FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________________ to ________________
Commission file number 000-20148
Citizens Financial Corporation
(Exact name of registrant as specified in its charter)
Kentucky 61-1187135
(State or other jurisdiction of (I.R.S. Employer
organization) Identification No.)
The Marketplace, Suite 300
12910 Shelbyville Road
Louisville, Kentucky 40243
(Address of principal offices)
(Zip Code)
(502) 244-2420
(Registrant's telephone number, including area code)
_____________________________
(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 (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Class A Stock -- 1,075,615 as
of August 7, 1996 This report consists of 36 consecutively numbered pages.
An Exhibit Index appears on page 12.
Part I. - Financial Information
Item 1. - Financial Statements
CITIZENS FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
ASSETS June 30, December 31,
1996 1995
Investments:
Available-for-sale, fixed maturities at market value (cost,
$50,216,375 and $45,369,804 for 1996 and 1995,
respectively) $49,645,938 $46,917,198
Equity securities, at market value (cost, $8,298,396
and $4,263,273 for 1996 and 1995, respectively) 9,964,979 5,742,914
Investment real estate 4,040,869 4,095,094
Mortgage loans on real estate 180,773 183,935
Policy loans 2,865,925 2,720,396
Short-term investments 842,111 821,271
67,540,595 60,480,808
Cash and cash equivalents 3,252,510 9,776,964
Accrued investment income 818,841 636,758
Reinsurance recoverable:
Paid benefits and losses 105,366 91,773
Unpaid benefits, losses and IBNR 1,637,551 1,468,413
Premiums receivable 462,606 485,585
Property and equipment 1,111,199 1,133,315
Deferred policy acquisition costs 3,654,664 3,477,377
Goodwill 136,257 146,738
Value of insurance acquired 5,007,253 6,059,095
Other assets 608,598 498,435
Deferred income taxes 169,385 ------
$84,504,825 $84,255,261
Item 1. (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY June 30, December 31,
1996 1995
Policy and contract reserves:
Future policy benefits $41,063,348 $41,429,165
Unearned premiums 217,631 201,772
Policyholder deposits 15,971,099 15,925,201
Policy and contract claims 1,144,005 1,139,777
Other 161,136 163,100
58,557,219 58,859,015
Notes payable 9,127,482 9,306,982
Accrued expenses and other liabilities 1,734,085 2,745,673
Deferred income taxes ------ 333,466
69,418,786 71,245,136
Redeemable convertible preferred stock : 370 and 157 shares
issued and outstanding as of June 30, 1996 and
December 31, 1995, respectively 4,043,907 1,700,907
Shareholders' Equity:
Common stock, 6,000,000 shares authorized;
1,275,724 shares issued and outstanding 1,275,724 1,275,724
Paid-in capital 5,198,250 5,198,250
Unrealized appreciation of investments 733,469 1,871,652
Retained earnings 4,396,991 3,525,894
11,604,434 11,871,520
Less 200,109 shares of common stock owned by
wholly owned subsidiary (562,302) (562,302)
TOTAL SHAREHOLDERS' EQUITY 11,042,132 11,309,218
$84,504,825 $84,255,261
See accompanying notes.
Item 1. (Continued)
CITIZENS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
for the six months ended June 30,
(Unaudited)
1996 1995
REVENUES
Premiums and other considerations $9,446,021 $4,779,535
Premiums ceded (473,427) (399,615)
8,972,594 4,379,920
Investment income, net of expenses 2,092,137 1,024,779
Net realized gain on investment securities 937,344 209,202
Other income 18,054 8,050
12,020,129 5,621,951
BENEFITS AND EXPENSES
Policyholder benefits 5,573,167 3,156,788
Policyholder benefits ceded (279,096) (335,845)
5,294,071 2,820,943
Interest credited on policyholder deposits 500,108 444,694
Increase in benefit reserves 316,443 93,057
Commissions 2,008,035 692,536
Salaries and wages 846,693 698,924
Other general expenses 1,010,347 769,664
Interest expense 514,578 171,718
Policy acquisition costs deferred (350,081) (307,052)
Amortization of deferred policy acquisition costs and value of
insurance acquired 712,874 349,288
10,853,068 5,733,772
INCOME (LOSS) FROM OPERATIONS BEFORE FEDERAL
INCOME TAXES 1,167,061 (111,821)
Federal income taxes 199,000 69,847
NET INCOME (LOSS) $ 968,061 $ (181,668)
Dividends on redeemable convertible preferred stock 191,143 -------
NET INCOME APPLICABLE TO COMMON STOCK $ 776,918 $ (181,668)
NET INCOME (LOSS) PER SHARE OF COMMON STOCK:
Primary $ 0.72 $ (0.17)
Fully diluted $ 0.55 $ (0.17)
Weighted average number of shares of common stock outstanding
during the period:
Primary 1,075,615 1,075,615
Fully diluted 1,770,681 1,075,615
See accompanying notes.
Item 1. (Continued)
CITIZENS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
for the three months ended June 30,
(Unaudited)
1996 1995
REVENUES
Premiums and other considerations $4,709,561 $2,425,689
Premiums ceded (240,111) (210,857)
4,469,450 2,214,832
Investment income, net of expenses 1,067,824 541,357
Net realized gain on investment securities 346,244 301,332
Other income 13,861 4,719
5,897,379 3,062,240
BENEFITS AND EXPENSES
Policyholder benefits 3,082,700 1,681,769
Policyholder benefits ceded (183,941) (269,790)
2,898,759 1,411,979
Interest credited on policyholder deposits 232,985 231,820
Increase in benefit reserves (26,610) 61,803
Commissions 982,091 346,386
Salaries and wages 411,639 370,016
Other general expenses 525,512 458,946
Interest expense 255,814 85,557
Policy acquisition costs deferred (180,648) (175,467)
Amortization of deferred policy acquisition costs
and value of insurance acquired 325,644 188,790
5,425,186 2,979,830
INCOME FROM OPERATIONS BEFORE FEDERAL
INCOME TAXES 472,193 82,410
Federal income taxes 74,000 65,027
NET INCOME $ 398,193 $ 17,383
Dividends on redeemable convertible preferred stock 101,750 -------
NET INCOME APPLICABLE TO COMMON STOCK $ 296,443 $ 17,383
NET INCOME PER SHARE OF COMMON STOCK:
Primary $ 0.28 $ 0.02
Fully diluted $ 0.22 $ 0.02
Weighted average number of shares of common stock outstanding
during the period:
Primary 1,075,615 1,075,615
Fully diluted 1,815,615 1,075,615
See accompanying notes.
Item 1. (Continued)
CITIZENS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended June 30,
(Unaudited)
OPERATING ACTIVITIES 1996 1995
Net income (loss) $ 968,061 $ (181,668)
adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Increase in benefit reserves 431,550 93,057
Increase (decrease) in claims liabilities 4,228 (10,708)
(Increase) decrease in reinsurance receivable:
Paid benefits (13,593) 131,593
Unpaid benefits (169,138) 4,733
Provision for amortization and depreciation,
net of deferrals 310,256 153,472
Amortization of premium and accretion of
discount on securities purchased, net (3,025) (22,075)
Net realized gain on investment securities (964,931) (209,202)
(Increase) decrease in accrued investment income (182,083) 131,082
Change in other assets and other liabilities (1,141,505) (23,853)
Deferred federal income taxes 138,000 25,539
Federal income taxes payable (19,000) 44,308
Interest credited on policyholder deposits 500,108 444,694
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (141,072) 580,972
INVESTING ACTIVITIES
Cost of securities and mortgage loans acquired (25,918,550) (7,638,508)
Investments sold or matured 18,006,920 8,054,863
Additions to property and equipment, net (28,442) (57,343)
Short-term investments acquired, net (20,840) (273,283)
Other investing activities, net (145,722) (8,442)
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (8,106,634) 77,287
FINANCING ACTIVITIES
Issuance of redeemable convertible
preferred stock 2,343,000 ---
Policyholder deposits 447,418 507,056
Policyholder withdrawals (901,629) (1,278,840)
Payments on note payable (188,809) (35,027)
Dividends on preferred stock (96,964) ------
Other 120,236 ------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,723,252 (806,811)
Net decrease in cash and cash equivalents (6,524,454) (148,552)
Cash and cash equivalents at beginning of period 9,776,964 921,279
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,252,510 $ 772,727
See accompanying notes.<PAGE>
Item 1. (Continued)
CITIZENS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q in
conformity with generally accepted accounting principles. The
accompanying unaudited condensed financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
presentation of the results for the interim periods. All such adjustments
are of a normal recurring nature. For further information, refer to the
December 31, 1995 consolidated financial statements and footnotes included
in the Company's annual report on Form 10-K.
2. On September 22, 1995, the Company acquired 98.85% of the common stock of
Integrity National Life Insurance Company ("Integrity National") from
Southwestern Life Corporation, a Dallas-based insurance holding company
(the "Acquisition"). The Acquisition was accounted for as a purchase with
the results of Integrity National's operations being included in the
consolidated statements of the Company since the date of acquisition.
The Company acquired the remaining 1.15% of the common stock of Integrity
National in conjunction with the merger of Integrity National into a
Company subsidiary as of December 31, 1995.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL POSITION
Fixed maturities increased $4,846,571, based on amortized cost, during the
first half of 1996. Equity securities increased $4,035,123 and $4,222,065 on a
cost and market value basis, respectively, during the same period. These
increases resulted primarily from the Company investing approximately $8,000,000
of its cash balance into fixed maturities and equity securities. Gross
unrealized appreciation for available-for-sale fixed maturities and equity
securities decreased $1,930,889 during the six months ended June 30, 1996.
OPERATIONS
An analysis of the results for the six and three month periods ended
June 30, 1996 and 1995, before federal income taxes, by segment is shown below:
<TABLE>
Six months ended June 30,
Net income (loss) before
Net income (loss) realized investment gains
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Life and Annuity $ 893,512 $(201,768) $(15,712) $(400,298)
Accident and Health 273,549 89,947 245,429 79,275
$1,167,061 $(111,821) $229,717 $(321,023)
Three months ended June 30,
Net income (loss) before
Net income realized investment gains
1996 1995 1996 1995
Life and Annuity $ 445,837 $ 70,255 $109,980 $(215,707)
Accident and Health 26,356 12,155 15,969 (3,215)
$ 472,193 $ 82,410 $125,949 $(218,922)
</TABLE>
The improved results of the Life and Annuity segment are principally
attributable to a significant increase in realized capital gains and investment
income and the September, 1995 acquisition of Integrity National Life Insurance
Company ("Integrity National") as noted below, offset, to an extent, by
increased interest expense on bank borrowings and an increase in the allocation
of overhead to this segment due to its increased premium volume. The
improvement in the Accident and Health segment is attributable to a decrease in
cancer claims and the reallocation of overhead to the Life and Annuity segment
discussed above.
Premiums and other considerations increased 105% during the first half of 1996
compared to the same period in 1995. The increase is primarily attributable to
growth in traditional life product premiums, which increased 505% in the first
half of 1996 compared to 1995. Premiums which resulted from the acquisition
of Integrity National Life in September, 1995, represented approximately 90%
of the life premium increase with the remaining increase being attributable to
sales of the Company's graded death benefit product. The Company's Accident
and Health premiums increased 33.6% due to increased sales of the Company's
dental products.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
CASH FLOW AND LIQUIDITY
Cash flow from operations decreased $722,044 during the six months ending
June 30, 1996 compared to the same period in the prior year. This decrease was
principally attributable to the payment during the first half of 1996 of
integration costs, bonuses, agent awards, and other expenses associated with
Integrity National which were accrued as of December 31, 1995.
The $8,106,634 of cash used in investing activities resulted from the
Company's investment of cash balances into fixed maturities and equity
securities.
The increase in cash provided by financing activities during the first half of
1996 compared to the same period in 1995 is primarily attributable to the net
proceeds of $2,343,000 received from the issuance of an additional 213 shares of
1995 Class B convertible preferred stock.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The 1996 annual meeting of shareholders of the Company was held on
May 29, 1996. At the meeting, eight incumbent directors were re-elected to
serve until the 1997 annual meeting of shareholders.
The names of the incumbent directors and the shares of the Company's
Class A Stock were voted are as follows:
For Against Withheld
John H. Harralson, Jr. 733,443 100 3,045
Lane A. Hersman 733,543 0 3,045
Frank T. Kiley 733,543 0 3,045
Charles A. Mays 733,543 0 3,045
Earle V. Powell 733,181 362 3,045
Thomas G. Ward 733,543 0 3,045
Darrell R. Wells 733,443 100 3,045
Margaret A. Wells 733,303 240 3,045
In addition to the election of directors, shares of the Company's Class
A Stock were voted as follows to approve amending the Company's Articles of
Incorporation to increase the number of authorized shares of Class A Stock
from 2,000,000 to 6,000,000 shares:
For Against Withheld
720,804 5,945 9,839
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 3.1- Amended articles of incorporation.
Exhibit 11- Statement regarding computation of per share earnings
Exhibit 27- Financial Data Schedule
b. None
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.
CITIZENS FINANCIAL CORPORATION
August 7, 1996 BY: ________________________________________
Darrell R. Wells
President and Chief Executive Officer
August 7, 1996 BY: ______________________________________
Brent L. Nemec
Treasurer and Principal Accounting Officer
EXHIBIT INDEX
Exhibit No. Description Page No.
3.1 Articles of Incorporation of the Company 13
dated September 11, 1990, as amended on
December 14, 1995, and as further amended
on June 5, 1996.
11 Statement regarding computation of per share 35
earnings
27 Financial Data Schedule 36
(SEC filing only)
EXHIBIT 3.1
Articles of Incorporation of the Company, dated September 11, 1990, as
amended December 14, 1995 and June 5, 1996
<PAGE>
ARTICLES OF INCORPORATION
OF
CITIZENS FINANCIAL CORPORATION
Dated September 11, 1990,
as amended December 14, 1995 and June 5, 1996
The undersigned Incorporator, H. Alexander Campbell, executes these Articles
of Incorporation for the purpose of forming and does hereby form a corporation
under the laws of the Commonwealth of Kentucky in accordance with the following
provisions:
ARTICLE I.
The name of the corporation is CITIZENS FINANCIAL CORPORATION.
ARTICLE II.
The purpose for which the corporation is organized is the transaction of any
or all lawful business for which corporations may be organized under the
Kentucky Business Corporation Act, or any act amendatory thereof, supplemental
thereto or substituted therefor (the "Act"), and to do all things necessary,
convenient, proper or desirable in connection with or incident to any of the
corporation's businesses.
ARTICLE III.
The street address of the initial registered office of the corporation in the
Commonwealth of Kentucky is Suite 300, The Marketplace, 12910 Shelbyville Road,
Louisville, Kentucky 40243. The initial registered agent at the same address is
Theodore Rich.
ARTICLE IV.
The mailing address of the principal office of the corporation is Suite 300,
The Marketplace, 12910 Shelbyville Road, Louisville, Kentucky 40243.
ARTICLE V.
The name and address of the Incorporator is H. Alexander Campbell,
2800 Citizens Plaza, Louisville, Kentucky 40202.
ARTICLE VI.
Capital Stock
A. The aggregate number of shares of capital stock that the corporation
is authorized to issue is 6,000,000* shares of Class A Stock, without par value
("Class A Stock") and 500,000 shares of Class B Stock, without par value
("Class B Stock").
B. Class A Stock
1. The holders of Class A Stock of the corporation shall be
entitled to one vote for each share of Class A Stock held by them
on all matters properly presented to shareholders, except as
otherwise provided herein or by the Act.
2. Subject to any preferential rights of any series of Class B
Stock set forth in the resolution adopted by the Board of Directors
establishing such series, the holders of the Class A Stock shall be
entitled to receive dividends, when and as declared by the Board of
Directors, out of funds legally available therefor.
C. Class B Stock
1. To the extent permitted by the Act, the Board of Directors is
authorized, by resolution, to cause Class B Stock to be divided into
and issued from time to time in one or more series and to fix and
determine the designation and number of the shares and the relative
rights and preferences of the shares of each such series and to
change shares of one series that have been redeemed or reacquired
into shares of another series.
2. All shares of Class B Stock shall rank equally and be
identical in all respects except as to the relative rights and
preferences of any series fixed and determined by the Board of
Directors, which may vary to the extent permitted by the Act.
3. The holders of Class B Stock of each series shall be entitled
to receive such dividends, when and as declared by the Board of
Directors, out of funds legally available therefor, as they may be
entitled to in accordance with the resolution or resolutions adopted
by the Board of Directors establishing such series, payable on such
dates as may be fixed in such resolution or resolutions. So long
as there shall be outstanding any shares of Class B Stock of any
series entitled to cumulative dividends pursuant to the resolution or
resolutions providing for the issuance of such series, no dividend,
whether in cash or property, shall be paid or declared, nor shall any
distribution be made, on Class A Stock, nor shall any shares of Class
A Stock be purchased, redeemed or otherwise acquired for value by the
corporation, if at the time of making such payment, declaration,
distribution, purchase, redemption or acquisition the corporation
shall be in default with respect to any dividend payable on, or
obligation to maintain a purchase, retirement or sinking fund with
respect to, or to redeem, shares of Class B Stock of any series.
The foregoing provisions of this paragraph 3 of Section C of this
Article VI shall not, however, apply to a dividend payable in Class A
Stock or to the acquisition of shares of Class A Stock in exchange
for, or through application of the proceeds of the sale of, shares of
Class A Stock.
_________________________
*As amended June 5, 1996
4. Class B Stock shall be preferred over Class A Stock as to
assets so that the holders of a series of Class B Stock shall be
entitled to be paid, upon the voluntary or involuntary liquidation,
dissolution or winding up of the corporation and before any
distribution is made to the holders of Class A Stock, but only if and
to the extent of the amount fixed in the resolution adopted by the
Board of Directors establishing such series, without prejudice to
any entitlement to any other or further payment fixed in such
resolution. If upon any such liquidation, dissolution or winding
up of the corporation, its net assets shall be insufficient to permit
the payment in full of the respective amounts to which the holders of
all outstanding Class B Stock are entitled, the entire remaining net
assets of the corporation shall be distributed among the holders of
each series of Class B Stock in amounts proportionate to the full
amounts to which the holders of each such series are respectively
entitled. For purposes of this paragraph 4, the voluntary sale,
lease, exchange or transfer of all or substantially all of the
corporation's property or assets to, or its consolidation or merger
with, one or more corporations shall not be deemed to be a voluntary
or involuntary liquidation, dissolution or winding up of the
corporation.
5. All shares of any series of Class B stock shall be redeemable
but only if and to the extent permitted by the Act and fixed in the
resolution adopted by the Board of Directors establishing such
series. All shares of any series of Class B Stock shall be
convertible into shares of Class A Stock or into shares of any other
series of Class B Stock but only if and to the extent permitted by
the Act and fixed in the resolution adopted by the Board of Directors
establishing such series.
6. Unless otherwise provided herein or by the Act, or unless
otherwise provided in the resolution adopted by the Board of
Directors establishing any series of Class B Stock, the holders of
shares of Class B Stock shall be entitled to one vote for each share
of Class B Stock held by them on all matters properly presented to
shareholders, and in that case the holders of Class A Stock and the
holders of all series of Class B Stock so entitled to vote shall vote
together as one class.
D. No holder of shares of any class of stock of the corporation shall
have any preemptive rights to subscribe to stock, obligations, warrants,
subscription rights or other securities of the corporation of any class,
whether now or hereafter authorized.
E. 1995 Class B Convertible Preferred Stock**
1. Designation. The series of Class B Stock provided for by this
resolution and amendment shall be designated "1995 Class B
Convertible Preferred Stock" (hereinafter referred to as the "1995
Class B Stock").
2. Authorization. The number of shares constituting the Series B
Stock shall be 370 shares.
_________________________
** Section E of Article VI added by series resolution of the Board of
Directors adopted December 14, 1995
3. Dividends.
a. The holders of shares of the 1995 Class B Stock shall be
entitled to receive, when and as declared by the Board of
Directors, out of funds legally available therefor, cumulative
quarterly dividends payable in cash on the first business day of
January, April, July, and October in each year, beginning
April 1, 1996, at the annual rate of $1,100.00 per share (as
adjusted for any stock dividends, combinations or splits with
respect to such shares) and no more. Dividends payable on the
1995 Class B Stock for each full dividend period shall be
computed by dividing the annual dividend rate of $1,100.00 by
four (4). Dividends payable on the 1995 Class B Stock [i] for
the period from the date of original issuance thereof to the
first subsequent regular dividend payment date and [ii] in the
case of shares called for redemption, from the last regular
dividend payment date to the date of payment, shall be prorated
according to the number of days elapsed prior to the date of
payment over an assumed year of 365 days. The Board of Directors
shall fix a record date for the determination of holders of
shares of the 1995 Class B Stock entitled to receive payment
of each dividend or distribution declared thereon.
b. No dividends (other than those payable solely in the Class A
Stock of the corporation) shall be paid on any Class A Stock of
the corporation at any time and for so long as there shall not
have been declared and paid or set apart for payment all amounts
necessary to eliminate any arrearage in payment of the aforesaid
dividends on the 1995 Class B Stock.
4. Liquidation Preference.
a. In the event of any liquidation, dissolution or winding up
of the corporation, whether voluntary or involuntary, the holders
of the 1995 Class B Stock shall be entitled to receive out of
funds legally available therefor, prior and in preference to
any distribution of any of the assets or surplus funds of the
corporation to the holders of the Class A Stock by reason of
their ownership thereof, the amount of $11,000.00 per share (as
adjusted for any stock dividends, combinations or splits with
respect to such shares), plus all accrued or declared but unpaid
dividends including a pro rata dividend according to the number
of days elapsed prior to the date of payment over an assumed year
of 365 days (collectively, "Accrued Dividends") on such share for
each share of 1995 Class B Stock then held by them. If upon the
occurrence of such event, the assets and funds thus distributed
among the holders of the 1995 Class B Stock shall be insufficient
to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the
corporation legally available for distribution shall be
distributed ratably among the holders of the 1995 Class B Stock
in proportion to the preferential amount each such holder is
otherwise entitled to receive.
b. Whenever the distribution provided for in this paragraph 4
shall be payable in securities or property other than cash, the
value of such distribution shall be the fair market value of such
securities or other property as determined in good faith by the
Board of Directors.
5. Redemption.
a. Scheduled Redemption. The corporation shall redeem, from
any source of funds legally available therefor, the 1995 Class B
Stock in twelve quarterly installments beginning on January 1,
2003, and continuing thereafter on each April 1, July 1, October
1, and January 1, until October 1, 2005 (each such date a "1995
Class B Scheduled Redemption Date"), whereupon the remaining 1995
Class B Stock outstanding shall be redeemed. The corporation
shall effect such redemptions on the applicable 1995 Class B
Scheduled Redemption Dates by paying in cash in exchange for the
shares of 1995 Class B Stock to be redeemed a sum equal to
$11,000.00 per share of 1995 Class B Stock (as adjusted for any
stock dividends, combinations or splits with respect to such
shares) plus all Accrued Dividends (the "1995 Class B Redemption
Price"). The number of shares of 1995 Class B Stock that the
corporation shall be required under this paragraph 5.a to redeem
on any one 1995 Class B Scheduled Redemption Date shall be equal
to the amount determined by dividing [i] the aggregate number of
shares of 1995 Class B Stock outstanding immediately prior to the
1995 Class B Scheduled Redemption Date by [ii] the number of
remaining 1995 Class B Scheduled Redemption Dates (including the
1995 Class B Redemption Date to which such calculation applies).
Any redemption effected pursuant to this paragraph 5.a shall be
made on a pro-rata basis among the holders of the 1995 Class B
Stock in proportion to the shares of 1995 Class B Stock then held
by them.
b. Holder's Optional Redemption. At the individual option of
each holder of shares of 1995 Class B Stock, the corporation
shall redeem, on a date selected by it on or before January 1,
2002 (the "1995 Class B Holder's Optional Redemption Date"), the
number of shares of 1995 Class B Stock held by such holder that
is specified in a request for redemption delivered to the
corporation by the holder on or prior to December 31, 2000, by
paying in cash therefor the 1995 Class B Redemption Price.
c. Issuer's Optional Redemption. At its option, the
corporation may redeem, in whole or from time to time in part, at
any time after January 1, 1998, any or all of the outstanding
shares of 1995 Class B Stock by paying in cash therefor the 1995
Class B Redemption Price, but only if for any 20 trading days
within any period of 30 consecutive trading days, including the
last trading day of such period, the current market price of the
Class A Stock on each of such 20 trading days has exceeded 150%
of the 1995 Class B Conversion Price in effect on such trading
day. In addition, at its option, the corporation may redeem, in
whole or from time to time in part, at any time after January 1,
1999, any or all of the outstanding shares of 1995 Class B Stock
by paying in cash therefor the 1995 Class B Redemption Price.
The corporation shall give written notice of any such redemption
to each holder of record (at the close of business on the
business day next preceding the day on which notice is given)
of the 1995 Class B Stock, which notice shall be mailed, first
class postage prepaid, at the address last shown on the record of
the corporation for such holder, and shall specify a date not
less than 15 nor more than 45 days after the date of such notice
as the date for such redemption (each a "1995 Class B Issuer's
Optional Redemption Date"). Any redemption effected pursuant
to this paragraph 5.c shall be made on a pro-rata basis among the
holders of the 1995 Class B Stock in proportion to the shares of
1995 Class B Stock then held by them.
d. At least 15 but no more than 30 days prior to each 1995
Class B Scheduled Redemption Date, each 1995 Class B Holder's
Optional Redemption Date, and 1995 Class B Issuer's Optional
Redemption Date (each hereinafter, a "Redemption Date"), written
notice shall be mailed, first class postage prepaid, to each
holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the 1995
Class B Stock to be redeemed, at the address last shown on the
record of the corporation for such holder, notifying such holder
of the redemption to be effected, specifying the number of shares
to be redeemed from such holder, the date of the redemption, the
1995 Class B Redemption Price, the place at which payment may be
obtained and calling upon such holder to surrender to the
corporation, in the manner and at the place designated, the
holder's certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). Except as provided in
paragraph 5.E, on or after the date specified in the Redemption
Notice, each holder of 1995 Class B Stock to be redeemed shall
surrender to the corporation the certificate or certificates
representing such shares, in the manner and at the place
designated in the Redemption Notice, and thereupon the 1995 Class
B Redemption Price of such shares shall be payable to the order
of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the
shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
e. From and after any Redemption Date, unless there shall have
been a default in payment of the 1995 Class B Redemption Price,
all rights of the holders of shares of 1995 Class B Stock
designated for redemption in the Redemption Notice as holders of
1995 Class B Stock (except the right to receive the 1995 Class B
Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on
the books of the corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the corporation legally
available for redemption of shares of 1995 Class B Stock on any
Redemption Date are insufficient to redeem the total number of
shares of 1995 Class B Stock to be redeemed on such date, those
funds which are legally available will be used to redeem the
maximum possible number of such shares ratably among the holders
of such shares to be redeemed based upon their holdings of 1995
Class B Stock. The shares of 1995 Class B Stock not redeemed
shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter when
additional funds of the corporation are legally available for the
redemption of shares of 1995 Class B Stock, such funds will
immediately be used to redeem the balance of the shares that the
corporation has become obliged to redeem on any Redemption Date,
but which it has not redeemed, in accordance with a procedure
substantially similar to that described above and approved by the
Board of Directors.
f. On or prior to each Redemption Date, the corporation shall
deposit the 1995 Class B Redemption Price of all shares of 1995
Class B Stock designated for redemption in the Redemption Notice
and not yet redeemed with a bank or trust company having
aggregate capital and surplus in excess of $10,000,000 as a trust
fund for the benefit of the respective holders of the shares
designated for redemption and not yet redeemed, with irrevocable
instructions and authority to the bank or trust company to pay
the 1995 Class B Redemption Price for such shares to the
respective holders on or after the Redemption Date upon receipt
of notification from the corporation that such holder has
surrendered his share certificate to the corporation pursuant to
paragraph 5.e of this Section E. As of the Redemption Date, the
deposit shall constitute full payment of the shares to their
holders, and from and after the Redemption Date the shares so
called for redemption shall be redeemed and shall be deemed to be
no longer outstanding, and the holders thereof shall cease to
be stockholders with respect to such shares and shall have no
rights with respect thereto except the rights to receive from the
bank or trust company payment of the 1995 Class B Redemption
Price of the shares, without interest, upon surrender of their
certificates therefor. Such instructions shall also provide that
any moneys deposited by the corporation pursuant to this
paragraph 5.f for the redemption of shares thereafter converted
into shares of the corporation's Class A Stock pursuant to
paragraph 7 of this Section E prior to the Redemption Date shall
be returned to the corporation forthwith upon such conversion.
The balance of any moneys deposited by the corporation pursuant
to this paragraph 5.f remaining unclaimed at the expiration of
two (2) years following the Redemption Date shall thereafter be
returned to the corporation upon its request expressed in a
resolution of its Board of Directors.
6. Voting Rights; Directors.
a. So long as any shares of the 1995 Class B Stock remaining
outstanding, in the event of a failure of the corporation to pay
dividends on the 1995 Class B Stock for six (6) quarterly periods
or to redeem shares of the 1995 Class B Stock as required
pursuant to paragraph 5 of this Section E (the "Events of
Default"), then until such Events of Default have been fully
cured (including declaration and payment or setting aside funds
sufficient for payment of all such unpaid dividends) [i] the
authorized number of members of the Board of Directors of the
corporation shall be increased by two (2) persons (the "1995
Class B Directorships") and [ii] the holders of the 1995 Class B
Stock shall (immediately upon the giving of written notice the
corporation by the holders of a majority of the then outstanding
shares of 1995 Class B Stock), voting together as a single class,
be entitled to elect two (2) members of the Board of Directors of
the corporation to full the vacancies thereby created (the "1995
Class B Directors"). If, after the election of a new Board of
Directors pursuant to this paragraph 6, the Events of Default are
cured, then [i] the 1995 Class B Directorships shall terminate
and [ii] the holders of the 1995 Class B Stock shall be divested
of the special voting rights specified in this paragraph a.
However, such special voting rights shall again accrue to the
holders of the shares of the 1995 Class B Stock in case of any
later occurrence of an Event of Default.
b. Whenever under the provisions of this paragraph 6, the right
shall have accrued to the holders of the 1995 Class B Stock to
vote as a single class to elect the 1995 Class B Directors, the
Board of Directors shall, within ten (10) days after delivery to
the corporation at its principal office of a request to such
effect by the holders of a majority of the then outstanding
shares of the 1995 Class B Stock, call a special meeting of such
holders for the election of the 1995 Class B Directors, to be
held upon not less than ten (10) nor more than twenty (20) days'
notice to such holder. If such notice of meeting is not given
within the ten (10) days required above, the holders of 1995
Class B Stock requesting such meeting may also call such meeting
and for such purposes shall have access to the stock books and
records of the corporation. At any meeting so called or at any
other meeting held while the holders of shares of 1995 Class B
Stock shall have the voting power provided in this paragraph, the
holders of a majority of the shares of 1995 Class B Stock present
in person or by proxy or voting by written consent, shall be
sufficient to constitute a quorum for the election of directors
as herein provided. In the case of any vacancy a 1995 Class B
Directorship, the remaining 1995 Class B Director may appoint a
successor to hold office for the unexpired term of the director
whose 1995 Class B Directorship shall be vacant, provided that if
there are no remaining 1995 Class B Directors, the vacancies may
be filled by the affirmative vote of the holders of a majority of
the shares of 1995 Class B Stock, voting together as a single
class, given either at a special meeting of such holders duly
called for that purpose or pursuant to a written consent of
stockholders. Any 1995 Class B directors who shall have been
elected by the holders of 1995 Class B Stock or appointed by any
directors so elected as provided in the next preceding sentence
hereof may be removed during the aforesaid term of office, either
with or without cause, by, and only by, the affirmative vote of
the holders of a majority of the shares of the 1995 Class B Stock
who elected such director or directors, given either at a special
meeting of such holders duly called for that purpose or pursuant
to a written consent of such holders, and any vacancy thereby
created may be filled by the holders of the 1995 Class B Stock
represented at such meeting or pursuant to such written consent.
7. Conversion. The 1995 Class B Stock shall be convertible into
Class A Stock as follows:
a. Right to Convert. Each share of 1995 Class B Stock shall be
convertible, at the option of the holder thereof, at any time
after the date of issuance of such share and on or prior to the
fifth (5th) day prior to any Redemption Date, if any, as may
have been fixed in any Redemption Notice with respect to the 1995
Class B Stock, at the office of the corporation or any transfer
agent for such stock, into such number of fully paid and
nonassessable shares of Class A Stock as is determined by
dividing $11,000.00 by the 1995 Class B Conversion Price
applicable to such share, determined as hereinafter provided, in
effect on the date the certificate is surrendered for conversion.
The price at which shares of Class A Stock shall be delivered
upon conversion of shares of the 1995 Class B Stock shall be
$5.50 per share of Class A Stock, adjusted as hereinafter
provided (as so adjusted, the "1995 Class B Conversion Price").
b. Mechanics of Conversion.
(1) Before any holder of 1995 Class B Stock shall be
entitled to receive shares of Class A Stock pursuant to
paragraph 7.a above, the holder shall surrender the
certificate or certificates therefor, duly endorsed, at the
office of the corporation or of any transfer agent for such
stock, and shall give written notice to the corporation at
such office that the holder elects to convert the same, and
shall state therein the name or names in which the holder
wishes the certificate or certificates for shares of Class A
Stock to be issued. The corporation shall, as soon as
practicable thereafter, issue and deliver at such office to
such holder of 1995 Class B Stock, a certificate or
certificates for the number of shares of Class A Stock to
which the holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately
prior to the close of business on the date of surrender of
the shares of 1995 Class B Stock to be converted, and the
person or persons entitled to receive the shares of Class A
Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of
Class A Stock on such date.
(2) If the conversion is in connection with an underwritten
offering of securities pursuant to the Securities Act of
1933, as amended, the conversion may, at the option of any
holder tendering shares of 1995 Class B Stock for
conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive
the Class A Stock upon conversion of the 1995 Class B Stock
shall not be deemed to have converted such 1995 Class B
Stock until immediately prior to the closing of such sale of
securities.
c. Adjustments to 1995 Class B Conversion Price for Certain
Diluting Issues.
(1) Special Definitions.
(a) "Options" shall mean rights, options, or warrants
to subscribe for, purchase or otherwise acquire
either Class A Stock or Convertible Securities
(defined below).
(b) "Original Issue Date" shall mean the date on which
a given share of 1995 Class B Stock was first
issued.
(c) "Convertible Securities" shall mean any evidences
of indebtedness, shares (other than Class A Stock
and 1995 Class B Stock) or other securities
convertible into or exchangeable for Class A
Stock.
(d) "Additional Shares of Class A Stock" shall mean
all shares of Class A Stock issued (or, pursuant
to paragraph 7.c(3) below, deemed to be issued)
by the corporation after the Original Issue Date,
other than shares of Class A Stock issued or
issuable:
i) upon conversion of shares of 1995 Class B
Stock;
ii) to officers, directors or employees of, or
consultants to, the corporation pursuant to
stock option or stock purchase plans or
agreements on terms approved by the Board of
Directors, but not exceeding 100,000 shares
of Class A Stock (net of any repurchases of
such shares or cancellations or expirations
of options), subject to adjustment for all
subdivisions and combinations.
iii) as a dividend or distribution on 1995 Class B
Stock; or
iv) for which adjustment of the 1995 Class B
Conversion Price is made pursuant to
paragraph 7.c(4) below.
(2) No Adjustment of Conversion Price. Any provision
herein to the contrary notwithstanding, no adjustment in the
1995 Class B Conversion Price shall be made in respect of
the issuance of Additional Shares of Class A Stock unless
the consideration per share (determined pursuant to
paragraph 7.c(5) below) for an Additional Share of Class A
Stock issued or deemed to be issued by the corporation is
less than the 1995 Class B Conversion Price in effect on the
date of, and immediately prior to, such issue.
(3) Deemed Issue of Additional Shares of Class A Stock. In
the event the corporation at any time or from time to time
after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the
determination of holders of any class of securities then
entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth
in the instrument relating thereto without regard to any
provisions contained therein designed to protect against
dilution) of Class A Stock issuable upon the exercise of
such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such
Convertible Securities and Options therefor, shall be
deemed to be Additional Shares of Class A Stock issued as of
the time of such issue or, in case such a record date shall
have been fixed, as of the close of business on such record
date, provided that in any such case in which Additional
Shares of Class A Stock are deemed to be issued:
(a) no further adjustments in the 1995 Class B
Conversion Price shall be made upon the subsequent
issue of Convertible Securities or shares of Class
A Stock upon the exercise of such Options or
conversion or exchange of such Convertible
Securities;
(b) if such Options or Convertible Securities by their
terms provide, with the passage of time or
otherwise, for any increase or decrease in the
consideration payable to the corporation, or
decrease or increase in the number of shares of
Class A Stock issuable, upon the exercise,
conversion or exchange thereof, the 1995 Class B
Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be
recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights
of conversion or exchange under such Convertible
Securities (provided, however, that no such
adjustment of the 1995 Class B Conversion Price
shall affect Class A Stock previously issued upon
conversion of the 1995 Class B Stock);
(c) upon the expiration of any such Options or any
rights of conversion or exchange under such
Convertible Securities which shall not have been
exercised, the 1995 Class B Conversion Price
computed upon the original issue thereof (or upon
the occurrence of a record date with respect
thereto), and any subsequent adjustments based
thereon, shall, upon such expiration, be
recomputed as if:
i) in the case of Convertible Securities or
Options for Class A Stock the only Additional
Shares of Class A Stock issued were the
shares of Class A Stock, if any, actually
issued upon the exercise of such Options or
the conversion or exchange of such
Convertible Securities and the consideration
received therefor was the consideration
actually received by the corporation for the
issue of all such Options, whether or not
exercised, plus the consideration actually
received by the corporation upon such
exercise, or for the issue of all such
Convertible Securities which were actually
converted or exchanged, plus the additional
consideration, if any, actually received by
the corporation upon such conversion or
exchange; and
ii) in the case of Options for Convertible
Securities, only the Convertible Securities,
if any, actually issued upon the exercise
thereof were issued at the time of issue of
Such Options, and the consideration received
by the corporation for the Additional Shares
of Class A Stock deemed to have been then
issued was the consideration actually
received by the corporation for the issue of
all such Options, whether or not exercised,
plus the consideration deemed to have been
received by the corporation (determined
pursuant to paragraph 7.c(5) below) upon the
issue of the Convertible Securities with
respect to which such Options were actually
exercised;
(d) no readjustment pursuant to clause (b) or (c)
above shall have the effect of increasing the 1995
Class B Conversion Price to an amount which
exceeds the lower of [a] the 1995 Class B
Conversion Price on the original adjustment
date, or [b] the 1995 Class B Conversion Price
that would have resulted from any issuance of
Additional Shares of Class A Stock between the
original adjustment date and such readjustment
date;
(e) in the case of any Options which expire by their
terms not more than 30 days after the date of
issue thereof, no adjustment of the Conversion
Price shall be made until the expiration or
exercise of all such Options, whereupon such
adjustment shall be made in the same manner
provided in clause (c) above.
(4) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Class A Stock. In the event the
corporation, at any time after the Original Issue Date shall
issue Additional Shares of Stock (including Additional
Shares of Class A Stock deemed to be issued pursuant to
paragraph 7.c(3) above) without consideration or for a
consideration per share less than the 1995 Class B
Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, the 1995 Class
B Conversion Price shall be reduced, concurrently with such
issue, to a price (calculated to the nearest cent)
determined by multiplying such 1995 Class B Conversion Price
by a fraction, the numerator of which shall be the number of
shares of Class A Stock outstanding immediately prior to
such issue plus the number of shares of Class A Stock which
the aggregate consideration received by the corporation for
the total number of Additional Shares of Class A Stock so
issued would purchase at such 1995 Class B Conversion Price
in effect immediately prior to such issue and the
denominator of which shall be the number of shares of Class
A Stock outstanding immediately prior to such issue plus the
number of such Additional Shares of Class A stock so
issued. For the purpose of the above calculation, the
number of shares of Class A stock outstanding immediately
prior to such issue shall be calculated on a fully diluted
basis, as if all shares of 1995 Class B Stock and all
Convertible Securities had been fully converted into shares
of Class A Stock immediately prior to such issuance and any
outstanding warrants, options or other rights for the
purchase of shares of stock or convertible securities had
been fully exercised immediately prior to such issuance (and
the resulting securities fully converted into shares of
Class A Stock, if so convertible) as of such date, but not
including in such calculation any additional shares of Class
A stock issuable with respect to shares of 1995 Class B
Stock, or outstanding options, warrants or other rights for
the purchase of shares of stock or convertible securities,
solely as a result of the adjustment of the respective
1995 Class B Conversion Prices (or other conversion ratios)
resulting from the issuance of the Additional Shares of
Class A Stock causing the adjustment in question.
(5) Determination of Consideration. For purposes of this
paragraph 7.c, the consideration received by the corporation
for the issue of any Additional Shares of Class A Stock
shall be computed as follows:
(a) Cash and Property. Such consideration shall:
i) insofar as it consists of cash, be computed
at the aggregate amount of cash received by
the corporation excluding amounts paid or
payable or Accrued Dividends;
ii) insofar as it consists of property other than
cash, be computed at the fair value thereof
at the time of such issue, as determined in
good faith by the Board of Directors; and
iii) in the event Additional Shares of Class A
Stock are issued together with other shares
or securities or other assets of the
corporation for consideration which covers
both, be the proportion of such consideration
so received, computed as provided in clauses
[i] and [ii] above, as determined in good
faith by the Board of Directors.
(b) Options and Convertible Securities. The
consideration per share received by the
corporation of Additional Shares of Class A Stock
deemed to have been issued pursuant to this
paragraph 7.c relating to Options and Convertible
Securities shall be determined by dividing:
i) the total amount, if any, received or
receivable by the corporation as
consideration for the issue of such Options
or Convertible Securities, plus the minimum
aggregate amount of additional consideration
(as set forth in the instruments relating
thereto, without regard to any provision
contained therein designed to protect against
dilution) payable to the corporation upon the
exercise of such Options or Convertible
Securities and the conversion or exchange of
such Convertible Securities by
ii) the maximum number of shares of Class A Stock
(as set forth in the instruments relating
thereto, without regard to any provision
contained therein designed to protect against
the dilution) issuable upon the exercise of
such Options or conversion or exchange of
such Convertible Securities.
d. Adjustments to Conversion Prices for Stock Dividends and for
Combinations or Subdivisions of Class A Stock. In the event that
this corporation at any time or from time to time after the
Original Issue Date shall declare or pay, without consideration,
any dividend on the Class A Stock payable in Class A Stock or in
any right to acquire Class A Stock for no consideration, or shall
effect a subdivision of the outstanding shares of Class A Stock
into a greater number of shares of Class A Stock (by stock split,
reclassification or otherwise than by payment of a dividend in
Class A Stock or in any right to acquire Class A Stock), or in
the event the outstanding shares of Class A Stock shall be
combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Class A Stock, then the 1995 Class B
Conversion Price in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. In the
event that this corporation shall declare or pay, without
consideration, any dividend on the Class A Stock payable in any
right to acquire Class A Stock for no consideration, then the
corporation shall be deemed to have made a dividend payable in
Class A Stock in an amount of shares equal to the maximum number
of shares issuable upon exercise of such rights to acquire Class
A Stock.
e. Adjustments for Reclassification and Reorganization. If the
Class A Stock issuable upon conversion of the 1995 Class B Stock
shall be changed into the same or a different number of shares of
any other class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for in paragraph
7.d above), the 1995 Class B Conversion Price then in effect
shall, concurrently with the effectiveness of such reorganization
or reclassification, be proportionately adjusted so that the 1995
Class B Stock shall be convertible into, in lieu of the number of
shares of Class A Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Class A
Stock that would have been subject to receipt by the holders upon
conversion of the 1995 Class B Stock immediately before that
change.
f. No Impairment. The corporation will not, by amendment of
its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid, or seek
to avoid, the observance or performance of any of the terms to be
observed or performed hereunder by the corporation, but will at
all times in good faith assist in the carrying out of all the
provisions of this paragraph 7 and in the taking of all such
action as may be necessary or appropriate in order to protect the
rights of the holders of the 1995 Class B Stock under this
paragraph 7 against impairment.
g. Certificates as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the 1995 Class B Conversion Price
pursuant to this paragraph 7, the corporation at its expense
shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare a certificate
executed by the corporation's President or Chief Financial
Officer setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is
based. The corporation shall, upon the written request at any
time of any holder of 1995 Class B Stock, furnish or cause to be
furnished to such holder a like certificate setting forth [i]
such adjustments and readjustments, [ii] the 1995 Class B
Conversion Price at the time in effect, and [iii] the number of
shares of Class A Stock and the amount, if any, of other property
which at the time would be received upon the conversion of the
1995 Class B Stock.
h. Notices of Record Dates. In the event that the corporation
shall propose at any time: [i] to declare any dividend or
distribution upon its Class A Stock, whether in cash, property,
stock or other securities, whether or not a regular cash dividend
and whether or not out of earnings or earned surplus; [ii] to
offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class
or series or other rights; [iii] to effect any reclassification
or recapitalization of its Class A Stock outstanding involving a
change in the Class A Stock; or [iv] to merge or consolidate with
or into any other corporation, or sell, lease or convey all or
substantially all of its assets, or to liquidate, dissolve or
wind up, then, in connection with each such event, the
corporation shall send to the holders of 1995 Class B Stock;
(a) at least twenty (20) days' prior written notice of
the date on which a record shall be taken for such
dividend, distribution or subscription rights (and
specifying the date on which the holders of Class
A Stock shall be entitled thereto) or for
determining rights to vote, if any, in respect
of the matters referred to in clauses [iii] and
[iv] above;
(b) in the case of the matters referred to in clauses
[iii] and [iv] above, at least twenty (20) days'
prior written notice of the date when the same
shall take place (and specifying the date on which
the holders of Class A Stock shall be entitled
to exchange their Class A Stock for securities or
other property delivered upon the occurrence of
such event).
i. Issue Taxes. The corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue or
delivery of shares of Class A Stock on conversion of 1995 Class B
Stock pursuant hereto; provided, however, that the corporation
shall not be obligated to pay any transfer taxes resulting from
any transfer requested by any holder in connection with any such
conversion.
j. Reservation of Stock Issuable Upon Conversion. The
corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Class A Stock, solely for
the purpose of effecting the conversion of the shares of the 1995
Class B Stock, such number of its shares of Class A Stock as
shall from time to time be sufficient to effect the conversion of
all outstanding shares of the 1995 Class B Stock; and if at any
time the number of authorized but unissued shares of Class A
Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the 1995 Class B Stock, the
corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized
but unissued shares of Class A Stock to such number of shares as
shall be sufficient for such purpose, including, without
limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to the
corporation's Articles of Incorporation.
k. Fractional Shares. No fractional share shall be issued upon
the conversion of any share or shares of 1995 Class B Stock. All
shares of Class A Stock (including fractions hereof) issuable
upon conversion of more than one share of 1995 Class B Stock by a
holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share
of Class A Stock, the corporation shall, in lieu of issuing any
fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (as determined in good faith
by the Board of Directors).
l. Notices. Any notice required by the provisions of this
paragraph 7 to be given to the holders of shares of 1995 Class B
Stock shall be deemed given if deposited in the United States
mail, postage prepaid, or if sent by facsimile or delivered
personally by hand or nationally recognized courier and addressed
to each holder of record at such holder's address or facsimile
number appearing in the records of the corporation.
8. Restrictions and Limitations.
a. So long as any shares of 1995 Class B Stock remain
outstanding, the corporation shall not, without the vote or
written consent by the holders of at least 66 % of the then
outstanding shares of 1995 Class B Stock, voting together as a
single class, at any time that its shareholders' equity
(including amounts attributable to the 1995 Class B Stock) is
less than $8,000,000:
(1) Redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose) any
share or shares of 1995 Class B Stock otherwise than by
redemption in accordance with paragraph 5 of this Section E
or by conversion in accordance with paragraph 7 of this
Section E;
(2) Redeem, purchase or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose) any of the
Class A Stock; provided, however, that this restriction
shall not apply to the repurchase of shares of Class A Stock
from employees, officers, directors, consultants or other
persons performing services for the Company or any
subsidiary pursuant to agreements under which the
corporation has the option to repurchase such shares at cost
or at cost plus interest at a rate not to exceed nine
percent (9%) per annum upon the occurrence of certain
events, such as the termination of employment, provided
further, however, that the total amount applied to the
repurchase of shares of Class A Stock shall not exceed
$100,000 during any twelve (12) month period.
b. The corporation shall not amend its Articles of
Incorporation or Bylaws without the approval, by vote or written
consent, by the holders of 66 % of the then outstanding shares of
1995 Class B Stock if such amendment would change any of the
preferences, limitations or relative rights provided for herein
for the benefit of any shares of the 1995 Class B Stock. Without
limiting the generality of the preceding sentence, the
corporation will not amend its Articles of Incorporation or
Bylaws without the approval of the holders of 66 % of the then
outstanding shares of 1995 Class B Stock if such amendment
would:
(1) Reduce the dividend rates on the 1995 Class B Stock
provided for herein, or make such dividends noncumulative,
or defer the date from which dividends will accrue, or
cancel accrued and unpaid dividends, or change the relative
seniority rights of the holders of the 1995 Class B Stock as
to the payment of dividends in relation to the holders of
any other capital stock of the corporation;
(2) Reduce the amount payable to the holders of the 1995
Class B Stock upon the voluntary or involuntary
liquidation, dissolution, or winding up of the corporation,
or change the relative seniority of the liquidation
preferences of the holders of the 1995 Class B Stock to the
rights upon liquidation of the holders of any other capital
stock of the corporation;
(3) Reduce the 1995 Class B Redemption Price specified in
paragraph 5 of this Section E with respect to the 1995 Class
B Stock;
(4) Delay any of the Redemption Dates provided for in
paragraph 5 of this Section E;
(5) Cancel or modify the conversion rights of the 1995
Class B Stock provided for in paragraph 7 of this Section E;
or
(6) Change the authorized number of directors of the
corporation.
9. No Reissuance of 1995 Class B Stock.
No share or shares of 1995 Class B Stock acquired by the corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares shall be cancelled, retired and eliminated from the shares which
the corporation shall be authorized to issue.
ARTICLE VII.
A. The business and affairs of the corporation shall be managed by or
under the direction of a Board of Directors.
B. Subject to the restriction that the number of directors shall not be
less than the number required by the laws of the Commonwealth of Kentucky,
the number of directors may be fixed, from time to time, pursuant to the
Bylaws of the corporation.
C. The members of the Board of Directors (other than those who may be
elected by the holders of any series of capital stock of the corporation
having a preference over Class A Stock as to dividends or upon liquidation
pursuant to the terms of these Articles of Incorporation or of the
resolution adopted by the Board of Directors establishing such series of
stock) shall be classified when and so long as the Board of Directors shall
consist of at least eleven (11) members pursuant to the Bylaws, with
respect to the time for which they severally hold office, into three (3)
classes, as nearly equal in number as possible, as shall be determined by
the Board of Directors of the corporation, one class to be originally
elected for a term expiring at the first annual meeting of the shareholders
after their election, another class to be originally elected for a term
expiring at the second annual meeting of the shareholders after their
election, and another class to be originally elected for a term expiring at
the third annual meeting of the shareholders after their election, each
class to hold office until the successors of such class are elected and
qualified. At each annual meeting of the shareholders, the date of which
shall be fixed by or pursuant to the Bylaws of the corporation, the
successors of the class of directors whose term expires at that meeting
shall be elected to hold office for a term expiring at the annual meeting
of the shareholders held in the third year following the year of their
election.
D. Subject to any requirements of law and the rights of any series of
capital stock of the corporation having a preference over Class A Stock as
to dividends or upon liquidation pursuant to the terms of these Articles of
Incorporation or of the resolution adopted by the Board of Directors
establishing such series of stock (and notwithstanding the fact that a
lesser percentage may be specified by law, these Articles of Incorporation
or the terms of such series), the affirmative vote of the holders of 80% or
more of the voting power of the then outstanding Voting Stock of the
corporation, voting together as a single class, shall be required to remove
any director without cause. For purposes of this Article VII, "cause"
shall mean the willful and continuous failure of a director
substantially to perform such director's duties to the corporation, other
than any such failure resulting from incapacity due to physical or mental
illness, or the willful engaging by a director in gross misconduct
materially and demonstrably injurious to the corporation. As used in these
Articles of Incorporation, "Voting Stock" shall mean shares of capital
stock of the corporation entitled to vote generally in an election of
directors.
E. Subject to any requirements of law and the rights of any series of
capital stock of the corporation having a preference over Class A Stock as
to dividends or upon liquidation pursuant to the terms of these Articles of
Incorporation or of the resolution adopted by the Board of Directors
establishing such series of stock, newly created directorships resulting
from any increase in the number of directors may be filled by the Board of
Directors, or as otherwise provided in the Bylaws, and any vacancies on the
Board of Directors resulting from death, resignation, removal or other
cause shall only be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the
Board of Directors, or by a sole remaining director, or as otherwise
provided in the Bylaws. Any director elected in accordance with the
preceding sentence shall hold office until the next annual election of
directors or, if the Board of Directors is then classified in three
classes as hereinabove provided, for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and in either case unless such director's successor shall have
been elected and qualified.
F. When considering a merger, consolidation, sale of assets, business
combination or other transaction, the Board of Directors or any committee
thereof, the directors, and the officers of the corporation may, in
considering the best interests of the corporation and its shareholders,
consider the interests of and the effects of such transaction upon the
employees, customers and suppliers of the corporation and its subsidiaries
and upon communities in which the corporation and its subsidiaries are
located or do business.
G. The Board of Directors may from time to time determine whether, to
what extent, at what times and places and under what conditions and
regulations the accounts, books and records of the corporation, or any of
them, shall be open to the inspection of the shareholders, and no
shareholder shall have any right to inspect any account, book or document
of the corporation except as and to the extent expressly provided by law or
expressly authorized by resolution of the Board of Directors.
H. In addition to the powers and authority herein or by law expressly
conferred upon them, the directors are hereby empowered to exercise all
such powers and do all such acts and things as may be exercised or done by
the corporation, subject, nevertheless, to the provisions of the laws of
the Commonwealth of Kentucky, these Articles of Incorporation, or any
Bylaws adopted by the shareholders; provided, however, that no Bylaws here-
after adopted by the shareholders shall invalidate any prior act of the
directors that would have been valid if such Bylaws had not been adopted.
I. The initial board of directors of the corporation shall consist of
seven persons who shall serve until the first annual meeting of
shareholders and until their successors are elected and qualified. The
names and addresses of said directors are as follows:
Name Address
John H. Harralson 3818 Shelbyville Road
Louisville, KY 40207
Frank T. Kiley 4350 Brownsboro Road
Suite 310
Louisville, KY 40207
William H. Lomicka 2201 Brown & Williamson Tower
Louisville, KY 40202
Earle V. Powell 322 Stonehedge
Frankfort, KY 40601
Theodore Rich 12910 Shelbyville Road
Suite 300
Louisville, KY 40243
Tommy Ward 447 Springhill Drive
Lexington, KY 40503
Darrell R. Wells 4350 Brownsboro Road
Suite 310
Louisville, KY 40207
ARTICLE VIII.
In making a distribution, the corporation may, for the purpose of measuring
the legal permissibility of the distribution, disregard the preferential rights
on dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
ARTICLE IX.
As permitted by Section 271B.12-220(5)(a)(2) of the Act, the corporation
elects not to be governed by KRS 271B.12-210 of the Act.
ARTICLE X.
In furtherance and not in limitation of the powers conferred upon it by
law, the Board of Directors is expressly authorized to:
A. adopt any By-laws that the Board of Directors may deem necessary or
desirable for the efficient conduct of the affairs of the corporation,
including, but not limited to, provisions governing the conduct of, and the
matters that may properly be brought before, annual or special meetings of
the shareholders and provisions specifying the manner and extent to which
prior notice shall be given of the submission of proposals to be considered
at any such meeting or of nominations for election of directors be held at
any such meeting; and
B. repeal, alter or amend the Bylaws.
In addition to any requirements of law and any other provisions of these
Articles of Incorporation or the terms of the resolution adopted by the Board of
Directors establishing any series of capital stock having a preference over
Class A Stock as to dividends or upon liquidation (and notwithstanding the fact
that a lesser percentage may be specified by law, these Articles of
Incorporation or the terms of such class or series), the affirmative vote of the
holders of 80% or more of the voting power of the then outstanding Voting Stock
of the corporation, voting together as a single class, shall be required to
amend, alter or repeal any provision of the By-laws.
ARTICLE XI.
In addition to any requirements of law and any other provisions of these
Articles of Incorporation or the terms of the resolution adopted by the Board of
Directors establishing any series of capital stock having a preference over
Class A Stock as to dividends or upon liquidation (and notwithstanding the fact
that a lesser percentage may be specified by law, these Articles of
Incorporation or the terms of such class or series), the affirmative vote of the
holders of 80% or more of the voting power of the then outstanding Voting Stock
of the corporation, voting together as a single class, shall be required to
amend, alter or repeal, or adopt any provision inconsistent with, this Article
XI or Article VII or Article IX or Article X or Article XIII of these Articles
of Incorporation. Subject to the foregoing provisions of this Article XI, the
corporation reserves the right from time to time to amend, alter, change, add to
or repeal any provision contained in these Articles of Incorporation in any
manner now or hereafter prescribed by law and in these Articles of
Incorporation, andall rights and powers at any time conferred upon shareholders,
directors and officers of the corporation by these Articles of Incorporation or
any amendment thereof are subject to the provisions of this Article XI.
ARTICLE XII.
The corporation shall, to the maximum extent permitted by law, indemnify
any officer or director against costs and expenses (including but not limited to
attorneys' fees) and any liabilities (including but not limited to judgments,
fees, penalties and settlements) paid by or imposed against any such person in
connection with any actual or threatened claim, action, suit or proceeding,
whether civil, criminal, administrative, legislative, investigative or other
(including any appeal relating thereto) and whether made or brought by or in the
right of the corporation, or otherwise, because he or she is or was a director
or officer of the corporation or was serving as a director, officer, partner,
trustee, employee or agent of any other corporation, partnership, employee
benefit plan or other entity at the request of the corporation.
Notwithstanding any right to indemnification provided by the Act to any
employee or agent of the corporation, the corporation may, but shall not be
required to, to the maximum extent permitted by law, indemnify any such person
against costs and expenses (including but not limited to attorneys' fees) and
any liabilities (including but not limited to judgments, fines, penalties and
settlements) paid by or imposed against any such person in connection with any
actual or threatened claim, action, suit or proceeding, whether civil, criminal,
administrative, legislative, investigative or other (including any appeal
relating thereto) and whether made or brought by or in the right of the
corporation, or otherwise, because he or she is or was an employee or agent of
the corporation or was serving as a director, officer, partner, trustee,
employee or agent of any other corporation, partnership, employee benefit plan
or other entity at the request of the corporation.
The indemnification authorized by this Article XII shall not supersede or
be exclusive of any other right of indemnification that any such person may have
or hereafter acquire under any provision of these Articles of Incorporation or
the Bylaws of the corporation, or any agreement, vote of shareholders or
disinterested directors or otherwise. The corporation may take such steps as
may be deemed appropriate by the Board of Directors to provide indemnification
to any such person, including, without limitation, entering into contracts for
indemnification between the corporation and individual directors, officers,
employees or agents, which may provide rights to indemnification that are
broader or otherwise different from the rights authorized by this Article XII.
The corporation may take such steps as may be deemed appropriate by the
Board of Directors to secure, subject to the occurrence of such conditions or
events as may be determined by the Board of Directors, the payment of such
amounts as are required to effect any indemnification permitted or authorized by
this Article XII, including, without limitation, purchasing and maintaining
insurance, creating trust funds, granting security interests or using other
means.
ARTICLE XIII.
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for a breach of his or her
duties as a director except for liability:
A. for any transaction in which the director's personal financial
interest is in conflict with the financial interest of the corporation or
its shareholders;
B. for acts or omissions not in good faith or that involve intentional
misconduct or are known to the director to be a violation of law;
C. for distributions made in violation of the Act; or
D. for any transaction from which the director derives an improper
personal benefit.
If the Kentucky Revised Statutes are hereafter amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall
be eliminated or limited to the fullest extent permitted by the Kentucky Revised
Statutes, as so amended. Any repeal or modification of this Article XIII by the
shareholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
<PAGE>
Exhibit 11 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
Six Months Ended
June 30,
1996 1995
(In thousands, except share
and per share data)
<S> <C> <C>
Primary earnings per common share:
Net income (loss) $ 968,061 $ (181,668)
Convertible preferred stock dividends 191,143 ------
Income (loss) applicable to common stock $ 776,918 $ (181,668)
Average common shares outstanding 1,075,615 1,075,615
Primary earnings (loss) per common share $ 0.72 $ (0.17)
Fully diluted earnings per common share:
Net income (loss) $ 968,061 $ (181,668)
Average number of shares for computation
of fully diluted earnings per common share 1,770,681 1,075,615
Fully diluted earnings (loss) per common share $ 0.55 $ (0.17)
</TABLE>
<TABLE>
Three Months Ended
June 30,
1996 1995
(In thousands, except share
and per share data)
<S> <C> <C>
Primary earnings per common share:
Net income $ 398,193 $ 17,383
Convertible preferred stock dividends 101,750 -----
Income applicable to common stock $ 296,442 $ 17,383
Average common shares outstanding 1,075,615 1,075,615
Primary earnings per common share $ 0.28 $ 0.02
Fully diluted earnings per common share:
Net income $ 398,193 $ 17,383
Average number of shares for computation
of fully diluted earnings per common share 1,815,615 1,075,615
Fully diluted earnings per common share $ 0.22 $ 0.02
</TABLE>
<PAGE>
