878,145) (358,519)
Accrued expenses (441,382) 445,779
Income taxes 1,469,303 1,695,854
----------- -----------
Net cash provided by (used in)
operating activities ($6,813,274) $ 6,236,323
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ($ 408,602) ($ 488,807)
Other (4,221) (34,747)
----------- -----------
Net cash used in investing activities ($ 412,823) ($ 523,554)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) on line of credit note $ 6,666,250 ($4,633,000)
Principal payments on long-term
borrowings (222,725) (320,115)
Net proceeds from
issuance's of common stock: 1996,
17,250 shares; 1995, 74,595 shares 91,990 402,527
----------- -----------
Net cash provided by (used in)
financing activities $ 6,535,515 ($4,550,588)
----------- -----------
Increase (decrease) in cash and
cash equivalents ($ 690,582) $ 1,162,181
Cash and cash equivalents:
Beginning $ 2,166,863 $ 601,394
----------- -----------
Ending $ 1,476,281 $ 1,763,575
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1.
The consolidated condensed balance sheet as of May 31, 1996, and the
consolidated statements of operations for the three-month periods ended May 31,
1996 and May 31, 1995 have been prepared by the Company without audit. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the consolidated financial position,
results of operations and cash flows at May 31, 1996 and May 31, 1995 and for
all periods presented have been made. The operating results for the period ended
May 31, 1996 are not necessarily indicative of the operating results to be
expected for the full fiscal year.
Certain information and footnote disclosures normally included in
consolidated financial statements in accordance with generally accepted
accounting principles have been condensed or omitted.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Net Sales. Net sales were $30.6 million in the first quarter of fiscal
1997 compared to $30.8 million in the first quarter of fiscal 1996. In-line
roller skate sales decreased 1%, accessories and parts decreased 3% and roller
hockey products decreased 37% from the first quarter of fiscal 1996 to fiscal
1997. Sales of in-line skates accounted for approximately 86% of total sales in
the first quarter of fiscal 1997 compared to 85% in the first quarter of fiscal
1996. Sales of accessories and parts accounted for approximately 12% of total
sales in the first quarter of fiscal 1997 and 1996. Street hockey equipment
accounted for approximately 2% of total sales in the first quarter of fiscal
1997 compared to 3% in the first quarter of fiscal 1996. Sales to the Company's
ten largest customers accounted for 55% of the Company's total sales in the
first quarter of fiscal 1997 compared to 58% of the Company's sales in the first
quarter of fiscal 1996.
The worldwide markets for the Company's products continue to grow and
expand. As a result, the Company was able to substantially increase its foreign
sales in the first quarter of fiscal 1997. Domestic sales were 64% of total net
sales in the first quarter of fiscal 1997 compared to 74% in the first quarter
of fiscal 1996, while export sales were 36% in the first quarter of fiscal 1997
compared to 26% in the first quarter of fiscal 1996. Sales in Canada and outside
North America were 11% and 15% of total net sales in the first quarter of fiscal
1997, respectively, compared to 14% and 12% in the first quarter of fiscal 1996,
respectively.
Several factors contributed to the Company's sales performance in the
first quarter of fiscal 1997. The lower percentage of domestic and Canadian
sales is a result of continued strong competition with our mass merchant
accounts and inclement weather this spring, which dampened the demand for
skates. The increased percentage of sales outside of North America is the result
of the Company's ability to capitalize on continued industry growth in the
foreign markets.
The Company's products continue to be endorsed by major sports figures
and celebrities including; Wayne Gretzky, NHL's all time leading scorer, Janet
Jones Gretzky and Brett Hull, one of NHL's prolific goal scorers.
Gross Margin. The Company's gross margin decreased $436,487 (or 5%)
between the first quarter of fiscal 1997 and the first quarter of fiscal 1996.
Gross margin as a percentage of net sales was 30% in the first quarter of fiscal
1997 compared to 31% in the first quarter of fiscal 1996. The decrease in the
gross margin percentage is primarily due to reduced gross margins on sales of
the Company's mass merchant products, which is a result of the strong
competition at the mass merchant level and the increase in the Company `s
foreign sales, which typically carry a slightly lower margin. The Company's
UltraWheels in-line skate sales and non-UltraWheels in-line skate sales
accounted for approximately 53% and 47% of total in-line skate sales in the
first quarter of fiscal 1997, respectively, compared to 46% and 54% of total
in-line skate sales in the first quarter of fiscal 1996.
<PAGE>
Operating Expenses. The Company's operating expenses, (consisting of
selling expenses and general and administrative expenses) were $4,327,347, or
14% of net sales, in the first quarter of fiscal 1997, compared to $4,638,118 or
15% of net sales in the first quarter of fiscal 1996.
Selling expenses decreased $202,653 (or 8%) between the first quarters
of fiscal 1997 and 1996, and were approximately 8% of net sales in both the
first quarter of fiscal 1997 and 1996. The decrease in selling expensed in the
first quarter of fiscal 1997 can be attributed to reduced endorsement royalties
and advertising costs associated with the product sales mix and the continue
efforts of management to control expenditures.
General and Administrative expenses decreased $108,118 (or 5%) between
the first quarters of fiscal 1997 and 1996, and were approximately 6% and 7% of
net sales in the first quarter of fiscal 1997 and 1996, respectively. The
decrease in general and administrative in the first quarter of fiscal 1997 was
the primarily the result of savings associated to the Company's new office and
warehouse facility and the continued efforts by management to control spending
and expenses.
Other Income and Expense. Interest expense in the first quarter of
fiscal 1997 was $323,260, or 1% of net sales, compared to $263,959, or 1% of net
sales, in the first quarter of fiscal 1996. The increase in interest expense in
the first quarter of fiscal 1997 was due to an increase in the use of the
Company's bank line of credit and the addition of the mortgage note associated
with the Company's new office and warehouse facility.
Net Income. Net income decreased $27,017 (or 1%) between the first
quarter of fiscal 1997 and 1996, and earning per share was $ .48 in both the
first quarter of fiscal 1997 and 1996. The consistent results between the first
quarter of fiscal 1997 and the first quarter of fiscal 1996 can be attributed to
the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $1,476,281 as of May 31,
1996, compared to $2,166,863 as of February 29, 1996. The decrease in cash and
cash equivalents is a result of $6,813,274 of cash used in operating activities
and $412,823 of cash used in investing activities being partially offset by
$6,535,515 of cash provided by financing activities. The net cash used in
operating activities was primarily from the increase in receivables and
inventory, the decrease in payables, and the net income for the quarter. The net
cash used in investing activities was primarily for the purchase of capital
assets. The net cash provided by financing activities was primarily proceeds
received on the Company's line of credit.
<PAGE>
The Company had net working capital of $27,747,188 as of May 31, 1996,
compared to $24,944,985 as of February 29, 1996. The Company's current ratio at
May 31, 1996 was 2.1 to 1 compared to 2.4 to 1 as of February 29, 1996. The
improvement in the Company's net working capital was primarily attributable to
an increase in the Company's receivables.
The Company's debt-to-worth ratio was 1 to 1 as of May 31, 1996,
compared to .9 to 1 as of February 29, 1996. The Company's long-term debt, which
consist primarily of the mortgage note on the Company's office and warehouse
facility and obligations under endorsement license agreements, less current
maturities, was $6,671,715 as of May 31, 1996. As of May 31, 1996, the Company
had a revolving line of credit established with a bank that provides for
borrowings of up to $15,000,000, of which $11,934,250 was outstanding. In
addition, the Company has a line of credit established with the bank providing
for borrowings of up to $1,000,000 for the purchase of equipment and
improvements. As of May 31, 1996, $104,621 was outstanding on the credit
facility.
The Company believes that its current cash position, funds available
under existing bank arrangements and cash generated from profitable operations
will be sufficient to finance the cash flows for operating activities at
projected levels of sales through fiscal 1997.
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Exhibit Index immediately following the signature page
of this Form 10-Q.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Registrant during the quarter to which this Form 10-Q relates.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST TEAM SPORTS, INC.
By: /s/ John J. Egart
John J. Egart
President and CEO
and By: /s/ Robert L. Lenius, Jr.
Robert L. Lenius, Jr.
Vice President and CFO
Dated: July 10, 1996
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-Q
For Quarter Ended: Commission File No.: 0-16422
May 31, 1996
FIRST TEAM SPORTS, INC.
Exhibit Number Description
3.1* Restated Articles of Incorporation
3.2 Bylaws -- incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-18 Reg. No.
33-16345C
4.1 Specimen of Common Stock Certificate--incorporated
by reference to 4.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1991
4.2 Certificate of Designations of Series A Preferred Stock
(included in Restated Articles of Incorporation -- see
Exhibit 3.1)
4.3 Rights Agreement dated as of March 15, 1996 between the
Company and Norwest Bank Minnesota, N.A. as Rights Agent --
incorporated by reference to Exhibit 2.1 to the Company's
Registration Statement on Form 8-A, Reg. No. 0-16422
4.4 Form of Right Certificate -- incorporated by
reference to Exhibit 2.2 to the Company's
Registration Statement on Form 8-A, Reg. No. 0-16422
4.5 Summary of Rights to Purchase Share of Series A Preferred
Stock - incorporated by reference to Exhibit 2.3 to the
Company's Registration Statement of Form 8-A, Reg. No. 0-16422
27* Financial Data Schedule (included in electronic version only)
*Filed herewith.
ARTICLES OF CORRECTION OF
RESTATED ARTICLES OF INCORPORATION
OF
FIRST TEAM SPORTS, INC.
Pursuant to the provisions of Minnesota Statutes, Section 5.16, the
Restated Articles of Incorporation filed by First Team Sports, Inc. on May 22,
1996 incorrectly restated the corporation's existing Articles and all amendments
thereto, which Restated Articles are hereby set forth correctly in their
entirety on Exhibit A hereto.
I swear that the foregoing is true and accurate and that I have the
authority to sign this document on behalf of the corporation.
Dated: July 8, 1996 /s/ John J. Egart
John J. Egart, President
<PAGE>
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
FIRST TEAM SPORTS, INC.
ARTICLE 1 - NAME
1.1) The name of the corporation shall be First Team Sports, Inc.
ARTICLE 2 - REGISTERED OFFICE
2.1) The registered office of the corporation is located at 1201 Lund
Boulevard, Anoka, Minnesota 55303.
ARTICLE 3 - CAPITAL STOCK
3.1) Authorized Shares. The aggregate number of shares the corporation
has authority to issue shall be 12,500,000 shares, which shall have a par value
of $.01 per share solely for the purpose of a statute or regulation imposing a
tax or fee based upon the capitalization of the corporation, and which shall
consist of 10,000,000 common shares, 680,000 shares of Series A Preferred Stock,
having the rights and preferences set forth on the Certificate of Designations
attached hereto as Attachment A, and 1,820,000 undesignated shares. The Board of
Directors of the corporation is authorized to establish from the undesignated
shares, by resolution adopted and filed in the manner provided by law, one or
more classes or series of shares, to designate each such class or series (which
may include but is not limited to designation as additional common shares), and
to fix the relative rights and preferences of each such class or series.
3.2) Issuance of Shares. The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, issue, sell and
deliver shares of any class or series of the corporation to such persons, at
such times and upon such terms and conditions as the Board shall determine,
valuing all nonmonetary consideration and establishing a price in money or other
consideration, or a minimum price, or a general formula or method by which the
price will be determined.
3.3) Issuance of Rights to Purchase Shares. The Board of Directors is
further authorized from time to time to grant and issue rights to subscribe for,
purchase, exchange securities for, or convert securities into, shares of the
corporation of any class or series, and to fix the terms, provisions and
conditions of such rights, including the exchange or conversion basis or the
price at which such shares may be purchased or subscribed for.
-1-
<PAGE>
3.4) Issuance of Shares to Holders of Another Class or Series. The
Board is further authorized to issue shares of one class or series to holders of
that class or series or to holders of another class or series to effectuate
share dividends or splits.
ARTICLE 4 - RIGHTS OF SHAREHOLDERS
4.1) No Preemptive Rights. No shares of any class or series of the
corporation shall entitle the holders to any preemptive rights to subscribe for
or purchase additional shares of that class or series of any other class or
series of the corporation now or hereafter authorized or issued.
4.2) No Cumulative Voting Rights. There shall be no cumulative voting
by the shareholders of the corporation.
ARTICLE 5 - LIMITATION OF DIRECTOR LIABILITY
5.1) To the fullest extent permitted by the Minnesota Business
Corporation Act, as the same exists or may hereafter be amended, a director of
this corporation shall not be personally liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director.
ARTICLE 6 - MERGER, EXCHANGE, SALE OF ASSETS AND DISSOLUTION
6.1) Where approval of shareholders is required by law, the affirmative
vote of the holders of at least a majority of the voting power of all shares
entitled to vote shall be required to authorize the corporation (i) to merge
into or with one or more other corporations, (ii) to exchange its shares for
shares of one or more other corporations, (iii) to sell, lease, transfer or
otherwise dispose of all or substantially all of its property and assets,
including its good will, or (iv) to commence voluntary dissolution.
ARTICLE 7 - AMENDMENT OF ARTICLES OF INCORPORATION
7.1) Any provision contained in these Articles of Incorporation may be
amended, altered, changed or repealed by the affirmative vote of the holders of
at least a majority of the voting power of all shares entitled to vote or such
greater percentage as may be otherwise prescribed by the laws of the State of
Minnesota.
- 2 -
<PAGE>
ATTACHMENT A
CERTIFICATE OF DESIGNATIONS
OF
SERIES A PREFERRED STOCK
OF
FIRST TEAM SPORTS, INC.
(Pursuant to Chapter 302A of the
Minnesota Business Corporation Act)
First Team Sports, Inc., a corporation organized and existing under the
Minnesota Business Corporation Act (hereinafter called the "Company"), hereby
certifies that the following resolution was adopted by the Board of Directors of
the Company as required by Section 302A.239 of the Minnesota Business
Corporation Act (the "MBCA") by unanimous written action of the Board of
Directors dated February 28, 1996:
RESOLVED, that, pursuant to the authority granted to and vested in the
Board of Directors of the Company (hereinafter called the "Board of Directors"
or the "Board") in accordance with the provisions of the Restated Articles of
Incorporation, as amended to date (hereinafter called the "Articles of
Incorporation"), the Board of Directors hereby creates a series of Preferred
Stock, par value $.01 per share (the "Preferred Stock"), of the Company and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Preferred Stock" (the "Series A Preferred Stock"), and
the number of shares constituting the Series A Preferred Stock shall be Six
Hundred Eighty Thousand (680,000). Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that, no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Company
convertible into Series A Preferred Stock.
- 3 -
<PAGE>
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of
the Company or Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the holders
of Common Stock, par value $.01 per share (the "Common Stock"), of the
Company, and of any other junior stock, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available
for the purpose, quarterly dividends payable in cash on the first day of
March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1 or (b)
subject to the provision for adjustment hereinafter set forth, 100 times
(as adjusted, the "Dividend Multiple") the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions, other than a
dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share
of Series A Preferred Stock. In the event the Company shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the
Dividend Multiple shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Company shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section immediately
after it declares a dividend or distribution on the Common Stock (other
than a dividend payable in shares of Common Stock); provided, that, in the
event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share
on the Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be
not more than sixty (60) days prior to the date fixed for the payment
thereof.
- 4 -
<PAGE>
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes (as adjusted, the "Vote Multiple") on all matters submitted to a
vote of the stockholders of the Company. In the event the Company shall at
any time declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the Vote
Multiple shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided in Section 10 hereof, in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A Preferred Stock
and the holders of shares of Common Stock and any other capital stock of
the Company having general voting rights shall vote together as one class
on all matters submitted to a vote of stockholders of the Company.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Company shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
- 5 -
<PAGE>
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
A Preferred Stock, provided that the Company may at any time redeem,
purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Company ranking junior (as to
dividends and upon dissolution, liquidation and winding up) to the
Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board) to all holders of such shares upon such terms as the
Board, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock subject to
the conditions and restrictions on issuance set forth herein, in the Articles of
Incorporation, or in any other Certificate of Designations creating a series of
Preferred Stock or any similar stock or as otherwise required by law.
- 6 -
<PAGE>
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (A) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received the greater of (i) $100 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment; or (ii) subject to the provision
for adjustment hereinafter set forth, 100 times (as adjusted, the "Liquidation
Preference Multiple") the aggregate amount to be distributed per share to
holders of shares of Common Stock, or (B) to the holders of shares of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except distributions made ratably
on the Series A Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Company shall at any
time declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the Liquidation Preference
Multiple shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, Etc. In case the Company shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times (as adjusted, the "Exchange Multiple")
the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Company shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the Exchange Multiple shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of Preferred Stock.
Section 10. Amendment. If any proposed amendment to the Articles of
Incorporation or this Certificate of Designation would alter or change the
preferences, special rights or powers given to the Series A Preferred Stock so
as to affect the Series A Preferred Stock adversely, or would authorize the
issuance of a class or classes of stock having preferences or rights with
respect to dividends or dissolutions or the distribution of assets that would be
superior to the preferences or rights of the Series A Preferred Stock, then the
holders of the Series A Preferred Stock shall be entitled to vote as a series
upon such amendment, and the affirmative vote of two-thirds of the outstanding
shares of Series A Preferred Stock shall be necessary to the adoption thereof,
in addition to such other vote as may be required by the MBCA.
- 7 -
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<PERIOD-START> MAR-01-1996
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