SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
Commission file number 0-19343
VSI Liquidation Corp.
(Exact name of Registrant as specified in its charter)
Delaware 34-1493345
(State of incorporation) (I.R.S. Employer Identification No.)
2170 Piedmont Road, N.E.
Atlanta, Georgia 30324
(404) 888-2750
(Address and telephone number of
principal executive offices)
Valley Systems, Inc.
11580 Lafayette Drive, NW
Canal Fulton, Ohio 44614
(Former name, former address and former
fiscal year, if changed since last report)
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No____
As of December 31, 1998, 7,906,617 shares of the Registrant's Common Stock,
$.01 par value, were outstanding.
<PAGE>
PART 1 - - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
VSI Liquidation Corp. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS December 31, 1998 June 30, 1998
(unaudited)
-------------------- ---------------
<S> <C> <C>
Current assets:
Cash $ 222,800 $ 207,492
Accounts receivable 5,053,024 5,740,394
Prepaid supplies 626,348 522,992
Prepaid expenses 159,350 155,439
Deferred expenses of asset sale 1,132,091 --
Deferred income taxes 5,985,000 --
------------- -------------
Total current assets 13,178,613 6,626,317
Property and equipment, net 9,994,390 8,896,650
Intangible assets, net 342,500 411,000
------------- -------------
Total assets $ 23,515,503 $ 15,933,967
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 748,083 $ 726,054
Accrued expenses 2,053,086 1,610,470
Current portion of long-term debt 501,099 659,257
------------- -------------
Total current liabilities 3,302,268 2,995,781
Long term debt 7,587,451 7,584,593
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value;
authorized 2,000,000 shares, issued and
outstanding 55,000 shares 5,500 5,500
Common stock, $.01 par value;
authorized 12,000,000 shares
issued and outstanding 7,906,617 shares at
December 31, 1998 and 8,512,073 shares at June
30, 1998 79,066 85,121
Paid-in capital 26,109,087 26,786,040
Accumulated deficit (13,567,869) (20,840,060)
Treasury stock, at cost, 605,456 shares -- (683,008)
------------- -------------
12,625,784 5,353,593
============= =============
Total liabilities and stockholders' equity $ 23,515,503 $ 15,933,967
============= =============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
VSI Liquidation Corp. and Subsidiaries
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
December 31 December 31
------------------------------- -------------------------------------
1998 1997 1998 1997
--------------- --------------- ---------------- -- -----------------
<S> <C> <C> <C> <C>
Sales $ 5,939,539 $ 6,058,003 $ 13,536,876 $ 11,913,956
Cost of sales 3,820,903 3,941,471 8,464,830 7,597,610
-------------- ----------- ------------ -------------
Gross Profit 2,118,636 2,116,532 5,072,046 4,316,346
Selling, general and
administrative expenses 1,503,138 1,830,697 3,288,732 3,571,799
Interest expense 163,091 155,032 303,623 309,251
-------------- ----------- ------------ -------------
Income from operations before
income taxes 452,407 130,803 1,479,691 435,296
Deferred income tax benefit (5,985,000) -- (5,985,000) --
--------------- ----------- ------------ -------------
Net income $ 6,437,407 $ 130,803 $ 7,464,691 $ 435,296
============== =========== ============ =============
Earnings per share:
Net earnings per common share
- basic $ .80 $ .00 $ .92 $ .30
============== =========== ============ =============
Net earnings per common share
- diluted
$ .80 $ .00 $ .92 $ .03
============== ============ ============ =============
Weighted average shares
used in computation -
basic and diluted 7,906,617 7,906,617 7,906,617 7,906,617
============== ============= ============ =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
VSI Liquidation Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
December 31
-----------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 7,464,691 $ 435,296
Adjustments to reconcile net income
to net cash flows from operating
activities:
Depreciation and amortization 1,476,569 1,395,582
Gain on disposition of property and equipment (31,625) (12,688)
Deferred income taxes (5,985,000) --
Deferred expenses of asset sale (1,132,091) --
(Increase) decrease in assets:
Accounts receivable 687,370 (244,724)
Prepaid supplies (103,356) 9,263
Prepaid expenses (3,911) (73,534)
Increase (decrease) in liabilities:
Accounts payable 22,029 (226,824)
Accrued expenses 538,866 (81,864)
----------- ------------
Cash provided by operating activities 2,933,542 1,200,507
----------- ------------
Cash flows from investing activities:
Additions to property and equipment (1,635,104) (1,431,696)
Proceeds from dispositions of property and equipment 31,625 52,736
----------- ------------
Cash used by investing activities (1,603,479) (1,378,960)
----------- ------------
Cash flows from financing activities:
Net payments (borrowings) on revolving line of credit (505,669) 97,678
Additional borrowings of long-term debt -- 400,000
Payments of other long-term debt (520,336) (210,626)
Payments of preferred stock dividends (288,750) (192,500)
----------- ------------
Cash (used by) provided by financing activities (1,314,755) 94,552
----------- ------------
Increase (decrease) in cash 15,308 (83,901)
Cash at beginning of period 207,492 200,093
---------- -----------
Cash at end of period $ 222,800 $ 116,192
========== ===========
Cash paid for:
Interest $ 307,410 $ 309,251
Non-cash investing activities:
Property and equipment acquired with capital leases $ 870,705 $ 178,517
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
VSI Liquidation Corp. and Subsidiaries
Consolidated Statement of Stockholders' Equity
for the six months ended December 31, 1998
<TABLE>
<CAPTION>
Preferred Common Paid-in Accumulated Treasury
Stock (1) Stock (2) Capital Deficit Stock Total
---------- ---------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1998 $ 5,500 $85,121 $26,786,040 $(20,840,060) $(683,008) $ 5,353,593
Retirement of treasury (6,055) (676,953) 683,008 --
stock
Net Income 7,464,691 7,464,691
Series C preferred
dividends (192,500) (192,500)
---------- ---------- -------------- ------------- ------------- ------------
Balance, December 31, 1998 $5,500 $79,066 $26,109,087 $(13,567,869) $ -- $12,625,784
========== ========== ============== ============= ============= ============
</TABLE>
(1) Share amounts are equivalent to ten times dollar amounts
(2) Share amounts are equivalent to one hundred times dollar amounts
See notes to consolidated financial statements.
5
<PAGE>
VSI Liquidation Corp. and Subsidiaries
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION:
Reference is made to the annual report on Form 10-K, as amended, filed
September 28, 1998 for the fiscal year ended June 30, 1998.
The financial statements for the periods ended December 31, 1998 and
1997 are unaudited and include all adjustments which, in the opinion of
management, are necessary for a fair statement of the results of
operations for the periods then ended. All such adjustments are of a
normal recurring nature. The results of the Company's operations for
any interim period are not necessarily indicative of the results of the
Company's operations for a full fiscal year.
2. INCOME TAXES:
The Company has approximately $17,600,000 of net operating loss
carryforwards for future years, which cannot be utilized to create tax
refunds. Such amounts begin to expire in the year 2005. The Company
expects to utilize all of these net operating loss carryforwards in
1999 as a result of the sale of substantially all of its assets to
HydroChem Industrial Services, Inc. ("HydroChem"), as detailed in Note
5. At June 30, 1998, the Company had approximately $19,100,000 of net
operating loss carryforwards for future years and had recorded a full
valuation allowance of approximately $7,400,000 against the resulting
net deferred tax assets, as it was not deemed more likely than not
that such net deferred tax assets were realizable. This valuation
allowance was completely reversed in the three months ended December
31, 1998 based on the utilization of approximately $1,500,000 of the
loss carryforwards to offset the six month taxable income and due to
the sale to HydroChem, as discussed in Note 5.
3. CONTINGENCIES:
The Company is involved in various litigation arising in the ordinary
course of business. Management believes that the ultimate resolution of
such litigation will not have a material effect on the Company's
operations, cash flows or financial position.
4. INCOME PER COMMON SHARE:
Basic earnings per common share are computed by dividing net income
less preferred stock dividend requirements ($96,250 per quarter for
all periods presented) for the period by the weighted average number of
shares of common stock outstanding for the period. Diluted earnings per
common share do not vary from basic earnings per share for any of the
periods presented because there were no dilutive potential shares of
common stock outstanding. The dilutive effect of outstanding potential
shares of common stock is computed using the treasury stock method.
6
<PAGE>
5. SUBSEQUENT EVENT:
On September 8, 1998, the Company entered into a Second Amended and
Restated Asset Purchase Agreement (the "Purchase Agreement") whereby
essentially all assets of the Company would be sold to, and
substantially all liabilities of the Company would be assumed by,
HydroChem. The purchase price for these assets and liabilities was
approximately $29.8 million, adjusted for increases or decreases in
net assets after June 30, 1998. $4.0 million of the proceeds was to be
placed in escrow to secure and indemnify HydroChem for any breach of
the Company's covenants and for any environmental liabilities. Escrow
funds, to the extent not needed to indemnify HydroChem, will be
released over the next three years. This transaction closed on January
5, 1999, and was effective as of January 1, 1999. Costs totaling
$1,132,000 had been incurred by the Company at December 31, 1998 and
will be offset against the gain recognized on the sale in 1999. These
costs are deferred and reflected as a current asset on the December
31, 1998 balance sheet.
The Company changed its name to VSl Liquidation Corp. after the closing
of this transaction, and will not have any business operations other
than those associated with the winding up and dissolution of the
Company, including distribution of any escrow funds released to the
Company, payment of approximately $5.5 million of the proceeds of the
sale to redeem the outstanding shares of Series C Preferred Stock,
payment of approximately $380,000 to redeem outstanding employee stock
options and payment of approximately $165,000 as a retention bonus to
certain officers and employees. The Company also paid a liquidating
dividend of $16.8 million ($2.13 per common share) to common stock
holders in January 1999 from the proceeds of the sale.
The following summarizes the assets and the liabilities sold under the Purchase
Agreement:
<TABLE>
<CAPTION>
Balance 12/31/98 Amount Sold Balance After Sale
<S> <C> <C> <C>
Cash $ 222,800 $ 222,800 $ --
Accounts Receivable 5,053,024 5,015,019 38,005
Prepaid supplies 626,348 626,348 --
Prepaid expenses 159,350 78,574 80,776
Deferred expenses of asset sale 1,132,091 -- 1,132,091
Deferred income taxes 5,985,000 -- 5,995,000
Property and equipment, net 9,994,390 9,994,390 --
Intangible assets 342,500 342,500 --
------------ ----------- -----------
Total assets 23,515,503 16,279,631 7,235,872
------------ ----------- -----------
Accounts payable 748,083 748,083 --
Accrued expenses 2,053,086 879,275 1,173,811
Long-term debt 8,088,550 8,088,550 --
------------ ----------- -----------
Total liabilities 10,899,719 9,715,908 1,173,811
------------ ----------- -----------
Net assets $ 12,625,794 $ 6,563,723 $ 6,062,061
============ =========== ===========
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS:
Three months ended December 31, 1998 as compared to the three months ended
December 31, 1997:
Sales in the three months ended December 31,1998 decreased by $118,000, or 2.0%,
from the comparable period in 1997. The decrease was primarily caused by less
turnaround work in Gulf Coast refineries. The decrease in this type of work was
partially offset by increased revenues in the Northeast from the FirstEnergy
Corp. vacuum and waterblasting contract that was awarded to the Company in May
1998.
The decrease in refinery turnaround work and the FirstEnergy contract had
significant effects on the mix of revenues in the three primary service lines of
the Company. Ultra-high pressure waterjetting sales decreased by 28% in 1998 as
compared to 1997, and represented 33% of total sales compared to 45% in 1997.
Vacuum sales increased 48% in 1998 from 1997 and represented 42% of total sales
compared to 28% in 1997. Waterblasting sales decreased 17% in 1998 and
represented 17% of total sales compared to 20% in the prior year.
Despite the decrease in ultra-high pressure waterjetting sales, which have
historically been the Company's most profitable service line, gross margin as a
percentage of sales increased from 35% in the 1997 period to 36% in 1998.
Increased labor costs resulting from higher levels of vacuum sales were more
than offset by lower maintenance and fuel expenses.
Selling, general and administrative expenses decreased by $328,000, or 18%, in
1998 compared to 1997. The drop was primarily in personnel costs as a result of
management's continuing efforts to control expenses. Occupancy costs also were
reduced as a result of the purchase of the Company's headquarters facilities.
Interest expense increased 5% in 1998 from 1997, and represented 3% of sales in
each period.
The Company had income before income taxes of $452,000 in 1998, an increase of
245% from $131,000 in 1997. Recognizing the net deferred tax asset balance,
which was fully reserved in prior periods, resulted in a deferred income tax
benefit of $5,985,000 in 1998. This improved net income to $6,437,000 in 1998,
or $.80 per share.
This compares to net income of $131,000 in 1997, or $.00 per share.
Six months ended December 31, 1998 as compared to the six months ended December
31, 1997:
Sales in the six months ended December 31, 1998 increased by $1.6 million, or
13.6%, form the comparable period in 1997. The increase was partially
attributable to the vacuum and waterblast contract with FirstEnergy Corp. that
was awarded to the Company in May 1998. Revenues from this contract began in
late June 1998. The sales increase also resulted from the Company's work in New
York abating lead paint on the exterior of masonry buildings.
8
<PAGE>
The FirstEnergy Corp. work had a significant effect on the mix of revenues in
the three primary service lines of the Company. Vacuum sales increased by 49% in
1998 over 1997, and represented 37% of total sales compared to 28% in 1997.
Ultra-high pressure waterjetting sales decreased by 11 % in the six months ended
December 31, 1998, and represented 37% of total sales compared to 47% in the
prior year. This decrease was primarily due to less turnaround work in
refineries in the Gulf Coast area. Waterblasting sales increased 10% in 1998
from 1997 and represented 19% of sales in both periods.
Despite the drop in sales of ultra-high waterjetting services, which have
historically been the Company's most profitable service line, gross margin
increased to 37% of sales in 1998, up from 36% in 1997. Increased labor costs
resulting from higher levels of vacuum and waterblasting sales were more than
offset by lower maintenance and fuel expenses.
Selling, general and administrative expenses decreased by $283,000, or 8%, in
1998 compared to 1997. The drop was primarily in personnel costs as a result of
management's continuing efforts to control expenses. Occupancy costs also were
reduced as a result of the purchase of the Company's headquarters facilities.
Interest expense decreased 2% in 1998 from 1997, and represented 2% of sales in
each period.
The Company had income before income taxes of $1,480,000 in 1998, an increase of
240% from $435,000 in 1997. Recognizing the net deferred tax asset balance,
which was fully reserved in prior periods, resulted in a deferred income tax
benefit of $5,985,000 in 1998. This improved net income to $7,465,000 in 1998,
or $.92 per share.
This compares to net income of $435,000 in 1997, or $.03 per share.
LIQUIDITY AND CAPITAL RESOURCES:
On January 5, 1999, the Company completed the sale of substantially all of its
operating assets and the operating assets of its wholly-owned subsidiary, Valley
Systems of Ohio, Inc. ("VSO"), to HydroChem, pursuant to the Purchase Agreement,
dated as of September 8, 1998, among the Company, VSO and HydroChem for
approximately $29.8 million in cash, of which $25.8 million was payable
immediately and $4 million was deposited into an escrow account to secure
certain indemnification and other rights under the Purchase Agreement, and the
assumption of the Company's and VSO's bank debt and certain other liabilities.
Of the $25.8 million received at closing, after payment or making reasonable
provision for the payment of all known and anticipated liabilities and
obligations of the Company through the establishment of an approximately $3.8
million contingency reserve for expenses and income taxes, payment of
approximately $5.5 million to repurchase all of the 55,000 shares of the
Company's outstanding Series C Preferred Stock held by Rollins Holding Company,
Inc., payment of approximately $380,000 to redeem outstanding employee stock
options and payment of approximately $165,000 as a retention bonus to certain
officers and employees, approximately $16.8 million of the sale proceeds
remained and were available for distribution to stockholders pursuant to the
Plan of Liquidation and Dissolution adopted by the Company.
On January 29, 1999, an initial liquidating cash dividend of approximately $16.8
million ($2.13 per share) was mailed to stockholders of record at the close of
business on January 22, 1999. The Company now has no further assets to
distribute and expects to have no additional assets in the future other than
cash received from the escrow account referenced above and cash remaining in the
contingency reserve, if any.
9
<PAGE>
The Company expects that, subject to any claims which may be made by HydroChem,
the escrowed funds will be released on or about the first, second, and third
anniversaries of the closing date in amounts of approximately $1 million,
respectively, on each such date, with up to an additional $1 million being
released at such time as the Company delivers to HydroChem a certificate
regarding certain environmental remediation matters. There can be no guarantee,
however, that these funds, or any portion thereof, will be released to the
Company. As escrowed funds, if any, are released to the Company, they will be
utilized to pay any unanticipated unpaid expenses, with the remainder to be
distributed as a liquidating cash dividend to stockholders as soon as is
practicable.
The Company will not engage in any further business activities and the only
remaining activities will be those associated with the winding up and
dissolution of the Company. The Company believes that the $3.8 million
contingency reserve will be sufficient to meet its liabilities and obligations
until the Company is dissolved in accordance with Delaware law.
YEAR 2000 ISSUE:
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. This could result
in a system failure or miscalculations if a computer program recognizes a date
of "00" as the year 1900 instead of 2000. The Company has assessed the Year 2000
issue with regard to third parties with which the Company has material
relationships.
The Company has identified third parties with which it has material
relationships with respect to the Year 2000 issue. These parties are primarily
large financial, telecommunication and information processing entities. All such
third parties have reported to the Company that they are on schedule with their
projects to remediate Year 2000 issues, and that they anticipate being Year 2000
compliant on a timely basis. The Company intends to continue to monitor the
progress of these third parties and will develop contingency plans during Fiscal
1999 in the event one or more of these third parties fail to remediate their
Year 2000 issues in such a way as to materially affect the winding up operations
of the Company. At this time, the Company believes the risk of such third party
failures having a material impact on the Company's winding up operations is
remote.
FORWARD LOOKING STATEMENTS:
Forward-looking statements in this Form 10-Q are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Potential risks and uncertainties
include, but are not limited to, the possibility that HydroChem will
successfully assert claims against funds held in the escrow account, the
possibility that the costs of winding up the Company's affairs could exceed the
Company's projections and general business and economic conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
10
<PAGE>
PART II - - OTHER INFORMATION
Item 1. Legal Proceedings: None.
Item 2. Changes in Securities And Use of Proceeds: Not Applicable
Item 3. Defaults Upon Senior Securities: Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On or about December 14, 1998, the Company furnished to the holders of record at
the close of business on November 23, 1998 (the "Consent Record Date") an
Information Statement to inform the Company's stockholders of certain action
that had been taken by the Company pursuant to approval of its Board of
Directors and by the written consent of the holders of a majority of the
outstanding shares of Common Stock and Series C Preferred Stock of the Company,
voting together as a single class.
The actions involved (i) the sale (the "Sale") of substantially all of the
assets of the Company and of its wholly-owned subsidiary, Valley Systems of
Ohio, Inc., an Ohio corporation, to HydroChem, a Delaware corporation, (ii) the
approval of a Plan of Liquidation and Dissolution (the "Plan") for the Company,
and (iii) the approval of an amendment (the "Amendment") to the Company's
Certificate of Incorporation to change the Company's name to VSI Liquidation
Corp.
The Sale was approved by the Board of Directors on September 8, 1998 and the
Plan and the Amendment was approved by the Board of Directors on December 11,
1998. Each above- referenced proposal was approved by the written consent of
Rollins Investment Fund, the holder of a majority of the outstanding shares of
Common Stock, and Rollins Holding Company, Inc., the holder of all of the
outstanding shares of Series C Preferred Stock, on December 11, 1998.
Item 5. Other Information: None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description
2.1 Second Amended and Restated Asset Purchase Agreement, dated as of September
8, 1998, among the Company, Valley Systems of Ohio, Inc. and HydroChem
Industrial Services, Inc. (Incorporated herein by reference to Appendix A
of the Registrant's Definitive Information Statement filed with the
Securities and Exchange Commission on December 15, 1998.)
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1
to the Company's Registration Statement on Form S-1, and incorporated
therein by reference.)
11
<PAGE>
3.2 Certificate of Amendment of Certificate of Incorporation of the Company
(filed as Exhibit 3.2 to the Company's Form 10-K dated September 25, 1995,
and incorporated herein by reference.)
3.3* Certificate of Correction of Certificate of Amendment of Certificate of
Incorporation of the Company
3.4* Certificate of Elimination of Series A Preferred Stock and Series B
Preference Stock of the Company
3.5* Certificate of Amendment of Certificate of Incorporation of the Company
3.6 Bylaws of the Company, as amended, (filed as Exhibit 3.3 to the Company's
Form 10-K dated September 25, 1995 and incorporated herein by reference.)
10.1 Plan of Liquidation and Dissolution (Incorporated herein by reference to
Appendix C of the Registrant's Definitive Information Statement filed with
the Securities and Exchange Commission on December 15, 1998.)
27 Financial Data Schedule
- -----------------
* Filed herewith.
(b) Reports on Form 8-K.
None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
VSI LIQUIDATION CORP.
Date: February 15, 1999 By: /s/ Joe M. Young
----------------
Joe M. Young
Director and Acting Financial Officer
13
CERTIFICATE OF CORRECTION
OF CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF
VALLEY SYSTEMS, INC.
Valley Systems, Inc., a Delaware corporation (the "Corporation"), pursuant
to Section 103(f) of the General Corporation Law of the State of Delaware,
certifies:
FIRST: That the Certificate of Incorporation which was filed with the
Secretary of the State of Delaware on March 6, 1995, could be read to
be an inaccurate record of the corporate action therein referred to.
SECOND: That said Certificate of Incorporation states that the Article
shall be and read as follows:
"FOURTH: The aggregate number of shares of capital stock which
the Corporation shall have authority to issue is FOURTEEN MILLION
(14,000,000) shares consisting of:
a) 12,000,000 shares of common stock, $.01 par value
per share (the "Common Stock"); and
b) 2,000,000 shares of preferred stock, $.10 par value
per share (the "Preferred Stock")."
THIRD: Article FOURTH in correct form is as follows:
"FOURTH: The aggregate number of shares of capital stock
which the Corporation shall have authority to issue is
FOURTEEN MILLION (14,000,000) shares consisting of:
a) 12,000,000 shares of common stock, $.01 par value
per share (the "Common Stock"); and
b) 2,000,000 shares of preferred stock, $.10 par value
per share (the "Preferred Stock").
14
<PAGE>
PART A
COMMON STOCK
1. General.
(a) Each share of Common Stock issued and outstanding shall be
identical in all respects one with the other, and no dividends shall be paid on
any shares of Common Stock unless the same dividend is paid on all shares of
Common Stock outstanding at the time of such payment.
(b) Except for and subject to those rights expressly granted to the
holders of the Preferred Stock, or except as may be provided by the Delaware
General Corporation Law, the holders of Common Stock shall have exclusively all
other rights of stockholders including, but not by way of limitation (i) the
right to receive dividends, when, as and if declared by the Board of Directors
out of assets lawfully available therefor, and (ii) in the event of any
distribution of assets upon liquidation, dissolution or winding up of the
Corporation or otherwise the right to receive ratably and equally all the assets
and funds of the Corporation remaining after payment to the holders of the
Preferred Stock of the Corporation of the specific amounts which they are
entitled to receive upon such liquidation, dissolution or winding up of the
Corporation as herein provided.
(c) In the event that the holder of any share of Common Stock shall
receive any payment of any dividend on, liquidation of, or other amounts payable
with respect to, any shares of Common Stock, which he is not then entitled to
receive, he will forthwith deliver the same to the holders of shares of
Preferred Stock (as their respective interests may appear), as the case may be,
in the form received, and until it is so delivered will hold the same in trust
for such holders.
(d) Each holder of shares of Common Stock shall be entitled to one vote
for each share of such Common Stock held by him, and voting power with respect
to all classes of securities of the Corporation shall be vested solely in the
Common Stock, other than as specifically provided in the Corporation's
Certificate of Incorporation, as it may be amended, with respect to the
Preferred Stock.
PART B
PREFERRED STOCK
Authority is hereby vested in the Board of Directors of the corporation
to provide for the issuance of Preferred Stock in one or more classes or series
and in connection therewith to fix by resolution providing for the issue of such
classes or series, the number of shares to be included and such of the
preferences and relative participating, optional or other special rights and
limitations of such classes or series, including, without limitation, rights of
redemption or conversion into Common Stock, to the fullest extent now or
hereafter permitted by the Delaware General Corporation Law.
15
<PAGE>
Designation of Rights and Preferences
of
Series A Preferred Stock
That pursuant to authority contained in the Articles of Incorporation and
By-laws of the Company, the Board of Directors authorized the issuance of a
series of Preferred Stock, to be designated as Series A Preferred Stock,
consisting of up to 100,000 shares, which shall have the following rights,
preferences and limitations.
TERMS AND PROVISIONS OF SERIES A PREFERRED STOCK
1. Dividends. The holders of the Series A Preferred Stock shall not be
entitled to receive any dividends.
2. Voting Rights. The holders of Series A Preferred Stock shall be entitled
to notice of any shareholders' meeting and shall be entitled to one vote for
each share of Series A Preferred Stock held. The holders of Series A Preferred
Stock shall not vote as a class (except as otherwise required by applicable
law).
3. Liquidation.
(a) In the event of any liquidation, dissolution, or winding up of the
affairs of the Company, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Company,
the holders of the Series A Preferred Stock shall be entitled to receive,
out of the remaining assets of the Company, the amount of ten cents ($.10)
in cash for each share of Series A Preferred Stock, before any distribution
shall be made to the holders of the Common Stock or any other capital stock
of the Company expressly made junior in liquidation to the Series A
Preferred Stock. If upon any liquidation, dissolution or winding up of the
Company the assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series A
Preferred Stock and/or to the holders of other series of preferred stock
ranking on parity on liquidation to the Series A Preferred Stock, the full
amounts to which they respectively shall be entitled, the holders of shares
of Series A Preferred Stock shall share ratably with other series of
preferred stock ranking on parity with the Series A Preferred Stock in any
distribution of assets according to the respective amounts which would be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full. In the
event of any liquidation, dissolution or winding up of the Company after
payment shall have been made to the holders of Series A Preferred Stock of
the full amount to which they shall be entitled as aforesaid, holders of
any class or classes of stock ranking on liquidation junior to the Series A
Preferred Stock shall be entitled, to the exclusion of the holders of
shares of Series A Preferred Stock, to share according to their respective
rights and preferences, in all remaining assets of the Company available
for distribution to its stockholders.
(b) For purposes hereof, a distribution of assets in any dissolution,
winding up or liquidation shall not include (i) any consolidation or merger
of the Company with or into any other corporation, (ii) any dissolution,
liquidation, winding up, or reorganization of the Company immediately
16
<PAGE>
followed by reincorporation of another corporation, or (iii) a sale or
other disposition of all or substantially all of the Company's assets to
another corporation; provided, that in each case, effective provision is
made in the certificate of incorporation of the resulting and surviving
corporation or otherwise for the protection of the rights and priority of
the holders of the Series A Preferred Stock such that the rights and
priority are not adversely affected thereby.
4. Ranking of Series A Preferred Stock. The Series A Preferred Stock
shall rank senior to all shares of Common Stock and either senior to or on
parity with all other series of preferred stock of the Company authorized
and issued hereafter.
5. Convertibility.
(a) Conversion. Each share of the Series A Preferred Stock shall
be convertible at the option of the holder at the office or agency of
the transfer agent for the Company for that purpose and at such other
place or places, if any, as the Board of Directors may determine, into
one (1) fully paid and nonassessable share of Common Stock only upon
the following terms and conditions:
(i) if the Company reports audited net income after taxes of
$1,300,000 or greater for the fiscal year ending June 30, 1991,
33,333.33 or 1/3 of the shares of the Series A Preferred Stock
may be converted into 33,333.33 shares of Common Stock;
(ii) if the Company reports audited net income after taxes
of $2,200,000 or greater for the fiscal year ending June 30,
1992, an additional 33,333.33 shares of the Series A Preferred
Stock may be converted into 33,333.33 shares of Common Stock;
provided, that if the aggregate net income of the Company for the
two fiscal years ended June 30, 1992 equals or exceeds
$3,500,000, an aggregate of 66,666.66 or 2/3 of the shares of the
Series A Preferred Stock may be converted into 66,666.66 shares
of Common Stock; and
(iii) if the Company reports audited net income after taxes
of $2,800,000 or greater for the fiscal year ending June 30,
1993, the remaining 33,333.33 shares of the Series A Preferred
Stock may be converted into 33,333.33 shares of Common Stock;
provided that if the aggregate net income of the Company for the
two fiscal years ended June 30, 1993 equals or exceeds
$5,000,000, any and all of the balance of the 100,000 shares of
Series A Preferred Stock may be converted into shares of Common
Stock, irrespective of the number of shares of Series A Preferred
Stock previously subject to conversion.
6. Redemption.
(a) Mandatory Redemption. Any remaining shares of Series A Preferred
Stock will be redeemed by the Company thirty (30) days following the
completion of the Company's audited financial statements for the fiscal
year ended June 30, 1993, at the Redemption Price of $.10 per share.
(b) Redemption Procedures. At least ten (10) days but not more than
twenty (20) days prior to the date fixed for the redemption of shares of
the Series A Preferred Stock, a written notice shall be mailed to each
17
<PAGE>
holder of record of shares of Series A Preferred Stock to be redeemed in a
postage prepaid envelope addressed to such holder at his post office
address as shown on the records of the Company, notifying such holder of
the redemption of the number of such shares to be redeemed, stating the
date fixed for redemption thereof (hereinafter referred to as the
"Redemption Date"), the redemption price to be paid therefor, and calling
upon such holder to surrender to the Company on the Redemption Date at the
place designated in such notice of redemption. On or after the Redemption
Date each holder of shares of Series A Preferred Stock to be redeemed shall
be present and surrender its certificate or certificates for such shares to
the Company at the place designated in such notice and thereupon the
redemption price of such shares shall be paid to or on the order of the
person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be canceled. In case less
than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares. From and
after the Redemption Date (unless default shall be made by the Company in
payment of the redemption price), all rights of the holders of Series A
Preferred Stock as stockholders of the Company, except the right to receive
the redemption price thereof upon the surrender of certificates
representing the same, shall cease and terminate and such shares shall not
thereafter be transferred (except with the consent of the Company) on the
books of the Company, and such shares shall not be deemed to be outstanding
for any purposes whatsoever.
Shares of Series A Preferred Stock redeemed pursuant hereto shall
not be reissued.
7. Authorization. This Certificate of Designation of Rights and Preferences
was authorized by the unanimous written consent of the Board of Directors and/or
a vote in favor of the filing of this Certificate with the appropriate
authorities by a majority of the Board of Directors at a duly held meeting of
said Board of Directors.
Designation of Rights and Preferences
of
Series B Preferred Stock
That pursuant to authority contained in the Articles of Incorporation and
by-laws of the Company, the Board of Directors authorized the issuance of a
series of Preferred Stock, to be designated as Series B Preferred Stock,
consisting of 20,000 shares, which shall have the following rights, preferences
and limitations.
TERMS AND PROVISIONS OF SERIES B PREFERRED STOCK
1. Dividends. The holders of the Series B Preferred Stock shall not be
entitled to receive any dividends.
2. Voting Rights. The holders of the Series B Preferred Stock shall not,
except as required by law or as set forth herein, have any right or power to
vote on any question or in any proceeding or to be represented on any question
or in any proceeding or to be represented at, or to receive notice of, any
meeting of stockholders.
18
<PAGE>
3. Liquidation.
(a) In the event of any liquidation, dissolution, or winding up of the
affairs of the Company, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Company,
the holders of the Series B Preferred Stock shall be entitled to receive,
out of the remaining assets of the Company, the amount of ten cents ($.10)
in cash for each share of Series B Preferred Stock, before any distribution
shall be made to the holders of the Common Stock or any other capital stock
of the Company expressly made junior in liquidation to the Series B
Preferred Stock. If upon any liquidation, dissolution or winding up of the
Company the assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series B
Preferred Stock and/or to the holders of other series of preferred stock
ranking on parity on liquidation to the Series B Preferred Stock, the full
amounts to which they respectively shall be entitled, the holders of shares
of Series B Preferred Stock shall share ratably with holders of Series A
Preferred Stock and any other series of preferred stock ranking on parity
with the Series B Preferred Stock in any distribution of assets according
to the respective amounts which would be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with
respect to said shares were paid in full. In the event of any liquidation,
dissolution or winding up of the Company after payment shall have been made
to the holders of Series B Preferred Stock of the full amount to which they
shall be entitled as aforesaid, holders of any class or classes of stock
ranking on liquidation junior to the Series B Preferred Stock shall be
entitled, to the exclusion of the holders of shares of Series B Preferred
Stock, to share according to their respective rights and preferences, in
all remaining assets of the Company available for distribution to its
stockholders.
(b) For purposes hereof, a distribution of assets in any dissolution,
winding up or liquidation shall not include (i) any consolidation or merger
of the Company with or into any other corporation, (ii) any dissolution,
liquidation, winding up, or reorganization of the Company immediately
followed be reincorporation of another corporation, or (iii) a sale or
other disposition of all or substantially all of the Company's assets to
another corporation; provided, that in each case, effective provision is
made in the certificate of incorporation of the resulting and surviving
corporation or otherwise for the protection of the rights and priority of
the holders of the Series B Preferred Stock such that the rights and
priority are not adversely affected thereby.
4. Ranking of Series B Preferred Stock. The Series B Preferred Stock shall
rank senior to all shares of Common Stock and either senior to or on parity with
all other series of preferred stock of the Company authorized and issued
hereafter except for the outstanding Series A Preferred Stock which shall rank
senior hereto.
5. Convertibility. Each share of Series B Preferred Stock shall be
convertible, at any time from the date of issuance through and including
December 31, 1993 (the "Conversion Period"), at the option of the holder, by
written notice to the Company (the "Conversion Notice") into a minimum of one
(1) share of Company Common Stock and a maximum of ten (10) shares of Company
Common Stock, based upon the "average market price" (as defined in Section 3(c)
below) of the Company's Common Stock immediately prior to the date of the
Conversion Notice.
19
<PAGE>
(i) In the event and to the extent that any shares of Series B
Preferred Stock are not converted into Company Common Stock by the
expiration of the Conversion Period, such shares of Series B Preferred
Stock shall thereafter no longer be convertible into Company Common
Stock, and may thereafter be redeemed in accordance with Section 6
hereof.
(ii) In the event that the "average market price" (as that term
is hereinafter defined) of the Company's Common Stock is equal to or
less than five ($5.00) dollars per share (the "Initial Price"), then
each share of the Series B Preferred Stock shall be convertible into
one full share of Common Stock, or an aggregate of 20,000 shares of
Common Stock upon conversion of all 20,000 shares of Series B
Preferred Stock. In the event that the "average market price" of the
Company's Common Stock is in excess of the Initial Price immediately
prior to the date of the Conversion Notice, each share of the Series B
Preferred Stock shall be convertible into one full share of Common
Stock, plus an additional 0.09 share of Common Stock in the event and
to the extent that the average market price shall be five ($.05) cents
greater than the Initial Price immediately prior to the date of
conversion, and increased by an additional 0.09 share of Common Stock
for each incremental five ($.05) cent increase in the average market
price over the Initial Price; provided, that in no event shall the
holders of the Series B Preferred Stock be entitled to convert one
full share of Series B Preferred Stock into more than 10 full shares
of Common Stock, even if the average market price shall be in excess
of $10.00 per share immediately prior to the date of the Conversion
Notice. Accordingly, all 20,000 shares of the Series B Preferred Stock
shall be convertible into 20,000 shares of Common Stock, plus an
additional 1,800 shares of Company Common Stock in the event and to
the extent that the average market price shall be five ($.05) cents
greater than the Initial Price immediately prior to the date of
conversion, and increased by 1,800 shares of Common Stock for each
incremental five ($.05) cent increase in such average market price
over the Initial Price; provided, that in no event shall the holders
of the Series B Preferred Stock be entitled to convert all 20,000
shares of Series B Preferred Stock into more than 200,000 shares of
Common Stock, even if the average market price shall be in excess of
$10.00 immediately prior to the date of the Conversion Notice.
(iii) The term "average market price" as of any conversion date
means either: (i) the mathematical average of the daily closing (last
trade) prices of a share of Company Common Stock, as traded in the
over the counter market (or, if listed on any national securities
exchange, then on such exchange over any consecutive five (5) trading
days during the thirty (30) trading days immediately prior to the date
of the Conversion Notice; or (ii) if shares of Common Stock of the
Company are not then publicly traded, the lesser of either: (A) the
price per share of such Common Stock which any financially reputable
third person, firm or corporation not otherwise affiliated with the
Company is then willing to pay pursuant to any firm written offer made
to the Company or its stockholders, or (B) the fair market value of
one share of Common Stock of the Company as determined by any
investment banking firm retained for such purpose by the Board of
Directors of the Company.
20
<PAGE>
6. Redemption.
(a) Mandatory Redemption. In the event and to the extent any shares of
Series B Preferred Stock are not converted into the Company's Common Stock
by the expiration of the Conversion Period, such shares of Series B
Preferred Stock may thereafter be redeemed at the lesser of: (i) $2.50 per
share of Series B Preferred Stock, or (ii) the book value per share of the
Company's then outstanding Common Stock, at any time within thirty (30)
days following written notice from the Company to the holder of the Series
B Preferred Stock, unless sooner converted.
(b) Redemption Procedures. At least 10 days but not more than 30 days
prior to the date fixed for the redemption of shares of the Series B
Preferred Stock, a written notice shall be mailed to each holder of record
of shares of Series B Preferred Stock to be redeemed in a postage prepaid
envelope addressed to such holder at his post office address as shown on
the records of the Company, notifying such holder of the redemption of the
number of such shares to be redeemed, stating the date fixed for redemption
thereof (hereinafter referred to as the "Redemption Date"), the redemption
price to be paid therefor, and calling upon such holder to surrender to the
Company on the Redemption Date at the place designated in such notice of
redemption. On or after the Redemption Date each holder of shares of Series
B Preferred Stock to be redeemed shall be present and surrender its
certificate or certificates for such shares to the Company at the place
designated in such notice and thereupon the redemption price of such shares
shall be paid to or on the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In case less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the Redemption Date
(unless default shall be made by the Company in payment of the redemption
price), all rights of the holders of Series B Preferred Stock as
stockholders of the Company, except the right to receive the redemption
price thereof upon the surrender of certificates representing the same,
shall cease and terminate and such shares shall not thereafter be
transferred (except with the consent of the Company) on the books of the
Company, and such shares shall not be deemed to be outstanding for any
purpose whatsoever.
Shares of Series B Preferred Stock redeemed pursuant hereto shall not
be reissued.
7. Authorization. This Certificate of Designation of Rights and Preferences
was authorized by the unanimous written consent of the Board of Directors and/or
a vote in favor of the filing of this Certificate with the appropriate
authorities by a majority of the Board of Directors at a duly held meeting of
said Board of Directors.
21
<PAGE>
Designation of Rights and Preferences
of
Series C Preferred Stock
That pursuant to authority contained in the Certificate of Incorporation
and By-laws of the Corporation, the Board of Directors has authorized the
issuance of a separate series of the Corporation's preferred stock, par value
$0.10 per share (the "Preferred Stock"), to be designed as Series C Preferred
Stock, consisting of 55,000 shares, which shall have the following rights,
preferences and limitations.
TERMS AND PROVISIONS OF SERIES C PREFERRED STOCK
1. Dividends. Subject to the rights of holders of any shares of Preferred
Stock ranking senior to the shares of Series C Preferred Stock and the holders
of any other class or series of capital stock entitled to a preference over the
Series C Preferred Stock with respect to dividends, the holders of shares of the
Series C Preferred Stock, in preference to the holders of Common Stock and of
any other stock junior to Series C Preferred Stock, shall be entitled to receive
cumulative preferential cash dividends out of the funds of the Corporation
legally available therefor, as and when declared by the Board of Directors of
the Corporation, in an amount of $7.00 per share, and no more, payable quarterly
at the rate of $1.75 per share, on the last days of March, June, September and
December in each year, such dividends to cumulate from the date of issuance of
such shares. No dividends (except dividends payable in Common Stock) shall be
paid on the Common Stock or other stock junior to the Series C Preferred Stock
if dividends on the Series C Preferred Stock are in arrears.
2. Voting Rights.
(a) The holders of the Series C Preferred Stock shall be entitled to
notice of any meeting of stockholders of the Corporation and to one vote
per share of Series C Preferred Stock on any matter on which holders of the
Common Stock are entitled to vote. As to any such matter the holders of the
Series C Preferred Stock shall vote with the holders of the Common Stock
and not as a separate class.
(b) If any time dividends on the Series C Preferred Stock shall be in
arrears in an amount equal to or greater than $3.50 per share, the holders
of the Series C Preferred Stock shall be entitled to (i) to elect, at a
meeting to be called and held within 90 days after the date on which the
arrearage first equals $3.50 per share, by a majority of the votes cast in
person or by proxy by the holders of the Series C Preferred Stock, one
additional member of the Board of Directors of the Corporation, and (ii) at
each succeeding annual meeting of stockholders at which the term of such
director terminates, to elect in the same manner a successor to the
director so elected until full cumulative dividends on the Series C
Preferred Stock, for all dividend periods ending prior to such meeting,
shall have been paid or set apart for payment.
(c) The Corporation shall not issue any class or series of capital
stock with provisions granting any preference as to dividends or rights
upon liquidation over the holders of Series C Preferred Stock, or pari
passu as to dividends or rights upon liquidation with the holders of the
Series C Preferred Stock, unless such issuance shall have been approved, in
advance, at a meeting called and held for such purpose, by not less than
22
<PAGE>
two-thirds of the votes cast in person or in proxy by the holders of the
Series C Preferred Stock at such meeting.
3. Liquidation.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or otherwise (hereinafter
referred to as a "Liquidation"), after payment or provision for payment of
the debts and other liabilities of the Corporation, the holders of the
Series C Preferred Stock shall be entitled to receive, out of the remaining
assets of the Corporation, an amount equal to the Liquidation Price (as
hereinafter defined) plus all unpaid cumulative dividends, in cash, for
each share of Series C Preferred Stock, before any distribution shall be
made to the holders of the Common Stock or any other capital stock of the
Corporation expressly made junior in liquidation to the Series C Preferred
Stock. If upon the Liquidation of the Corporation the assets of the
Corporation available for distribution to the holders of shares of Series C
Preferred Stock and to the holders of any other series of preferred stock
ranking on a parity on such Liquidation with the Series C Preferred Stock
shall be insufficient to pay the full amounts to which they respectively
shall be entitled, the holders of Series C Preferred Stock shall share
ratably with the holders of any class or series of preferred stock ranking
on a parity with the Series C Preferred Stock in any distribution of
assets, such distribution to be allocated among the holders of such classes
or series of preferred stock in accordance with the respective amounts
which would be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to said shares were
paid in full. In the event of the Liquidation of the Corporation, after
payment shall have been made to the holders of the Series C Preferred Stock
of the full amount to which they shall be entitled as aforesaid, holders of
any class or classes of stock ranking on such Liquidation junior to the
Series C Preferred Stock shall be entitled, to the exclusion of the holders
of shares of Series C Preferred Stock, to share according to their
respective rights and preferences, in all remaining assets of the
Corporation available for distribution to its stockholders.
(b) For purposes hereof, a distribution of assets in any Liquidation
shall not include (i) any consolidation or merger of the Corporation with
or into any other corporation, (ii) liquidation, dissolution, winding up,
or reorganization of the Corporation that is immediately followed by
reincorporation of another corporation with all or substantially all of the
assets of the Corporation, or (iii) a sale or other disposition of all or
substantially all of the Corporation's assets to another corporation;
provided, that in each case, effective provision is made, in the
certificate of incorporation of the resulting or surviving corporation or
otherwise, for the protection of the holders of the Series C Preferred
Stock such that the rights and priority of such holders are not adversely
affected hereby.
(c) The "Liquidation Price" as such term is used herein shall be $100
per share of Series C Preferred Stock.
4. Ranking of Series C Preferred Stock. In respect of dividends or other
distributions, liquidation, or otherwise, the Series C Preferred Stock shall
rank (i) senior to all shares of Common Stock and to all other series of
preferred stock of the Corporation authorized and issued hereafter and (ii)
junior to all presently outstanding shares of the Series A Preferred Stock and
on a parity with any outstanding shares of Series B Preferred Stock.
5. Convertibility. The holders of Series C Preferred Stock shall not have
any right to convert such shares into, or exchange such shares for, shares of
any other class or of any other series of any class of capital stock of the
Corporation.
23
<PAGE>
6. Redemption. The Corporation shall redeem or shall have the right to
redeem shares of Series C Preferred Stock only in accordance with the following
provisions.
(a) Mandatory. In the event of a merger or consolidation of the
Corporation with one or more other corporations, excluding, however, any
merger or consolidation following which the stockholders of the Corporation
(as they existed immediately prior to the effective time of such merger or
consolidation) exercise a controlling interest in the surviving or
resulting corporation (determined immediately after the effective time of
such merger or consolidation) (any such merger or consolidation being
herein called a "change-in-control transaction"), the Corporation, or its
successor in interest as the result of such change-in-control transaction,
shall redeem all outstanding shares of the Series C Preferred Stock out of
funds legally available for such purpose.
(b) The Redemption Price. The redemption price for each share of
Series C Preferred Stock redeemed pursuant to subparagraph (a) above, shall
be an amount equal to the Liquidation Price plus all accrued and unpaid
cumulative dividends thereon to the date fixed for redemption (the
"Redemption Price").
(c) Procedure. In the event of a redemption pursuant to subparagraph
(a), above, the Corporation (or its successor in interest as the result of
the change-of-control transaction), not more than 30 days after the
effective time of such change-of-control transaction, shall give written
notice, by first class mail with postage prepaid, to each holder of record
of shares of Series C Preferred Stock, at the address of such holder as
shown on the stock records of the Corporation, notifying such holder of the
redemption, stating the date fixed for redemption (which shall be not more
than 60 days after the effective time of the change-of-control transaction
and is herein called the "Redemption Date") and calling upon the holder to
surrender to the Corporation on the Redemption Date, at the place
designated in such notice of redemption, the certificates evidencing the
shares to be redeemed. On or after the Redemption Date each holder of
shares of Series C Preferred Stock shall present and surrender the
certificate or certificates for such shares to the Corporation at the place
designated in such notice, and thereupon the redemption price of such
shares shall be paid to or on the order of the person whose name appears on
such certificate or certificates as the owner thereof, and each surrendered
certificate shall be cancelled. From and after the Redemption Date (unless
the Corporation or its successor in interest shall default in payment of
the redemption price), all rights of the holders of Series C Preferred
Stock as stockholders of the Corporation, except the right to receive the
Redemption Price thereof (and, if the Corporation shall default in the
payment of the Redemption Price, interest thereon at a rate equal to the
prime rate of Citibank N.A. plus three per cent from the date of such
24
<PAGE>
default to the date of payment) upon the surrender of the certificates
representing the same, shall cease and terminate and such shares shall not
thereafter be transferred (except with consent of the Corporation or its
successor in interest) on the books of the Corporation, and such shares
shall not be deemed to be outstanding for any purpose whatsoever.
(d) No Reissuance. Shares of Series C Preferred Stock redeemed
pursuant hereto shall not be reissued.
7. Authorization. This Certificate of Designation of Rights and Preferences
was authorized, by a vote in favor of the filing of this Certificate with the
appropriate authorities, by a majority of the Board of Directors at a duly
called and held meeting of said Board of Directors.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Correction to be executed by its duly authorized officer this 20th day of
January, 1999.
VALLEY SYSTEMS, INC.
By: /s/ Ed Strickland
_________________________________
Ed Strickland, President
25
CERTIFICATE OF ELIMINATION
OF
SERIES A PREFERRED STOCK
AND
SERIES B PREFERRED STOCK
OF
VALLEY SYSTEMS, INC.
(Pursuant to Section 151(g) of the
Delaware General Corporation Law)
Valley Systems, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation") does hereby
certify that the following resolutions respecting the Series A Preferred Stock
and Series B Preferred Stock were duly adopted by the Corporation's Board of
Directors:
WHEREAS, no shares of the Corporation's Series A Preferred Stock
or Series B Preferred Stock are outstanding and no shares of the
Series A Preferred Stock or Series B Preferred Stock will be issued
subject to the certificate of designations previously filed with
respect to the Series A Preferred Stock and Series B Preferred Stock;
NOW, THEREFORE IT IS HEREBY RESOLVED, that the officers of the
Corporation be, and each of them is hereby, authorized, empowered and
directed to cause a certificate of elimination to be executed and
filed with the Secretary of the State of Delaware pursuant to Section
151(g) of the Delaware General Corporation Law in order to eliminate
from the Corporation's certificate of incorporation all matters set
forth in the certificate of designations with respect to the Series A
Preferred Stock and Series B Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its duly authorized officer this 20th day of January, 1999.
VALLEY SYSTEMS, INC.
By:/s/ Ed Strickland
____________________________________
Ed Strickland, President
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VALLEY SYSTEMS, INC.
Valley Systems, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
1. The Certificate of Incorporation of the Corporation is hereby amended
by striking out the Article numbered FIRST in its entirety, and
substituting in lieu thereof, the following new Article:
"FIRST: The name of the Corporation is VSI Liquidation
Corp."
2. The amendment of the Certificate of Incorporation herein certified was
duly adopted in accordance with the provisions of Section 242 of the
Delaware General Corporation Law (i) by the Written Consent of
Majority Stockholders dated December 11, 1998 and (ii) by the
Unanimous Consent of the Board of Directors dated December 11, 1998.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and, such authorized officer hereby declares, under
penalty of perjury under the laws of the State of Delaware, that he signed this
Certificate in the official capacity set forth beneath his signature and that
the statements set forth in this Certificate are true and correct of his own
knowledge this 20th day of January 1999.
By:/s/ Ed Strickland
__________________________________
Ed Strickland, President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 222,800
<SECURITIES> 0
<RECEIVABLES> 5,178,024
<ALLOWANCES> 125,000
<INVENTORY> 0
<CURRENT-ASSETS> 13,178,613
<PP&E> 21,393,917
<DEPRECIATION> 11,399,527
<TOTAL-ASSETS> 23,515,503
<CURRENT-LIABILITIES> 3,302,268
<BONDS> 0
0
5,500
<COMMON> 79,066
<OTHER-SE> 12,541,218
<TOTAL-LIABILITY-AND-EQUITY> 23,515,503
<SALES> 13,536,876
<TOTAL-REVENUES> 13,536,876
<CGS> 8,464,830
<TOTAL-COSTS> 8,464,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 303,623
<INCOME-PRETAX> 1,479,691
<INCOME-TAX> (5,985,000)
<INCOME-CONTINUING> 7,464,691
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,464,691
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
</TABLE>
