U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
Commission file number
0-24886
ACRODYNE COMMUNICATIONS, INC.
_____________________________
(Exact name of small business issuer as specified in its charter)
Delaware 11-3067564
______________________________ __________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
516 Township Line Road
Blue Bell, Pennsylvania 19422
______________________________________ ________
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 215-542-7000
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No _____
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 2,690,236 shares of common stock of
Acrodyne Communications, Inc. were outstanding on May 9, 1996.
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
INDEX
Page
No.
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheet at March 31, 1996 and 1995 (unaudited) ..... 2
Consolidated Statement of Operations for the Three Months Ended
March 31, 1996 and 1995 (unaudited) ................................3
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1996 and 1995 (unaudited) ................................4
Notes to Consolidated Financial Statements (unaudited) .................5
Management's Discussion and Analysis of Financial Condition and Results
of Operations .....................................................6
PART II. OTHER INFORMATION, AS APPLICABLE ..................................9
SIGNATURES .................................................................10
<PAGE>
<TABLE>
Acrodyne Communications, Inc.
(formerly Acrodyne Holdings, Inc.)
Consolidated Balance Sheet
(Unaudited)____________________________________________________________________
<CAPTION>
March 31, March 31,
1996 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 650,148 $ 1,267,010
Accounts receivable 1,207,977 264,815
Inventories 2,572,848 1,891,953
Prepaid expenses and deposits 142,080 116,307
___________ ___________
Total current assets 4,573,053 3,540,085
Property, plant and equipment, net 447,882 214,359
Note receivable 75,409 69,392
Non-compete agreement, net 642,072 717,072
Goodwill 4,486,070 4,642,566
___________ ___________
Total assets $10,224,486 $ 9,183,474
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 403,659 $ 402,552
Borrowings under line of credit 200,000 -
Accounts payable 1,052,775 814,632
Accrued expenses 306,766 313,135
Customer advances 375,948 556,364
___________ ___________
Total current liabilities 2,339,148 2,086,683
Long-term debt 817,544 1,042,958
Non-compete liability 729,528 734,955
___________ ___________
Total liabilities 3,886,220 3,864,596
Shareholders' equity: (See Note 4)
Preferred stock, par value $1.00;
1,000,000 shares authorized, 7,900 shares
8% Convertible Redeemable Preferred Stock,
par value $1.00, issued and outstanding 7,900 -
Common stock, par value $.01; 10,000,000
shares authorized, 2,635,530 shares issued
and outstanding 26,356 23,853
Additional paid-in capital 8,158,597 6,436,458
Preferred stock subscription receivable (790,000) -
Accumulated deficit (1,064,587) (1,141,433)
____________ ___________
Total liabilities and
shareholders' equity $10,224,486 $9,183,474
============ ===========
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Acrodyne Communications, Inc.
(formerly Acrodyne Holdings, Inc.)
Consolidated Statement of Operations
(Unaudited)_____________________________________________________________________
<CAPTION>
Three Months Ended March 31,
1996 1995
<S> <C> <C>
Net sales $2,210,350 $2,172,102
Cost of sales 1,516,173 1,512,820
__________ __________
Gross profit 694,177 659,282
__________ __________
Operating expenses:
Engineering, research and development 166,816 151,773
Selling 200,635 172,723
Administration 345,128 433,785
Amortization 57,874 57,874
_________ ________
Total operating expenses 770,453 816,155
_________ ________
Operating profit (loss) ( 76,276) ( 156,873)
Other income (expense):
Interest expense, net ( 44,255) ( 41,639)
Other income, net 1,233 12,035
_________ ________
Net profit (loss) ($ 119,298) ($186,477)
========= ========
Net income (loss) per share ($0.05) ($0.08)
========= =========
Weighted average number of 2,610,550 2,385,280
shares outstanding ========= =========
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Acrodyne Communications, Inc.
(formerly Acrodyne Holdings, Inc.)
Consolidated Statement of Cash Flows
(Unaudited)_____________________________________________________________________
<CAPTION>
Three Months Ended March 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($119,298) ($186,477)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 66,924 74,119
Stock option accrual 4,166 -
Issuance of warrants for services
Changes in assets and liabilities:
Accounts receivable (57,977) 8,799
Inventories (249,061) 66,593
Note receivable (1,504) (1,504)
Prepaids and deposits (50,610) (82,002)
Accounts payable (128,036) 242,629
Accrued expenses (133,097) 93,516
Customer advances 220,212 (229,239)
_________ _________
Net cash used in operating activities (448,281) (13,566)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,909) (25,675)
_________ _________
Net cash used in investing activities (1,909) (25,675)
_________ _________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock, net 262,500 -
Payments on promissory notes (67,500) (82,500)
Capital leases repayments (10,162) (7,663)
Repayments on other borrowings
and non-compete liability (3,247) (4,117)
Net cash provided by (used in) ________ ________
financing activities 181,591 (94,280)
________ ________
Net decrease in cash and cash equivalents (268,599) (133,521)
Cash and cash equivalents at beginning of period 918,747 1,400,531
_________ __________
Cash and cash equivalents at end of period $ 650,148 $1,267,010
Supplemental cash flow information:
Cash paid for interest $ 51,884 $ 52,714
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
Acrodyne Communications, Inc.
(formerly Acrodyne Holdings, Inc.)
Notes to Consolidated Financial Statements (Unaudited)
________________________________________________________________________________
1. Unaudited Consolidated Financial Statements
The accompanying consolidated balance sheet of Acrodyne Communications, Inc.
(the "Company") and subsidiaries (collectively "Acrodyne") at March 31, 1996
and the related consolidated statements of operations and of cash flows for the
three months ended March 31, 1996 and 1995 have been prepared by management and
have not been audited by the Company's Independent Accountants. In the opinion
of management, all adjustments (consisting of normal recurring adjustments
only) necessary to present fairly the financial position at March 31, 1996, and
the results of operations and cash flows for the three months ended
March 31, 1996 and 1995 have been made.
These consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995 filed with the Securities
and Exchange Commission. The results of operations for interim periods are not
necessarily indicative of the results to be obtained for the entire year.
2. Inventories
Inventories comprise:
March 31,
1996 1995
Raw materials $1,760,439 $ 885,684
Work in process 654,697 516,327
Finished goods 157,712 489,942
__________ __________
$2,572,848 $1,891,953
========== ==========
3. Net Loss Per Share
The computation of net loss per share is based on the weighted average common
shares outstanding for the applicable period. Potentially dilutive securities
have not been considered in the calculation of weighted average common shares
outstanding since they would have an anti-dilutive effect on the loss per share.
<PAGE>
4. Significant Events
At the end of the first quarter, the Company privately placed an aggregate of
7,900 shares of its newly created class of 8% Convertible Redeemable Preferred
Stock, par value $1.00 per share (the "8% Preferred Stock"). Aggregate proceeds
of the sale, $790,000, were not received until the beginning of the second
quarter. As of May 7, 1996, the Company had privately placed an additional
2,600 shares of 8% Preferred Stock during the second quarter, for which the
Company received aggregate proceeds of $260,000. This 8% Preferred Stock has a
liquidation preference of $100 per share plus all outstanding and unpaid
dividends and is redeemable at the discretion of the Company for the amount of
the liquidation value after one year from issuance date provided certain
stipulations are met. The 8% Preferred Stock is convertible into the number of
Common Stock shares obtained by dividing the liquidation value by the $4.00 per
share conversion price subject to adjustment at the option of the holder.
During the three months ended March 31, 1996, the Company issued 75,000 shares
of Common Stock pursuant to the exercise of warrants yielding proceeds of
$262,500.
ACRODYNE COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The business of Acrodyne Communications, Inc. (the "Company") is conducted
through its sole operating subsidiary Acrodyne Industries, Inc. ("Acrodyne").
Acrodyne was acquired by the Company pursuant to a stock acquisition agreement
on October 24, 1994 (the "Acrodyne Acquisition"). Prior thereto, the Company
had no operations. The Company changed its name from Acrodyne Holdings, Inc. to
Acrodyne Communications, Inc. on June 9, 1995.
Acrodyne's transmitters and translators are manufactured to customer
specifications for installation in connection with television broadcasting
systems and range in price from $10,000 to $140,000 for lower power units and
$150,000 to $1,500,000 for higher power units. Acrodyne's business historically
has been dependent on a relatively small number of significant orders from
one-time customers. Customers establish delivery times often to coincide with
the completion of transmission towers and other components of the broadcasting
system, which is subject to delays beyond Acrodyne's control. As a result,
variances in sales from period to period may occur but are not necessarily
indicative of any particular positive or negative longer term trend.
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to the Three Months Ended
March 31, 1995
The following compares the Company's summary results of operations for the three
months ended March 31, 1996 for the three months ended March 31, 1995:
Three Months Ended March 31,
(Unaudited)
1996 1995
Net Sales $2,210,350 $2,172,102
Cost of sales 1,516,173 1,512,820
__________ __________
Gross profit 694,177 659,282
Operating expenses 770,453 816,155
__________ __________
Operating profit (loss) ($ 76,276) ($ 156,873)
Net sales for the three months ended March 31, 1996 showed a slight increase
(2%) over net sales for the three months ended March 31, 1995. Gross margin
increased from 30% in the three months ended March 31, 1995 to 32% in the three
months ended March 31, 1996 as a result of sales of higher margin products.
Operating expenses consisting of Engineering, Research and Development, Selling,
Administration and Amortization overall decreased 6% compared to the three
months ended March 31, 1995 as a result of lower administrative legal and
professional costs. Certain costs were incurred during the three months ended
March 31, 1995 for international patent fees and other costs related to
fulfilling various requirements of being a publicly traded company. Engineering
and Selling expenses increased 10% and 16%, respectively primarily as a result
of adding research and testing staff, international sales and domestic sales
managers as well as sales support to meet the Company's sales plan.
Interest expense for the three months ended March 31, 1996 and March 31, 1995 of
approximately $44,255 and $41,639, respectively, includes interest expenses
associated with the promissory notes issued as a result of the Acrodyne
Acquisition as well as interest expense on the non-compete liability associated
with the previous majority owner of Acrodyne Industries, Inc. and interest
income on short-term investments of cash.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, Acrodyne has financed its activities primarily from customer
deposits, internally generated funds, and use of its credit facility. At
March 31, 1996, the Company's working capital increased 5% to approximately
$2,234,000 compared to December 31, 1995.
Acrodyne normally requires its domestic customers to pay 30% as a deposit at
the time of placing the order, 60% prior to shipment, and 10% net thirty days.
These payment terms have traditionally provided Acrodyne with sufficient
working capital to finance the manufacture of the ordered product. For
international orders, Acrodyne requires an irrevocable letter of credit for
the entire amount of the order prior to the commencement of purchasing the
parts and commencing production, but must finance the manufacture of the
product with internally generated funds or bank debt.
The Company and Acrodyne, as co-borrowers, have a $1,200,000 credit facility
with a bank for working capital purposes, of which $500,000 is reserved for an
irrevocable standby letter of credit to partially secure the Senior Subordinated
Note (see below). At March 31, 1996 there was $200,000 outstanding under such
credit facility. The interest rate is at prime plus 1%. At March 31, 1996, the
interest rate on the credit facility was 9.25%. The credit facility and the
standby letter of credit are secured by substantially all assets of the Company
and Acrodyne and contain certain restrictive covenants. The amount available to
be borrowed under the credit facility is calculated based on certain percentages
of the monthly balances of accounts receivable and inventory. At
March 31, 1996, there was approximately $643,000 available to be borrowed by the
Company under the credit facility.
The Company is obligated to pay the former majority shareholder of Acrodyne
quarterly installments of principal and interest over a five-year period under
the terms of the $1,450,000 Senior Subordinated Note. Interest on such note is
payable at the rate of 9% per annum. Such note is partially secured by the
irrevocable standby letter of credit in the principal amount of $500,000
mentioned above. The first six quarterly payments of $115,125, $113,269,
$131,413, $129,106, $91,800 and $90,281 (including interest) under such note
were made on January 23, 1995, April 23, 1995, July 23, 1995, October 23, 1995,
January 23, 1996, and April 23, 1996 respectively. The next quarterly payment
of $88,763 (including interest) is due on July 23, 1996.
In the three months ended March 31, 1996, the Company privately placed an
aggregate of 7,900 shares of its newly created class of 8% Convertible
Redeemable Preferred Stock, par value $1.00 per share (the "8% Preferred
Stock"). Although such private placement occurred as of the end of the first
quarter, the Company did not receive the aggregate proceeds of the sale,
$790,000, until the beginning of the second quarter. As of May 7, 1996,
the Company had privately placed an additional 2,600 shares of 8% Preferred
Stock during the second quarter, for which the Company received aggregate
proceeds of $260,000. The Company will use the proceeds of the private
placements for general corporate purposes. The Company has agreed with the
investors in such private placements to register the shares of Common Stock,
into which the 8% Preferred Stock held by such investors is convertible, under
the Securities Act of 1933, as amended (the "Securities Act").
<PAGE>
As set forth in the Certificate of Designation of the Preferred Stock, which is
filed as an Exhibit to this Report (the "Certificate of Designation"), the
holders of the 8% Preferred Stock (the "Preferred Holders") will vote, on a
fully converted basis, together with the holders of Common Stock and, in the
event of certain dividend arrearages, will have the right to elect one director
to the Company's Board. Subject to the terms of the Certificate of Designation,
(i) the Preferred Holders will receive a per share liquidation value of $100 (as
such amount may be adjusted, the " Liquidation Value") plus accumulated but
unpaid dividends thereon before any payment or asset distribution to holders of
junior stock, including Common Stock; (ii) Preferred Holders may convert each
share of 8% Preferred Stock held by them into shares of Common Stock at a
conversion price of $4.00 per share of Common Stock, subject to certain
adjustments (the "Conversion Price"), with the number of shares of Common Stock
issuable upon such conversion being equal to the quotient of the Liquidation
Value divided by the Conversion Price then in effect; and (iii) after
March 29,1997, the Company may redeem the 8% Preferred Stock at a redemption
price equal to its Liquidation Value plus all accumulated but unpaid dividends
thereon, provided that (x) the then current market price of the Common Stock
shall have been at least $6.00 per share for a specified period prior to the
mailing of any notice of redemption and (y) the Company shall have registered
the shares of Common Stock into which the 8% Preferred Stock to be redeemed is
convertible under the Securities Act.
Available cash on hand combined with cash flow from operations which would
result from a successful implementation of its marketing plan in 1996, and
available funds under the line of credit and other financing sources should be
sufficient to finance the operations and obligations of the Company, provided
the Company continues to receive new customer orders and their corresponding
deposits on a timely basis. As of May 9, 1996, the Company had approximately
$1,096,000 of available cash on hand.
ACRODYNE COMMUNICATIONS, INC.
PART II. OTHER INFORMATION
________________________________________________________________________________
Item 4. Submission of Matters to a Vote of Security-Holders
No matter was submitted to a vote of security holders during the fourth quarter
of fiscal 1995.
Item 6. Exhibits and Reports on Form 8-KSB
(a) Exhibits
Exhibit 10.17 - Certificate of Designation of the Company's 8%
Convertible Redeembable Preferred Stock.
(b) No Form 8-KSB was filed during the quarter ended March 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Acrodyne Communications, Inc.
(Registrant)
Date: May 14, 1996 A. Robert Mancuso
A. Robert Mancuso
Chairman, President, and
Chief Financial Officer
CERTIFICATE OF DESIGNATION, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS, OF THE
8% CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF ACRODYNE INDUSTRIES, INC.
(Under Section 151 of the Delaware General Corporation Law)
We, A Robert Mancuso, Chairman of the Board and President, and Martin J.
Hermann, Secretary, of Acrodyne Communications, Inc., a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), in accordance with the provisions of Section 151
HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of said Corporation which was filed in the office
of the Secretary of State of the State of Delaware on May 3, 1991, said Board of
Directors, acting by unanimous written consent, adopted a resolution providing
for the authorization of a series of Preferred Stock consisting of 25,000 shares
designated 8% Convertible Redeemable Preferred Stock, which resolution is as
follows:
"RESOLVED that, pursuant to Article FOURTH of the Certificate of Incorporation
of the Corporation, there be an hereby is authorized and created a series of
Preferred Stock, hereby designated as the 8% Convertible Redeemable Preferred
Stock, to consist of up to 25,000 shares, par value of $1.00 per share, having
the designations, preferences and relative, participating, optional and other
special rights, qualifications, limitations and restrictions as hereinafter set
forth:
1. Designation. The designation of the series of Preferred Stock created
hereby is 8% Convertible Redeemable Preferred Stock and the number of shares
constituting such series is 25,000 (the "Preferred Stock").
2. Rank. The Preferred Stock shall, with respect to dividend rights, rights
on redemption and rights on liquidation, winding up and dissolution, rank
prior to all classes of Common Stock of the Corporation and to each other
class of capital stock or series of preferred stock of the Corporation
hereafter created which does not expressly provide that it ranks senior to
-1-
<PAGE>
or on a parity with the Preferred Stock. All of such equity securities of
the Corporation to which the Preferred Stock ranks prior are collectively
referred to herein as the "Junior Stock." The Preferred Stock shall, with
respect to dividend rights, rights on redemption and rights on liquidation,
winding up and dissolution, rank on a parity with any class of capital stock
or series of preferred stock of the Corporation hereafter created which
expressly provides that it ranks on a parity with the Preferred Stock. All
of such equity securities of the Corporation with which the Preferred Stock
ranks on a parity are collectively referred to herein as the "Parity Stock."
The Preferred Stock shall, with respect to dividend rights, rights on
redemption and rights on liquidation, winding up and dissolution, rank junior
to each class of capital stock or which expressly provides that it ranks
senior to the Preferred Stock. All of such equity securities of the
Corporation to which the Preferred Stock ranks junior are collectively
referred to herein as the "Senior Stock."
3. Dividends.
(i) The holders of Preferred Stock shall be entitled to receive in preference
to the holders of any Junior Stock, when, as and if declared by the Board of
Directors, out of funds legally available for the payment thereof, dividends
at the annual rate of 8% of Liquidation Value (as defined below). Such
dividends shall be cumulative, shall accumulate (whether or not declared)
from March 29, 1996 (the "Issue Date") and shall be payable on the last day
of each calendar quarter (each such date being a "dividend payment date" and
each such quarterly period being a "dividend period."), commencing June 30,
1996. The dividend amount payable in respect of each share of Preferred Stock
on each dividend payment date (the "Dividend Amount") shall be computed by
multiplying the applicable annual percentage rate set forth above a fraction
the numerator of which shall be the number of days in the applicable dividend
period and the denominator of which shall be 365 and multiplying the amount
so obtained by the Liquidation Value.
(ii) All dividends paid with respect to shares of the Preferred Stock pursuant
to paragraph 3(I) hereof shall be paid pro rata to the holders entitled
thereto.
(iii) Holders of shares of the Preferred Stock shall be entitled to receive
the dividends provided for in paragraph 3(I) hereof in preference to and in
priority over any dividends upon any of the Junior Stock.
-2-
<PAGE>
(iv) Each fractional share of Preferred Stock outstanding if any) shall be
entitled to a ratably proportionate amount of all dividends accruing with
respect to each outstanding share of Preferred Stock pursuant to paragraph
3 (i) hereof.
4. Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of shares of Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution of its
stockholders an amount equal to $100.00 for each share of Preferred Stock
outstanding (such amount, as it may be adjusted from time to time to give
effect to any stock splits or combinations, recapitalizations or other similar
events, the ""Liquidation Value") plus an amount equal to all accumulated but
unpaid dividends thereon to the date fixed for the liquidation, dissolution or
winding up, before any payment shall be made or any assets distributed to the
holders of any of the Junior Stock. Except as provided in the preceding
sentence, holders of Preferred Stock shall not be entitled to any distribution
in the event of liquidation, dissolution or winding up of the affairs of the
Corporation. If the assets of the Corporation are not sufficient to pay in
full the liquidation payments payable to the holders of outstanding shares of
Preferred Stock and any shares of Parity Stock, then the holders of all such
shares shall share ratably in accordance with the respective amounts to which
the holders of outstanding shares of Preferred Stock and any Parity Stock
would be entitled if all amounts payable thereon were paid in full.
The liquidation of payment with respect to each outstanding fractional share
of Preferred Stock (if any) shall be equal to a ratably proportionate amount
of the liquidation payment with respect to each outstanding share of
Preferred Stock.
5. Redemption. After the first anniversary of the Issue Date, the Preferred
Stock shall be redeemable, at the option of the Corporation, in whole but not
in part, at any time, at a per share redemption price equal to the Liquidation
Value thereof, plus an amount equal to all accumulated but unpaid dividends
thereon to the date fixed for redemption, provided that (I) the "Current
Market Price" (as defined in Section 8.2 below) shall have been at least $6.00
per share for the period of 20 consecutive trading days ending on the third
day preceding the date of mailing of notice of redemption and (ii) the
Corporation shall registered with the Securities and Exchange Commission under
the Securities Act if 1933 any shares of its Common Stock, $.01 par value (the
"Common Stock") into which the Preferred Stock is convertible, the holders of
which have requested such registration to permit sale or other disposition of
such Common Stock by such holders.
-3-
<PAGE>
In the event the Corporation shall redeem shares of Preferred Stock, the
following procedures shall apply:
(i) Notice of redemption shall be given by first class mail, postage prepaid,
mailed not less than 30 days or more than 60 days prior to the date on which
shares of the Preferred Stock are to be redeemed (any such date, a "redemption
date"), to all holders of record of the shares to be redeemed at such holder's
address as the same appears on the stock register of the Corporation. Each
such notice shall state: (a) the redemption date; (b) the redemption price;
and (c) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price.
(ii) Notice having been mailed as aforesaid, from and after the redemption
date (unless default shall be made by the Corporation in providing money for
the payment of the redemption price of the shares called for redemption) said
shares shall no longer be deemed to be outstanding and shall have the status
of authorized but unissued shares of Preferred Stock, and shall not be
reissued as shares of Preferred Stock, and all rights of the holders thereof
as stockholders of the Corporation (except the right to receive from the
Corporation the redemption price) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors of the
Corporation shall so require and the notice shall so state), such shares shall
be redeemed by the Corporation at the redemption price aforesaid.
6. Conversion.
Each share of the Preferred Stock shall be convertible at the option of the
holder thereof, at any time, into fully paid and non-assessable shares of
Common Stock at the conversion price of $4.00 per share of Common Stock,
subject to adjustment pursuant to Section 6.7 below (as the same may be
adjusted from time to time, the "Conversion Price"). The number of shares of
Common Stock issuable upon conversion of a share of Preferred Stock shall be
equal to the quotient of the Liquidation Value divided by the Conversion Price
at the time in effect.
6.2 The shares of Common Stock deliverable upon conversion of shares of
Preferred Stock shall be Common Stock as constituted at the date of
conversion.
6.3 Before an holder of Preferred Stock shall be entitled to convert the same
into Common Stock, such holder shall exercise its option to convert by
surrendering the certificate or certificates for such shares of Preferred
-4-
<PAGE>
Stock at the office of the Corporation (or such office or agency of the
Corporation as it may reasonably designate), which certificate or
certificates, if the Corporation shall so request, shall be duly endorsed to
the Corporation or in blank, or accompanied by proper instruments of transfer
to the Corporation or in blank, and shall give written notice to the
Corporation that such holder elects so to convert such shares of Preferred
Stock, and by stating in writing therein the name or names in which such
holder wishes the certificate or certificates for Common Stock to be issued.
Every such notice of election to convert shall be effective on the date
completed and shall constitute a contract between the holder of such shares of
Preferred Stock and the Corporation, whereby such holder shall be deemed to
subscribe for the amount of Common Stock which such holder shall be entitled
to receive upon such conversion, and, in satisfaction of such subscription, to
deposit the shares of Preferred Stock to be converted and to release the
Corporation from all liability thereunder (except to deliver the shares
deliverable upon conversion thereof), and thereby the Corporation shall be
deemed to agree that the amount paid to it for such shares of Preferred Stock,
together with the surrender of the certificate or certificates therefor and
the extinguishment of liability thereof (except as aforesaid), shall
constitute full payment of such subscription for Common Stock to be delivered
upon such conversion.
6.4 The Corporation will, as soon as practicable after such deposit of
certificates for the Preferred Stock accompanied by the written notice and the
statement above prescribed, deliver at said office to the holder for whose
account such shares of Preferred Stock were so surrendered, or to such
holder's nominee or nominees, certificates for the number of full shares of
Common Stock to which such holder shall be entitled as aforesaid, together
with a cash adjustment of any fraction of a share as hereinafter provided, if
not evenly convertible. Subject to the following provisions of this
paragraph, such conversion shall be deemed to have been made as of the date
of such surrender of the shares of Preferred Stock to be converted and at the
Conversion Price in effect at the date of such surrender; and the person or
persons entitled to receive the Common Stock deliverable upon conversion of
such shares of Preferred Stock shall be treated for all purpose as the record
holders of such Common Stock on such date. The Corporation shall not be
required to convert any shares of Preferred Stock while the stock transfer
books of the Corporation are closed for any purpose; but the surrender of
shares of Preferred Stock for conversion during any period while such books
are so closed shall become effective for conversion immediately upon reopening
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of such books, as if the conversion had been made on the date such shares of
Preferred stock were surrendered, and at the Conversion Price in effect at the
date of such surrender.
6.5 Upon any conversion of shares of Preferred Stock, the shares of Preferred
Stock so converted shall have the status of authorized and unissued shares of
the Corporation's preferred stock, and the number of shares of preferred stock
which the Corporation shall have authority to issue shall not be decreased by
the conversion of shares of Preferred Stock. The Corporation shall at all
times reserve and keep available, but of its authorized and unissued stock,
solely for the purpose of effecting the conversion of the Preferred Stock,
such number of shares of its Common Stock as shall from time to time to be
sufficient, in the judgment of its Board of Directors, to effect the
conversion of all shares of Preferred Stock from time to time outstanding.
The Corporation shall from time to time, in accordance with the laws of the
State of Delaware, increase the authorized number of shares of its Common
Stock remaining unissued shall not be sufficient to permit the conversion of
all the then outstanding shares of Preferred Stock.
6.6 The Corporation will pay any and all issue or other taxes that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Preferred Stock pursuant hereto. The Corporation
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of Common Stock in a name
other than that in which the shares of Preferred Stock so converted were
registered, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of such
tax, or has established, to the satisfaction of the Corporation, that such tax
has been paid.
6.7 The Conversion Price shall be subject to the following adjustments:
(i) If, any time and from time to time after the date hereof, the Corporation
shall issue or sell any shares of Common Stock other than the "Excluded
Shares" (as defined in Section 6.8 below), including by way of dividend on any
Junior Stock of the Corporation, without consideration or for a consideration
per share less than the Conversion Price in effect immediately prior to the
issue or sale of such additional shares, the Conversion Price in effect
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immediately prior to such issue or sale shall be reduced to an amount equal to
the quotient determined by dividing:
(A) An amount equal to the sum of (x) the produce of (1) the total number of
shares of Common Stock outstanding immediately prior to the date of such issue
or sale of such additional shares, multiplied by (2) the Conversion Price in
effect immediately prior to such issue or sale, plus (y) the aggregate
consideration, if any, received by the Company upon such issue or sale; by
(B) The total number of shares of Common Stock outstanding immediately after
such issue or sale:
(ii) For purposes of Section 6.7(I) above, the following provisions shall
also be applicable;
(A) In the case of (x) the issue or sale of additional shares of Common Stock
for cash, the consideration received by the Corporation therefor shall be
deemed to be the amount of cash received by the Corporation or (y) the issue
or sale of additional shares of Common Stock for a consideration other than
cash (including services), the amount of the consideration other than cash
shall be deemed to be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation, in either case
without deduction therefrom of any compensation or discount paid or allowed
to underwriters or dealers or others performing similar services or for any
expenses incurred in connection therewith.
(B) In case any shares of Common Stock (or any "Convertible Securities" or
"Rights" to purchase Common Stock or Convertible Securities (as defined in
subparagraph c below) shall be issued in connection with any merger of another
corporation into the Corporation, the amount of consideration therefor shall
be deemed to be the fair value of the assets of such merged corporation as
determined by the Board of Directors of the Corporation after deduction
therefrom of all cash and other consideration (if any) paid by the Corporation
in connection with such merger.
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(C) If, at any time and from time to time after the date hereof, the
Corporation shall issue or grant any rights, warrants or options
(collectively the "Rights") to subscribe for or to purchase Common Stock, or
to subscribe for or purchase any indebtedness or shares of stock convertible
into or exchangeable for Common Stock (such convertible or exchangeable stock
or securities being called "Convertible Securities"), whether or not such
Rights are immediately exercisable or any such Convertible Securities are
immediately convertible or exchangeable, and if the price per share for which
Common Stock is issuable upon the exercise of such Rights or upon conversion
or exchange of such Convertible Securities (determined by dividing (a) the
total amount, if any, received for the granting of such Rights plus the
minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of such Rights, plus, in the case of any such
Rights exercisable for Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the conversion or exchange
of such Convertible Securities, by (b) the total maximum number of shares of
Common Stock issuable upon the exercise of such Rights or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of
such Rights) shall be less than the Conversion Price in effect immediately
prior to the time of issue or grant of such Rights, then the total maximum
number of shares of Common Stock issuable upon the exercise of such Rights or
upon conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Rights shall (as of the date of
granting of such Rights) be deemed to be issued and outstanding and to have
been issued for such price per share.
(D) If, at any time and from time to time after the date hereof, the
Corporation shall issue or sell any Convertible Securities, whether or not
such Convertible Securities are immediately convertible or exchangeable, and
the price per share for which Common Stock is issuable upon such conversion
or exchange (determined by dividing (a) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
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Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than the Conversion Price in effect immediately prior to the
time of such issue or sale, then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued for such price per share.
(E) In the case of the issuance of shares of Common Stock or Convertible
Securities as a stock dividend, the aggregate number of shares of Common Stock
or Convertible Securities as stock dividend, the aggregate number of shares of
Common Stock or Convertible Securities issued in payment of such dividend
shall be deemed to have been issued at the close of business on the date fixed
for the determination of stockholders entitled to receive such dividend and
shall be deemed to have been issued without consideration.
(F) The number of shares of Common Stock at any time outstanding shall exclude
all shares then owned or held by or for the account of the Corporation.
(G) For purposes of this Section 6.7, the term "Common Stock" shall mean (I)
the class of stock designed at the common stock of the Corporation at the date
of the adoption of these resolutions, or (ii) any other class of stock
resulting from successive changes or reclassification of such common stock
consisting solely of change in par value, or from par value to no par value,
or from no par value to par value. In the event that at any time, as a result
of an adjustment made pursuant to this Section 6.7, the holder of any share of
Preferred Stock thereafter surrendered for conversion shall become entitled to
receive any shares of the Corporation other than shares of its Common Stock,
thereafter the number of such other shares so receivable upon conversion of
any such share, shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in this Section 6.7 and all other
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provisions hereof with respect to Common Stock shall apply in like terms any
other shares.
(iii) If at any time, and from time to time after the date hereof, the
shares of Common Stock shall be subdivided into a greater number of shares of
Common Stock other than on account of or as a result of a dividend, the
Conversion Price in effect immediately prior to such subdivision shall,
simultaneously with the effectiveness of such subdivision, be proportionately
reduced, and conversely, in case outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Conversion Price
in effect immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased.
(iv) In case the Corporation shall make any distribution of its assets upon
or with respect to its Common Stock, as a liquidating or partial liquidating
dividend, or other than as a dividend payable out of earnings or retained
earnings, each holder of Preferred Stock shall, upon the conversion of such
holder's Preferred Stock after the record date for such distribution or, in
the absence of a record date, after the date of such distribution receive, in
addition to the shares of Common Stock covered by such conversion, the amount
of such assets (or, at the option of the Corporation, a sum equal to the value
thereof at the time of distribution as determined by the Board of Directors in
good faith) which would have been distributed to such holder if such holder
had converted his Preferred Stock immediately prior to the record date for
such distribution or, in the absence of a record date, immediately prior to
the date of such distribution.
(v) If the Conversion Price is adjusted upon the issuance of any Right or any
Convertible Securities pursuant to Section 6.7 (ii) (B), 6.7 (ii) (C) or
6.7 (ii) (D), the following shall apply:
(A) If the purchase price provided for in any such Rights, or the rate at which
any such Convertible Securities are convertible into or exchangeable for
Common Stock, shall change or a different purchase price or rate shall become
effective at any time or from time to time (other than under or by reason of
provisions designed to protect against dilution), then, upon such change
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becoming effective, the Conversion Price then in effect hereunder shall
forthwith be increased or decreased to such Conversion Price as would have
been applicable had the adjustments made upon the granting or issuance of such
Rights or Convertible Securities been made upon the basis of (1) the issuance
of the number of shares of Common Stock theretofore actually be delivered upon
the exercise of such Rights or upon the conversion or exchange of such
Convertible Securities, and the total consideration received therefor, and (2)
the granting or issuance at the time of such change of any such Rights or
Convertible Securities then still outstanding for the consideration, if any,
received by the Corporation thereof and to be received on the basis of such
changed price, but in no event shall the Conversion Price be increased above
what it was prior to the original granting or issuance of such Rights or
Convertible Securities.
(B) On the expiration of any such Rights, or on the termination of any right to
convert or exchange any such Convertible Securities, the Conversion Price
shall forthwith be readjusted to such Conversion Price as would have been
applicable had the adjustment made upon the granting or issuance of such
Rights or such Convertible Securities been made upon the basis of the issuance
or sale of only the number of shares of Common Stock actually issued upon the
exercise of such Rights or upon the conversion or exchange of such Convertible
Securities.
(C) If the purchase price provided for in any such Rights, or the rate at which
any such Convertible Securities are convertible into or exchangeable for
Common Stock, shall change at any time under or by reason of any provision
with respect thereto designed to protect against dilution, then in case of the
delivery of Common Stock upon the exercise of any such Rights or upon
conversion or exchange of any such Convertible Securities, the Conversion
Price then in effect hereunder shall forthwith be decreased to such Conversion
Price as would have been applicable had the adjustment made upon the issuance
of such Rights or such Convertible Securities been made upon the basis of the
issuance of (and the total consideration received for) the shares of Common
Stock delivered as aforesaid.
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(vi) In the event that at any time dividends payable on the Preferred Stock
shall have been in arrears and unpaid for two consecutive dividend periods,
then the Conversion Price shall be automatically reduced to 75 percent of the
Conversion Price in effect immediately prior to such reduction; provided,
however, that, if all dividends on the Preferred Stock shall have been paid in
full or declared and set apart for payment at any time after such reduction is
made and prior to such time as when dividends payable on the Preferred Stock
shall have been in arrears and unpaid for three consecutive dividend periods,
then the Conversion Price shall automatically revert to 100 percent of the
Conversion Price in effect immediately prior to such reduction. In the event
that at any time dividends payable on the Preferred Stock shall have been in
arrears and unpaid for three consecutive dividend periods, then the Conversion
Price shall be automatically and permanently reduced to 83.3 percent of the
Conversion Price in effect immediately prior to such reduction. In the event
that at any time dividends payable on the Preferred Stock shall have been in
arrears and unpaid for four consecutive dividend periods, then the Conversion
Price shall be automatically and permanently further reduced to an amount
equal to 80 percent of the Conversion Price in effect immediately prior to
such reduction.
(vii) Whenever the Conversion Price shall be adjusted pursuant to the
provisions of this paragraph, the Corporation shall forthwith mail to each
holder of Preferred Stock a statement specifying the revised Conversion Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of the Preferred
Stock and setting forth in reasonable detail the method of calculation of such
adjustment and the facts upon which such calculation is based.
(viii) Notwithstanding anything contained herein to the contrary, no
adjustment in the Conversion Price shall be made if the amount of such
adjustment shall be less than 1% of such price, but in such case any
adjustment that would otherwise be required then to be made shall be made at
the time of, and together with the next subsequent adjustment which, together
with any adjustment or adjustments so carried forward shall amount to not less
than 1% of the Conversion Price.
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(ix) No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of any share of Preferred Stock. If more than one
share of Preferred Stock shall be surrendered for conversion at one time by
the same holder, the number of full shares issuable upon conversion thereof
shall be computed on the basis of the aggregate number of such shares so
surrendered. If the conversion of any share of Preferred Stock results in a
fraction, an amount equal to such fraction multiplied by the Conversion Price
of the Common Stock on the day of conversion shall be paid to such holder in
cash by the Corporation.
(x) If any capital reorganization or reclassification of the capital stock of
the Corporation, or consolidation or merger of the Corporation with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provisions shall be made whereby each holder of Preferred Stock shall
thereafter have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of the Common Stock of
the Corporation immediately theretofore issuable upon the conversion of the
Preferred Stock held by such holder, such shares of stock, securities and
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
such stock immediately theretofore issuable upon the conversion of the
Preferred Stock held by such holder, and such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any
such case appropriate provision shall be made with respect to the rights and
interests of the holders of the Preferred Stock to the end that the provisions
hereof (including without limitation provisions for adjustments of the
Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities and assets thereafter deliverable
upon the conversion of Preferred Stock. The Corporation covenants and agrees
that it will not effect any such consolidation, merger or sale unless at the
time of or prior to such transaction the purchasing or successor corporation
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or other entity (if other than the Corporation) shall expressly assume all
of the liabilities and obligations of the Corporation hereunder.
6.8 Anything hereinabove to the contrary notwithstanding, no adjustment to the
Conversion Price shall be made pursuant to Section 6.7 upon:
(i) the issuance or sale by the Corporation of any shares of Common Stock or
any rights, options, warrants or convertible securities (or any rights or
options to purchase convertible securities) pursuant to (A) or redemption or
conversion of the Preferred Stock or (B) the exercise, redemption or
conversion of any warrants, options, rights or convertible securities
outstanding on the Issue Date;
(ii) the issuance of shares of Common Stock of employees or directors of
the Corporation, the granting of stock options to such employees or directors
or the issuance of shares of Common Stock pursuant to the exercise of any such
options; provided, however, that maximum number of shares of Common Stock
issuable pursuant to the exception set forth in this paragraph (ii) shall be
250,000 shares;
(iii) the issuance or sale of securities pursuant to the exercise of rights,
options or warrants or conversion or exchange of convertible securities
hereafter issued for which an adjustment has previously been made (or was not
required to be made) pursuant to the provision of Section 5\6.7, hereof; and
(iv) any increase in the number of shares of Common Stock subject to any
right, option, warrant or convertible security referred to in paragraph (i),
(ii) or (iii) of this Section 6.8 pursuant to the provisions of such right,
option, warrant or convertible security designed to protect against dilution.
Any securities referred to in this Section 6.8 as to which no adjustment is
required are referred to herein as the "Excluded Shares."
7. Voting Rights,
(i) Except as otherwise required by law, the Preferred Stock and Common Stock
shall be deemed to be one class for the purpose of voting or giving consent in
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lieu of voting on all matters submitted for a volt of the Corporation's
stockholders or as to which such consent shall be sought. Each person in
whose name shares of Preferred Stock shall be registered on the record date
for determining the holders of Preferred Stock entitled to vote at any meeting
of stockholders or adjournment thereof or to consent to corporate action in
writing without a meeting or with respect to such action, the number of votes
equal to the number of whole shares of Common Stock into which the shares of
Preferred Stock registered in the name of such person on such record date are
convertible.
(ii) So long as any shares of Preferred Stock are outstanding, the
Corporation will not, without the affirmative vote or consent of the holders
of a majority of the issued and outstanding Preferred Stock voting as a
separate class, (A) create any Senior Stock or Parity Stock or (B) amend,
alter or repeal the Corporation's Certificate of Incorporation to adversely
affect the voting powers, rights or preferences of the Preferred Stock.
(iii) Whenever, at any time or times any dividend payable on the shares of
Preferred Stock shall be in arrears, the holders of the outstanding shares of
Preferred Stock shall have the right, voting separately as a class, to elect
one director of the Corporation. Upon the vesting of such right of the
holders of Preferred Stock, the maximum authorized number of members of the
Board of Directors shall automatically be increased by one and the one
vacancy so created shall be filled by vote of the holders of the outstanding
shares of Preferred Stock. The right of the holders of the Preferred Stock to
elect a member of the Board of Directors of the Corporation as aforesaid shall
continue until such time as all dividends in arrears on the Preferred Stock
shall have been paid in full, at which time such right shall terminate, except
as herein or by law expressly provided, subject to revesting in the event of
each and every subsequent default of the character above described. Upon
termination of such special voting rights attributable to holders of the
Preferred Stock pursuant to this paragraph, the term of office of any director
elected by the holders of shares of Preferred Stock (any such director, a
"Preferred Stock Director") pursuant to such special voting rights shall
immediately terminate and the number of directors constituting the entire
Board of Directors shall be reduced on one. Any Preferred Stock Director
may be removed by, and shall not be removed otherwise than by, a majority
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vote of the outstanding shares of Preferred Stock. If the office of any
Preferred Stock Director becomes vacant by reason of death, resignation,
retirement, disqualification, removal from office, or otherwise, a successor
who shall hold office for the unexpired term in respect of which such
vacancy occurred shall be elected by the holders of the outstanding shares
of Preferred Stock, voting separately as a class.
8. Definitions.
8.1 "Common Stock" shall mean the shares of Common Stock of the Corporation,
par value $.01 per share, and any stock into which such Common Stock may
hereafter be changed.
8.2 The "Current Market Price" on any day shall be:
(i) if the principal trading market for the Common Stock is an exchange or the
NASDAQ Stock Market, the closing price of the Common Stock for such day on
such exchange or market, as the case may be; or
(ii) if the principal market for the Common Stock is the over-the-counter
market, the closing bid price of the Common Stock for such day as set forth in
the National Quotation Bureau sheet listing the Common Stock.
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IN WITNESS WHEREOF, the undersigned have executed this certificate this 28th day
of March, 1996.
A. Robert Mancuso
Chairman of the Board
and President
Martin J. Hermann
Secretary
