UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1999
THE MORGAN GROUP, INC.
2746 Old U. S. 20 West
Elkhart, Indiana 46515-1168
(219) 295-2200
Delaware 1-13586 22-2902315
(State of (Commission File Number) (I.R.S. Employer
Incorporation) Identification Number)
The Company (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.
The number of shares outstanding of each of the Company's classes of common
stock at July 30, 1999 was:
Class A - 1,246,907 shares
Class B - 1,200,000 shares
<PAGE>
The Morgan Group, Inc.
INDEX
PAGE
NUMBER
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998 3
Consolidated Statements of
Operations for the Three and Six Month Periods
Ended June 30, 1999 and 1998 4
Consolidated Statements of
Cash Flows for the Six Month Periods Ended
June 30, 1999 and 1998 5
Notes to Consolidated Interim Financial 6 - 7
Statements as of June 30, 1999
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk 11
PART II OTHER INFORMATION 12
Item 4 Submission of matters to a Vote of Security Holders 12
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
The Morgan Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited)
-------- --------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,419 $ 1,490
Trade accounts receivable, less allowance for doubtful 13,563 12,188
accounts of $177 in 1999 and $208 in 1998
Accounts receivable, other 273 1,214
Prepaid expenses and other current assets 2,165 2,467
Deferred income taxes 1,230 1,230
-------- --------
Total current assets 18,650 18,589
-------- --------
Property and equipment, net 4,240 4,117
Intangible assets, net 7,713 8,030
Deferred income taxes 1,997 1,997
Other assets 840 654
-------- --------
Total assets $ 33,440 $ 33,387
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 4,807 $ 4,304
Accrued liabilities 4,823 3,566
Income taxes payable 63 878
Accrued claims payable 2,845 3,553
Refundable deposits 1,918 1,830
Current portion of long-term debt 641 652
-------- --------
Total current liabilities 15,097 14,783
-------- --------
Long-term debt, less current portion 644 828
Long-term accrued claims payable 5,274 4,555
Commitments and contingencies -- --
Shareholders' equity:
Common stock, $0.15 par value
Class A: Authorized shares - 7,500,000
Issued shares - 1,605,553 23 23
Class B: Authorized shares - 2,500,000
Issued and outstanding shares - 1,200,000 18 18
Additional paid-in capital 12,459 12,459
Retained earnings 3,116 2,898
-------- --------
Total capital and retained earnings 15,616 15,398
Less - treasury stock at cost 358,646 and
253,218 Class A shares (3,191) (2,177)
-------- --------
Total shareholders' equity 12,425 13,221
-------- --------
Total liabilities and shareholders' equity $ 33,440 $ 33,387
======== ========
</TABLE>
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues $ 40,270 $ 41,523 $ 75,595 $ 75,494
Costs and expenses:
Operating costs 36,876 37,123 68,879 68,778
Selling, general and administration 2,650 2,873 5,338 5,241
Depreciation and amortization 308 288 617 583
---------- ---------- ---------- ----------
39,834 40,284 74,834 74,602
Operating income 436 1,239 761 892
Interest expense, net 119 189 207 333
---------- ---------- ---------- ----------
Income before income taxes 317 1,050 554 559
Income tax expense 148 433 267 173
---------- ---------- ---------- ----------
Net income $ 169 $ 617 $ 287 $ 386
========== ========== ========== ==========
Net income per common share:
Basic $ 0.07 $ 0.23 $ 0.12 $ 0.15
========== ========== ========== ==========
Diluted $ 0.07 $ 0.23 $ 0.11 $ 0.15
========== ========== ========== ==========
Weighted average shares outstanding
Basic 2,447,532 2,637,421 2,492,820 2,636,821
========== ========== ========== ==========
Diluted 2,449,287 2,657,610 2,495,326 2,653,281
========== ========== ========== ==========
</TABLE>
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
------- -------
<S> <C> <C>
Operating activities:
Net income $ 287 $ 386
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 617 583
Loss (gain) on disposal of property and equipment 28 (15)
Changes in operating assets and liabilities:
Trade accounts receivable (1,375) (2,728)
Other accounts receivable 941 (225)
Prepaid expenses and other current assets 302 (9)
Other assets (186) 601
Trade accounts payable 503 (146)
Accrued liabilities 1,257 1,723
Income taxes payable (815) 150
Accrued claims payable 11 29
Refundable deposits 88 59
------- -------
Net cash provided by operating activities 1,658 408
Investing activities:
Purchases of property and equipment (421) (358)
Proceeds from sale of property and equipment -- 93
Business acquisitions (30) --
------- -------
Net cash used in investing activities (451) (265)
Financing activities:
Net proceeds from note payable to bank -- 750
Principle payments on long-term debt (195) (657)
Treasury stock purchases (1,014) (64)
Proceeds from exercise of stock options -- 68
Common stock dividends paid (69) (82)
------- -------
Net cash (used in) provided by financing activities (1,278) 15
------- -------
Net (decrease) increase in cash and equivalents (71) 158
Cash and cash equivalents at beginning of period 1,490 380
------- -------
Cash and cash equivalents at end of period $ 1,419 $ 538
======= =======
</TABLE>
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1999
Note 1.Basis of Presentation
The accompanying consolidated interim financial statements have been
prepared by The Morgan Group, Inc. and Subsidiaries (the "Company"),
without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
such rules and regulations. The consolidated interim financial
statements should be read in conjunction with the financial statements,
notes thereto and other information included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
Net income per common share ("EPS") is computed using the weighted
average number of common shares outstanding during the period. Since
each share of Class B common stock is freely convertible into one share
of Class A common stock, the total of the weighted average number of
shares for both classes of common stock is considered in the
computation of EPS.
The accompanying unaudited consolidated interim financial statements
reflect, in the opinion of management, all adjustments (consisting of
normal recurring items) necessary for a fair presentation, in all
material respects, of the financial position and results of operations
for the periods presented. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions. Such estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The results of operations for the interim periods are not
necessarily indicative of the results for the entire year.
The consolidated financial statements include the accounts of the
Company and its subsidiaries, Morgan Drive Away, Inc., TDI, Inc.,
Interstate Indemnity Company, and Morgan Finance, Inc., all of which
are wholly owned. Significant intercompany accounts and transactions
have been eliminated in consolidation.
Note 2. Segment Reporting
Description of Services
The Morgan Group, Inc. is the nation's largest service company managing
the delivery of manufactured homes, trucks, specialized vehicles, and
trailers in the United States. The Company provides outsourcing
transportation services principally through a national network of
independent owner operators. The Company dispatches its drivers from
approximately 108 offices in 32 states.
The Company operates in three business segments: Manufactured Housing,
Specialized Outsourcing Services, and Insurance and Finance. The
Manufactured Housing segment provides outsourced transportation and
logistical services to manufacturers of manufactured housing through a
network of terminals located in thirty one states. The Specialized
Outsourcing Services segment provides outsourced transportation
services primarily to manufacturers of recreational vehicles,
commercial trucks and trailers through a network of service centers in
eight states. The third segment, Insurance and Finance, provides
insurance and financing to the Company's drivers and independent
owner-operators. This segment also acts as a cost center whereby all
property damage and bodily injury and cargo costs are captured. The
Company's segments are strategic business units that offer different
services and are managed separately based on the differences in these
services.
Measurement of Segment Profit (Loss) and Segment Assets
The Company evaluates performance and allocates resources based on
several factors, of which the primary financial measure is business
segment operating income, defined as earnings before interest, taxes,
depreciation and amortization (EBITDA). Segment assets have not changed
significantly since December 31, 1998. The accounting policies of the
segments are the same as those described in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998. There are no
significant intersegment revenues.
The following table presents the financial information for the
Company's reportable segments for the three and six month periods ended
June 30, (in thousands):
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues
Manufactured Housing $ 27,648 $ 29,394 $ 51,516 $ 53,344
Specialized Outsourcing Services 12,214 11,742 23,246 21,384
Insurance and Finance 1,032 1,040 2,060 2,060
All Other 20 9 72 9
-------- -------- -------- --------
40,914 42,185 76,894 76,797
Total intersegment insurance revenues (644) (662) (1,299) (1,303)
-------- -------- -------- --------
Total operating revenues $ 40,270 $ 41,523 $ 75,595 $ 75,494
======== ======== ======== ========
Segment profit (loss) - EBITDA
Manufactured Housing $ 3,108 $ 2,977 $ 5,757 $ 5,208
Specialized Outsourcing Services 210 412 414 584
Insurance and Finance (2,376) (1,754) (4,406) (4,047)
All Other (198) (108) (387) (270)
-------- -------- -------- --------
744 1,527 1,378 1,475
Depreciation and amortization (308) (288) (617) (583)
Interest expense (119) (189) (207) (333)
-------- -------- -------- --------
Income (loss) before taxes $ 317 $ 1,050 $ 554 $ 559
======== ======== ======== ========
</TABLE>
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
For the Quarter Ended June 30, 1999
Consolidated Results
Operating revenues for the second quarter decreased three percent to $40.3
million from $41.5 million for the year-ago quarter, principally as a result of
revenue declines in the Manufactured Housing business segment. Partially
offsetting this decline were higher operating revenues in the Specialized
Outsourcing Services business segment.
Operating earnings before interest, taxes, depreciation and amortization
("EBITDA") were $744,000 for the quarter, compared to $1.5 million for the
corresponding period last year. Second quarter 1999 was adversely affected by
increased losses in the Insurance/Finance business segment, the weakening
Manufactured Housing market and increased costs in Specialized Outsourcing
Services.
Because of the existence of significant non-cash expenses, such as depreciation
of fixed assets and amortization of intangible assets, the Company believes that
EBITDA contributes to a better understanding of the Company's ability to satisfy
its obligations and to utilize cash for other purposes. EBITDA should not be
considered in isolation from or as a substitute for operating income, cash flow
from operating activities, and other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles.
Net interest expense decreased $70,000 in the second quarter of 1999 compared to
the year-ago quarter as a result of improved cash flow and decreases in the
average debt outstanding. Net income for the second quarter of 1999 was $169,000
or $0.07 per basic and diluted share, compared to $617,000 or $0.23 per basic
and diluted share.
Segment Results
The following discussion sets forth certain information about the segment
results for the quarters ended June 30, 1999 and 1998.
Manufactured Housing
Manufactured Housing operating revenues are generated from providing
transportation and logistical services to manufacturers of manufactured homes.
Manufactured Housing operating revenues were $1.7 million less in the second
quarter of 1999 compared to the second quarter of a year ago. Shipments
decreased eight percent in the historically strongest quarter of the year
reflecting a weakening demand in the retail sales of manufactured homes.
Manufactured Housing EBITDA increased $131,000, primarily due to a reduction in
overhead costs offsetting the lower volume.
Specialized Outsourcing Services
Specialized Outsourcing Services operating revenues increased $472,000 in the
second quarter of 1999 to $12.2 million. This increase was primarily in driver
outsourcing services. Specialized Outsourcing Services EBITDA decreased to
$210,000 primarily due to inefficiencies in utilizing the driver base and
increased overhead costs including salary severance expenses.
Insurance/Finance
Insurance/Finance operating revenues quarter to quarter were unchanged at $1.0
million. The Insurance/Finance EBITDA loss increased $622,000, primarily due to
higher bodily injury, property damage and cargo loss reserve requirements.
RESULTS OF OPERATIONS
For the First Six Months Ended June 30, 1999
For the first six months of 1999, operating revenues increased to $75.6 million
from $75.5 million for the same period last year. The increase in operating
revenues was in Specialized Outsourcing Services ($1.9 million), while
Manufactured Housing revenues decreased ($1.8 million).
EBITDA decreased $97,000 to $1.4 million for the six month period of 1999
compared to the year ago period. This decrease was caused by the increased
losses in the Insurance/Finance business segment and increased costs in
Specialized Outsourcing Services. The loss of gross margin in the Manufactured
Housing business segment from lower operating revenues was offset by the
reduction in overhead costs.
Net interest expense decreased $126,000 or thirty-eight percent compared to the
year ago period for the reasons previously noted.
The Company's effective tax rate for the three and six month's periods ended
June 30, 1999 was higher than the statutory rate primarily due to the effects on
pre-tax income of certain non-deductible items.
Net income decreased to $287,000 or $0.11 per diluted share compared to $386,000
or $0.15 per diluted share.
Segment Results
The following discussion sets forth certain information about the segment
results for the six months ended June 30, 1999 and 1998.
Manufactured Housing
Manufactured Housing operating revenues were $1.8 million less in the first half
of 1999 compared to the prior year period. This decrease occurred primarily in
the second quarter. Manufactured Housing EBITDA increased $549,000, primarily
due to the reduction in overhead costs resulting from force reductions and field
office consolidations or eliminations.
Specialized Outsourcing Services
Specialized Outsourcing Services operating revenues increased $1.9 million in
the first half of 1999 to $23.2 million. This increase was primarily in driver
outsourcing services and large trailer delivery services. However, Specialized
Outsourcing Services EBITDA decreased to $414,000 primarily due to the causes
previously noted.
Insurance/Finance
Insurance/Finance operating revenues period to period were unchanged at $2.1
million. Insurance/Finance EBITDA loss increased $359,000, primarily due to the
higher bodily injury, property damage and cargo loss reserve requirements.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities generated $1.7 million of cash in the first six months of
1999. Operations in the first six months of 1998 generated $408,000 of cash.
Increases in trade accounts payable, accrued liabilities and reductions in other
accounts receivable, prepaid expenses and other current assets more than offset
the seasonal increase in trade accounts receivable and income tax payments.
Trade accounts receivable days sales outstanding (DSO) decreased from 28 days at
December 31, 1998 to 26 days at June 30, 1999. Other accounts receivable
decreased primarily due to the collection of amounts due from the primary
insurance provider.
The Company concluded a tender offer on March 19, 1999, whereby it acquired
102,528 shares for its treasury at $9.00 per share. The Company, given its
businesses, assets and prospects, believes that purchasing its Class A stock is
an attractive investment that will benefit the Company and its remaining
shareholders and is consistent with its long-term goals of maximizing
shareholder return and with its recent purchases of outstanding shares.
On January 28, 1999, the Company entered into a new $20.0 million revolving
credit facility ("New Credit Facility") with the Transportation Division of
BankBoston. This New Credit Facility is for two years, subject to renewal, and
better sized to the Company's requirements.
The Company had no borrowings from the new credit facility at June 30, 1999 and
borrowing availability of $5.6 million.
The Company had minimal exposure to interest rates as of June 30, 1999 as
substantially all of its outstanding long-term debt bears fixed rates. The New
Credit Facility will bear variable interest rates based on either a Federal
Funds rate or the Eurodollar rate. Accordingly, future borrowings under the New
Credit Facility will have exposure to changes in interest rates. Under its
current policies, the Company does not use interest rate derivative instruments
to manage exposure to interest rate changes. Also, the Company currently is not
using any fuel hedging instruments.
It is the management's opinion that the Company's foreseeable cash requirement
will be met through a combination of internally generated funds and the credit
available from the New Credit Facility.
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure its operations will not be adversely
affected by Year 2000 software failures. The Company has a program in place
designed to bring the systems into Year 2000 compliance in time to minimize any
significant detrimental effects on operations. In addition, executive management
regularly monitors the status of the Company's Year 2000 remediation plans.
The Company converted to Year 2000 compliant financial software in February,
1999. The Company has completed software program modifications to Year 2000
compliant order entry, truck dispatch, customer billing and driver pay modules.
Testing is scheduled to be completed by August 31, 1999. Other software
remediation/replacement is likewise proceeding as planned.
Accordingly, Morgan presently believes that its Year 2000 compliance program
will essentially be completed on a timely basis, posing no significant internal
operational problems. Management, at this time, sees no need for a contingency
plan for internal Year 2000 software issues. However, if program modifications
are not satisfactorily tested and implemented by September 7, 1999, Morgan will
develop an appropriate comprehensive contingency plan.
The Company also faces risk to the extent that services and systems purchased by
the Company and others with whom the Company transacts business do not comply
with Year 2000 requirements. As part of the Year 2000 compliance program,
significant service providers, vendors, customers and governmental entities that
are believed to be critical to business operations after January 1, 2000 have
been identified and steps are being undertaken in an attempt to reasonably
determine their stage of Year 2000 readiness.
External and internal costs specifically associated with modifying internal use
software for Year 2000 compliance are expensed as incurred. The total amount
expended on the project through June 30, 1999 was $141,500. Costs to be incurred
in the remainder of 1999 to fix Year 2000 problems are estimated at
approximately $262,000. These estimated costs do not include normal ongoing
costs for computer hardware and software that would be replaced even without the
presence of the Year 2000 issue. The Company does not expect the costs relating
to Year 2000 remediation to have a material effect on its results of operations
or financial condition.
Based on the progress the Company has made in addressing its Year 2000 issues
and the Company's plan and timeline to complete its compliance program, the
Company does not foresee significant risks associated with its Year 2000
compliance at this time.
The Company believes today that the most likely worst case scenario will involve
temporary disruptions in payments from customers and temporary disruptions in
the delivery of services and products to the Company. The Company would expect
that if these events were to occur, increased expense would result and adversely
affect the Company's cash flow.
The estimates and conclusions herein contain forward-looking statements and are
based on management's best estimates of future events. However, there can be no
assurance that the Company will timely identify and remediate all significant
Year 2000 problems, that remedial efforts will not involve significant time and
expense, or that such problems will not have a material adverse effect on the
Company's business, results of operations or financial position.
Impact of Seasonality
Shipments of manufactured homes tend to decline in the winter months in areas
where poor weather conditions inhibit transport. This usually reduces operating
revenues in the first and fourth quarters of the year. The Company's operating
revenues, therefore, tend to be stronger in the second and third quarters.
FORWARD LOOKING DISCUSSION
This report contains a number of forward-looking statements regarding Year 2000
compliance and the impact of seasonality on the shipment of manufactured homes.
From time to time, the Company may make other oral or written forward-looking
statements regarding its anticipated operating revenues, costs and expenses,
earnings and other matters affecting its operations and condition. Such
forward-looking statements are subject to a number of material factors which
could cause the statements or projections contained therein to be materially
inaccurate. Such factors include, without limitation, the risk of declining
production in the manufactured housing industry; the risk of losses or insurance
premium increases from traffic accidents; the risk of loss of major customers;
risks of competition in the recruitment and retention of qualified drivers in
the transportation industry generally; risks of acquisitions or expansion into
new business lines that may not be profitable; risks of changes in regulation
and seasonality of the Company's business. Such factors are discussed in greater
detail in the Company's Annual Report on Form 10-K for the year ended December
31, 1998 under Part I, Item 1, Business 7.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The information called for by this item is provided under the caption
"Liquidity and Capital Resources" under Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations.
<PAGE>
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On June 17, 1999, the Company held its Annual Meeting of Shareholders,
the results of which follow:
Report of proxies received and shares voted June 17, 1999
Total Voted % of Total
--------- --------- ------------
Number of shares of Class A 1,249,207 1,212,106 97%
common stock
Number of shares of Class B
common stock 1,200,000 1,200,000 100%
1. Election of directors elected by
all shareholders (1-year term), shares
of Class B common stock are entitled
to two votes
<TABLE>
<CAPTION>
Against or
For Withheld Abstained Non-Votes
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Charles C. Baum 3,600,600 11,506 - 0 - 37,101
Richard B. Black 3,600,600 11,506 - 0 - 37,101
Frank E. Grzelecki 3,600,600 11,506 - 0 - 37,101
Bradley J. Bell 3,600,600 11,506 - 0 - 37,101
2. Election of director by holders of
Class A common stock (1-year term)
Robert S. Prather, Jr. 1,200,600 11,506 - 0 - 37,101
3. Amendment to Certificate of
Incorporation to allow the transfer
of shares of Class B common stock in
certain limited situations without
such shares converting to shares of
Class A common stock
Against or
For Withheld Abstained Non-Votes
--------- ---------- --------- ---------
Class A common stock 715,744 34,337 115 499,011
Class A and Class B common stock
voting together as a single class 1,915,744 34,337 115 499,011
</TABLE>
Item 6 - Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
Exhibit 3.1 - Restated and Amended Certificate of Incorporation,
as Amended
Exhibit 27.1 - Financial Data Schedule for Six Month
Period Ended June 30, 1999
Exhibit 27.2 - Restated Financial Data Schedule for Six Month
Period Ended June 30, 1998
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which
this report is filed.
<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.
THE MORGAN GROUP, INC.
BY: /s/ Dennis R. Duerksen
--------------------------------
Dennis R. Duerksen
Chief Financial Officer and
Chief Accounting Officer
Date: August 13, 1999
RESTATED CERTIFICATE OF INCORPORATION
OF
LYNCH SERVICES CORPORATION
Lynch Services Corporation (the "Corporation"), a corporation organized
and existing under the laws of the State of Delaware, hereby certifies as
follows:
1. The name of the Corporation is Lynch Services Corporation. The date
of filing of its original Certificate of Incorporation with the Secretary of
State was June 15, 1988.
2. This Restated Certificate of Incorporation restates, integrates and
further amends the Certificate of Incorporation of the Corporation to read as
herein set forth in full:
FIRST: The name of the Corporation is Lynch Services Corporation.
SECOND: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address in The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The aggregate number of shares of all classes of capital stock
which the Corporation shall have the authority to issue is 4,600,000 shares of
capital stock, divided into two classes, of which 2,100,000 shares shall be
Preferred Stock, par value $0.01 per share, and 2,500,000 shares shall be Common
Stock, par value $0.01 per share.
Preferred Stock.
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors of the Corporation is hereby expressly authorized
to provide, by resolution or resolutions duly adopted by it prior to issuance,
for the creation of each such series and to fix the designation and the powers,
preferences, rights, qualifications, limitations and restrictions relating to
the shares of each such series. The authority of the Board of Directors with
respect to each series of Preferred Stock shall include, but not be limited to,
determining the following:
(a) the designation of such series, the number of shares to constitute
such series and the stated value if different from the par value
thereof;
(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if do, the terms of
such voting rights, which may be general or limited;
<PAGE>
(c) the dividends, if any, payable an such series, whether any such
dividends shall be cumulative, and, if so, from what dates the
conditions and dates upon which such dividends shall be payable, and
the preference or relation which such dividends shall bear to the
dividends payable on any shares of stock of any other class or any
other class or any other series of Preferred Stock;
d. whether the shares of such series shall be subject to redemption by
the Corporation, and, if so, the times, prices and other conditions of
such redemption;
e. the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Corporation;
f. whether the shares of such series shall be subject to the operation
of a retirement or sinking fund and, if so, the extent to and the
manner in which any such retirement or sinking fund shall be applied to
the purchase or redemption of the shares of such series for retirement
or other corporate purposes and the terms and provisions relating to
the operation thereof;
g. whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other
series of Preferred Stock or any other securities and, if so, the price
or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, and any other terms and
conditions of conversion or exchange:
h. the limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption
or other acquisition by the Corporation of, the Common Stock or shares
of stock of any other class or any other series of Preferred Stock;
i. the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional
stock, including additional shares of such series or of any other
series of Preferred stock or of any other class; and
-2-
<PAGE>
j. any other powers, preferences and relative, participating, optional
and other special rights, and any qualifications, limitations and
restrictions, thereof.
The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereof, shall be cumulative.
Common Stock.
Subject to the preferential rights, if any, of the Preferred Stock, the
powers, preferences and rights of the shares of the common Stock, and the
qualifications, limitations or restrictions thereof, are an follows:
1. Dividends
Following the preference distribution of dividends to holders of
outstanding shares of Preferred Stock, the record holders of shares of Common
Stock shall be entitled to receive on a pro rata such dividends and
distributions, payable in cash or otherwise, when and as may be declared thereon
by the Board of Directors from time to time out of the assets or funds of the
Corporation legally available therefor.
2. Liquidation
In the event of a liquidation, dissolution or winding up of the affairs
of the Corporation, whether voluntary or involuntary, following the payment of
all indebtedness and any applicable preferential distribution to the holders of
the outstanding shares of Preferred Stock, holders of Common Stock shall receive
on a pro rata basis the remaining available assets of the Corporation available
for distribution.
3. Voting Rights
Each record holder of shares of Common Stock shall have one (1) vote
for each such share held of record in his or her name on the stock transfer
records of the Corporation.
4. Pre-Emptive Rights. The holders of Common Stock shall have no
pre-emptive rights.
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<PAGE>
FIFTH: The Board of Directors is expressly authorized to adopt, amend,
or repeal the By-laws of the Corporation.
SIXTH: Elections of directors need not be by written ballot unless the
By-laws of the Corporation shall otherwise provide.
SEVENTH: A director of the corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director; provided, however, that the foregoing shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or emissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law of Delaware is
hereafter amended to permit further elimination or limitation of 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 General
Corporation Law of Delaware as so amended. Any repeal or modification of this
Article Seventh by the stockholders of the Corporation or otherwise shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
EIGHTH: The Corporation reserves the right to amend, alter, change, or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders heroin are granted subject to this reservation.
This Restated Certificate of Incorporation was duly adopted by
unanimous written consent of the stockholders in accordance with the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, Lynch Services Corporation has caused this
certificate to be signed by Paul J. Evanson, its Chairman, and attested to by
Daniel E. Miller, its Secretary, this 13th day of August, 1992.
ATTEST: LYNCH SERVICES CORPORATION
By: /s/ Daniel E. Miller By: /s/ Paul J. Evanson
----------------------- -------------------------
Daniel E. Miller Paul J. Evanson
Secretary Chairman
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<PAGE>
CERTIFICATE OF DESIGNATIONS,
RIGHTS AND PREFERENCES
OF
SERIES A PREFERRED STOCK
(Pursuant to Section 151(q) of the General
Corporation Law of the State of Delaware)
We, the undersigned duly authorized officers of LYNCH SERVICES
CORPORATION, a corporation organized and existing under the laws of the State of
Delaware, do hereby certify that:
A. LYNCH SERVICES CORPORATION (the "Corporation") was incorporated in
the State of Delaware on June 15, 1988.
B. Pursuant to authority conferred upon the Board of Directors pursuant
to the Restated Certificate of Incorporation of the Corporation and the
provisions of Sections 141 and 151 of the General Corporation Law of the State
of Delaware, the Board of Directors has duly adopted the following recitals and
resolutions, which are still in full force and effect and are not in conflict
with any provisions of the Corporation's Restated Certificate of Incorporation
or its By-Laws, an amended, setting forth the number, terms, designation,
relative rights, preferences and limitations of a series of the Preferred Stock,
$.01 par value per share, of the Corporation:
WHEREAS, the Restated Certificate of incorporation of the Corporation
provides for a class of shares known an Preferred Stock, consisting of 2,100,000
shares; and
WHEREAS, said Restated Certificate of Incorporation authorizes issuance
of the Preferred Stock from time to time in on* or more series and authorizes
the Board of Directors to determine or alter the rights, preferences, privileges
and restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock, to fix the number of shares constituting any such series, and
to determine the designation thereof, or any of them; and
WHEREAS, the Corporation has not issued any shares of such Preferred
Stock and the Board of Directors of the Corporation desires, pursuant to its
authority as aforesaid, to determine and fix the rights, preferences,
privileges, and restrictions relating to the initial series of said Preferred
Stock and the number of shares constituting, and the designation of, said
series:
<PAGE>
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
fixes and determines the designation of, the number of shares constituting, and
the rights, preferences, privileges, and restrictions relating to, said initial
series of Preferred Stock as follows;
1. Designation. 1,600,000 shares of Preferred Stock are hereby
designated "Series A Preferred Stock" (hereinafter referred to as the "Series A
Preferred Stock") with the rights, preferences, privileges and restrictions
specified herein.
2. Voting Rights. Except as may be provided under applicable law, the
holders of the Series A Preferred Stock, as such, shall not be entitled to
notice of any stockholders' meeting or to vote upon the election of directors or
upon any other matter.
3. Dividends.
(a) The holders of shares of Series A Preferred Stock shall be entitled
to receive dividends an the shares of Series A Preferred Stork held by them, on
the terms and conditions hereinafter set forth when and as declared by the Board
of Directors out of funds legally available therefore Dividends shall be payable
semi-annually in arrears beginning January 15, 1993, by the issuance of
additional shares of Series A Preferred Stock (the "Additional Shares") , at an
annual rate of six Additional Shares, for each one hundred shares owned by such
holder immediately prior to the date of such dividend, until the earlier of (i)
the consummation of an initial public offering registered under the Securities
Act of 1933 of the common stock of the Corporation (an "IPO") and (ii) July 15,
1994 (such date shall hereinafter be referred to as the "Dividend Conversion
Date"). From and after the Dividend Conversion Date, holders of shares of Series
A Preferred Stock shall be entitled to receive cash dividends at an annual rate
equal to $.16 per share, payable semi-annually in arrears beginning an such date
exactly six months following the Dividend Conversion Date. All such dividends
shall be cumulative and shall accrue continuously from day to day, whether or
not earned or declared.
(b) Any Additional Shares issued shall be subject to the terms,
provisions and conditions of this certificate of Designation.
(c) No dividends or other distributions, other than dividends payable
solely in shares of common stock or other capital stock of the Corporation
ranking junior as to dividends or rights upon dissolution or liquidation to the
Series A Preferred Stock (the "Junior Dividend Stock"), shall be paid or set
apart for payment on, and no purchase, redemption or other acquisition shall be
made by the corporation of, any shares of common stock or Junior Dividend Stock
unless and until all accrued dividends on the Series A Preferred stock shall
have been paid or met apart for payment.
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<PAGE>
(d) Any reference to "distribution" contained in this Section 3 shall
not be doomed to include any stock dividend or distributions made in connection
with any liquidation, dissolution or winding-up of the corporation, whether
voluntary or involuntary.
4. Liquidation Preference. In the event of a liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary, the holders
of Series A Preferred Stock shall be entitled to receive out of the available
assets of the Corporation, whether such assets are stated capital or surplus of
any nature, an amount equal to all dividends (whether or not declared) accrued
and unpaid thereon as of the date of final distribution to such holders, without
interest, and a sum equal to $2.00 per share, before any payment shall be made
or any assets distributed to the holders of Common Stock or any other class or
series of the Corporation's capital stock ranking junior as to liquidation
rights of the Series A Preferred Stock (the "Junior Liquidation Stock") now or
hereafter outstanding; provided, however, that, such rights shall accrue to the
holders of Series A Preferred Stock only in the event that the Corporation's
payments with respect to the liquidation preferences of any holders of capital
stock of the Corporation ranking senior as to liquidation rights to the Series A
Preferred Stock (the "Senior Liquidation Stock") are fully met. The entire
assets of the Corporation available for distribution after the liquidation
preferences of the Senior Liquidation Stock have been fully met shall be
distributed ratably among the holders of the Series A Preferred Stock and any
other class or series of the Corporation's capital stock which may hereafter be
created having parity as to liquidation rights with the Series A Preferred Stock
in proportion to the respective preferential amounts to which each is entitled.
Neither a consolidation or merger of the Corporation with another corporation
nor a sale or transfer of all or part of the Corporation's assets for cash,
securities or other property will be considered a liquidation, dissolution or
winding-up of the Corporation.
5. Redemption at Option of Corporation. The Corporation may not redeem
shares of the Series A Preferred Stock prior to September 16, 1997. The
Corporation shall have the right and option, if funds are legally available
therefor, to redeem any or all of the outstanding shares of Series A Preferred
Stock, on a data set by the Board of Directors any time after September 16,
1997, at a price per share of $2.00, plus the per share amount of all accrued
but unpaid dividends an the Series A Preferred Stock (whether or not declared)
to the date of redemption (the "Redemption Price"). If the Company redeem less
than all of the shares of Series A Preferred Stock, such redemption shall be
completed on a pro rate basis in accordance with the number of shares of Series
A Preferred Stock owned by the holder immediately prior to such redemption.
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<PAGE>
6. Exchange at Option of the Corporation. The Series A Preferred Stock
in exchangeable at the option of the Corporation in wholes but not in part, at
any time upon or after the consummation of an IPO, for a promissory note (or
notes) of the Corporation (the "Note') in an aggregate principal amount equal to
$2.00 per share, plus all accrued but unpaid dividends on the Series A Preferred
stock (whether or not declared) to the date of exchange (the "Exchange"). Such
Note shall accrue and pay interest at the annual rate of ton percent, payable
quarterly in arrears. The Note shall mature and the unpaid principal thereof and
accrued but unpaid interact thereon shall become due and payable on the third
anniversary of the issuance of the Note in the Exchange. The indebtedness
represented by the Note and the payment of the principal of and interest on the
Note shall be expressly made subordinate to any indebtedness whatsoever of the
Corporation, whether outstanding an the date hereof or hereafter created,
incurred or assumed, to any bank, insurance company or other lending or
financial institution, to the extent the instrument creating or evidencing the
same provides that such indebtedness is superior in right to the Note. In
addition to any events described in the Note, the following events shall
constitute a default under the Note (all as more fully described in the Note) :
(i) the failure by the Corporation to pay when due any interest an the Note;
(ii) the failure by the Corporation to pay when due the principal amount of the
Note; or (iii) the bankruptcy or insolvency of the Corporation. Whenever there
is a default under the Note, the holder thereof may, at its option, declare the
amounts due under the Note immediately due and payable and exercise any or all
rights available to it thereunder or under applicable law.
7. Redemption at Option of Holder. Each holder of Series A Preferred
Stock may, at such holder's option, require the Corporation to redeem any or all
of the shares of Series A Preferred Stock held by him, at a price par share
equal to the Redemption Price, at any time and from time to time, after the
occurrence of any of the following events: (i) after September 16, 1997, so long
as any holder of Series B Preferred Stock of the Corporation ("Series B
Preferred Stock") shall exercise his right to redeem any issued and outstanding
shares of the Series B Preferred Stock, (ii) at such time as Lynch Corporation
shall no longer beneficially own 50.1% of the issued and outstanding Voting
Stock, or (iii) on or after July 15, 2000. The Corporation shall make payment
for the shares of Series A Preferred Stock surrendered for redemption within
thirty days of the Corporation's receipt of notice of the holder's exercise of
its option to redeem such shares (the "Redemption Notice") ; provided, however,
that when funds are not legally available to redeem all of the Series A
Preferred Stock surrendered for redemption, the Corporation shall redeem that
number of shares for which funds are legally available in proportion to the
aggregate redemption price for all of the Series A Preferred Stock surrendered
for redemption and in the order of receipt by the Corporation of the Redemption
Notices Call Redemption Notices received by the Corporation on the same day
shall be deemed to be received at the same time). The Corporation shall be
required to redeem the remaining shares of Series A Preferred Stock surrendered
for redemption at such time or times thereafter as funds for redemption become
legally available on the foregoing basis and in the order of receipt by the
Corporation of the Redemption Notices.
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<PAGE>
8. Status at Reacquired Shares. Shares of Series A Preferred Stock
reacquired by the Corporation pursuant to Sections 5, 6 or 7 hereof or otherwise
and cancelled, shall have the status of authorized and unissued shares of Series
A Preferred Stock.
9. Pre-Emptive Rights. The holders of shares of Series A Preferred
Stock shall have no pre-emptive rights.
10. Number of Shares. The number of shares constituting the Series A
Preferred Stock shall be, and the same is hereby fixed as, 1,600,000 and shall
not be increased, except with the consent of holders of a majority of the
outstanding shares of Series A Preferred Stock.
11 Staled Capital. The amount to be capital at all times for each share
of Series A Preferred Stock shall be its par value or S.01 per share.
12. Bank. The Series A Preferred Stock shall, with respect to dividend
rights and rights on liquidation, rank (i) senior to, junior to or an parity
with, as the case may be, any other class of the Preferred Stock established by
the, Board of Directors, the terms of which shall specifically provide that such
class shall rank senior to, junior to or on parity with, as the case may be, the
Series A Preferred Stock with respect to dividend rights and rights on
liquidation; and (ii) senior to any other capital Stock of the Corporation,
including all classes of the common stock of the Corporation.
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<PAGE>
RESOLVED, FURTHER, that the President. and the Secretary of the
Corporation be, and they hereby are, authorized and directed to prepare and file
a Certificate of Designation in accordance with this resolution and as required
IN WITNESS WHEREOF, we have executed this Certificate of Designation
and do affirm the foregoing as true under the penalties of perjury this 13th
day of August, 1992.
By: /s/ Daniel E. Miller By: /s/ Paul J. Evanson
----------------------- -------------------------
Daniel E.Miller Paul J. Evanson
Secretary Chairman of the Board
of Directors
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<PAGE>
CERTIFICATE OF DESIGNATIONS,
RIGHTS AND PREFERENCES
OF
SERIES B PREFERRED STOCK
(Pursuant to Section 151(g) of the General
Corporation Law of the State of Delaware)
We, the undersigned duly authorized officers of LYNCH SERVICES
CORPORATION, a corporation organized and existing under the laws of the State of
Delaware, do hereby certify that:
A. LYNCH SERVICES CORPORATION (the "Corporation") was incorporated in
the State of Delaware an June 15, 1988.
B. Pursuant to authority conferred upon the Board of Directors pursuant
to the Restated Certificate of Incorporation of the Corporation and the
provisions of Sections 141 and 151 of the General Corporation Law of the State
of Delaware, the Board of Directors has duly adopted the following recitals and
resolutions, which are still in full force and effect and are not in conflict
with any provisions of the Corporations Restated Certificate of Incorporation or
its By-Laws, an amended, setting forth the number, terms, designation, relative
rights, preferences and limitations of a series of the Preferred Stock, $.01 par
value par share, of the corporation:
WHEREAS, the Restated Certificate of Incorporation of the Corporation
provides for a class of shares known as Preferred Stock, consisting of 2,100,000
shares; and
WHEREAS, said Restated Certificate of Incorporation authorizes issuance
of the Preferred Stock from time to time in one or more series and authorizes
the Board of Directors to determine or alter the rights, preferences, privileges
and restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock, to fix the number of shares constituting any such series, and
to determine the designation thereof, or any of them; and
WHEREAS, the Corporation has designated a series of Preferred Stock as
the Series A Preferred Stock and the Board of Directors of the Corporation
desires, pursuant to its authority as aforesaid, to determine and fix the
rights, preferences, privileges, and restrictions relating to a second series of
said Preferred Stock and the number of shares constituting, and the designation
of, said series:
<PAGE>
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
fixes and determines the designation of, the number of shares constituting, and
the rights, preferences, privileges, and restrictions relating to., said second
series of Preferred Stock, as follows:
1. Designation. 450,000 shares of Preferred Stock are hereby designated
"Series B Preferred Stock" (hereinafter referred to as the "Series B Preferred
Stock") with the rights, preferences, privileges and restrictions specified
herein.
2. Voting Rights. The holders of the Shares of Series B Preferred
Stock, as such, shall be entitled to one vote per share of Series B Preferred
Stock on all matters submitted to a vote or consent of stockholders of the
corporation.
3. Rank. The Series B Preferred Stock shall, with respect to dividend
rights and rights on liquidation, rank: (i) junior to the Series A Preferred
Stock; (ii) senior to, junior to or on parity with, as the case may be, any
other class of the Preferred Stock established by the Board of Directors, the
terms of which shall specifically provide that such class shall rank senior to,
junior to or on parity with, as the case may be, the Series B Preferred Stock
with respect to dividend rights and rights on liquidation; and (iii) senior to
any other capital stock of the Corporation including all classes of the Common
Stock, par value $.01 per share (collectively, the "Common Stock").
4. Dividends.
(a) The holders of shares of Series B Preferred Stock shall be entitled
to receive dividends, and such dividends shall be cumulative and shall accrue
continuously from day to day, whether or not earned or declared, at an annual
rate equal to $.08 per share (the "Dividend Rate"), payable annually in arrears
on each July 15, when and as declared by the Board of Directors out of funds
legally available therefor. The Board of Directors shall declare such dividends
to the extent funds are legally available for such purpose. All dividends shall
be paid in cash.
(b) No dividends or other distributions, other than dividends payable
solely in shares of Common Stock or other capital stock of the Corporation
ranking junior as to dividends or rights upon dissolution or liquidation to the
Series B Preferred Stock (the "Junior Dividend Stock"), shall be paid or set
apart for payment on, and no purchase, redemption or other acquisition shall be
made by the Corporation of, any shares of Common Stock or Junior Dividend Stock
unless and until all accrued and unpaid dividends on the Series B Preferred
Stock shall have been paid or set apart for payment in cash.
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<PAGE>
(c) Any reference to "distribution" contained in this Section 4 shall
not be deemed to include any stock dividend or distributions made in connection
with any liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary.
5. Liquidation Preference. in the event of a liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary, the holders
of Series B Preferred Stock shall be entitled to receive out of the available
assets of the Corporation, whether such assets are stated capital or surplus of
any nature, an amount equal to all dividends (whether or not declared) accrued
and unpaid thereon as of the date of final distribution to such holders, without
interest, and a sum equal to $2.00 par share (the "Liquidation Value"), before
any payment shall be made or any assets distributed to the holders of Common
Stock or any other class or series of the Corporation's capital stock ranking
junior as to liquidation rights of the Series B Preferred Stock (the "Junior
Liquidation Stock") now or hereafter outstanding; provided, however, that, such
rights shall accrue to the holders of Series B Preferred Stock only in the event
that the Corporation's payments with respect to the liquidation preferences of
any holders of capital stock of the Corporation ranking senior as to liquidation
rights to the Series B Preferred Stock (the "Senior Liquidation Stock") are
fully met. The entire assets of the Corporation available for distribution,
after the liquidation preferences of the Senior Liquidation Stock have been
fully met shall be distributed ratably among the holders of the Series B
Preferred Stock and any other class or series of the Corporation's capital stock
which may hereafter be created having parity as to liquidation rights with the
Series B Preferred Stock in proportion to the respective preferential amounts to
which each is entitled. Neither a consolidation or merger of the Corporation
with another corporation nor a sale or transfer of all or part of the
Corporation's assets for cash, securities or other property will be considered a
liquidation, dissolution or winding-up of the Corporation.
6. Conversion. (a) Holders of the Series B Preferred Stork may, at any
time and at their option, upon surrender of the certificates therefor, convert
any or all of the Series B Preferred Stock hold by them into shares of t1he
Corporation's Common Stock at the conversion rate in affect at the time of such
conversion (an "Optional Conversion") . Each two and one-quarter (2.25) shares
of Series B Preferred Stock shall initially be convertible into one share of
Common Stock, subject to adjustment as provided in subparagraph (d) hereof (the
"Conversion Rate"). Holders of the Series B Preferred stock shall surrender the
shares of Series B Preferred Stock hold by them for conversion (a "Mandatory
Conversion") upon the consummation of a public offering registered under the
securities Act of 1933 of the Common Stock of the Corporation(an "IPO"), if the
offering price of the Common Stock in the IPO equals or exceeds $6.75 par share;
provided, however, that the holders shall not be required to surrender a number
of shares greater than that number of shares of Series B Preferred Stock which,
when multiplied by the Conversion Rate then in affect, equals or exceeds fifty
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<PAGE>
percent of the dollar amount raised in the IPO. Any Mandatory Conversion shall
be made by the holders in proportion to the number of shares of Series B
Preferred Stock held by them immediately prior to such conversion. Payment or
adjustment shall be made upon such conversion for unpaid and accrued dividends
on any shares of Series B Preferred Stock which shall be converted. The
Corporation shall not be required to issue fractional shares of Common Stock
upon any conversion, but shall pay in lieu thereof, as soon as practicable after
the date the Series B Preferred Stork is surrendered for conversion pursuant to
subparagraph (b) hereof, an amount in cash equal to the same fraction of the
market value of a full share of Common Stock. For such purposes, the market
value of a share of Common Stock shall be the fair market value thereof, as
reasonably determined by the Corporation's Board of Directors or as determined
by reference to the price par share of the Common Stock in the IPO ("Fair
Value"). All shares of Common Stock which may be issued upon the conversion of
the Series B Preferred Stock will, upon issuance, be validly issued, fully paid
and nonassessable.
(b) In order to exercise the optional conversion rights set forth
herein, a holder of record of shares of Series B Preferred Stock shall surrender
the certificate or certificates representing such shares, duly endorsed to the
Corporation or in blank, at the principal office of the Corporation, or at such
other office as the Corporation may designate, including notice to the
Corporation of such holder's election to convert the Series B Preferred Stock,
and the name or names in which he wishes the certificate or certificates for
shares of Common Stock to be issued. In the case of a Mandatory Conversion, the
Corporation shall deliver notice to the holders of the Series B Preferred Stock
that such shares must be surrendered for conversion, setting forth the holder's
pro rata conversion obligation and the holders shall deliver certificates
representing the Series B Preferred Stock to the Company within fifteen days of
such notice. As promptly as practicable after receipt of the certificate or
certificates representing the Series B Preferred Stock and the accompanying
notice, receipt of properly executed instruments of transfer reasonably
satisfactory to the Corporation, if repeated by the Corporation, and payment by
the holder of any applicable transfer taxes, the Corporation shall issue and
deliver (i) a certificate or certificates for the number of full shares of
Common Stock issuable upon conversion, in the name or names and to the address
or addresses specified in the notice, and (ii) cash in respect of any fractional
shares, as set forth in subsection (a) above.
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<PAGE>
(c) Conversion shall be deemed to have been affected at the close of
business on the date on which the certificate or certificates of Series 3
Preferred Stock shall have bean surrendered in an optional Conversion or, in the
case of a Mandatory Conversion, upon the closing of the IPO (the "Conversion");
the holder thereof shall cease to be stockholders with respect thereto and all
rights whatsoever with respect to such shares (except the rights of the holders
to receive shares of Common Stock and cash in respect of fractional shares)
shall terminate, and the person or persons in whose name any certificate or
certificates for Common Stock are issuable upon such Conversion shall be deemed
to have become the holder of record of the shares represented thereby on such
date. Upon a conversion, all shares of Series B Preferred Stork which shall have
been deemed converted as herein provided shall no longer be deemed outstanding.
(d) The Conversion Rate shall be subject to adjustment from time to
time as follows:
(i) If, on or following the date hereof, the Corporation shall, at any
time or from time to time while shares of Series B Preferred Stock shall be
outstanding, (1) pay a dividend or make a distribution in Common Stock (or
securities convertible into or exchangeable for shares of Common Stock), (2)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (3) make a distribution on its Common Stock in shares of its capital
stock other than Common Stock, (4) combine its outstanding shares of Common
Stock into a small or number of shares, or (5) issue by reclassification of its
Common Stock any shares of its capital stock, then the number of shares of
Common Stock into which shares of Series B Preferred Stock may be converted
shall be proportionately increased or decreased, as the case may be, and the
Conversion Rate in effect immediately prior to the record date fixed for the
determination of shareholders entitled to such dividend or distribution, or
immediately prior to such subdivision, combination or reclassification, as the
case may be, shall be correspondingly increased or promptly as practicable after
receipt of the certificate or decreased, as the case may be, to produce such
results (taking into account fractional interest in shares of the Common Stock
to the nearest tenth of a share, and for the purposes of the foregoing,
considering such fractional interests as outstanding fractional shares). Similar
adjustments shall be made if any of the events described herein above shall
thereafter occur or recur. An adjustment made pursuant hereto shall become
effective immediately after the record date, in the case of a dividend payable
in Common Stork (or other securities) and immediately after the effective date,
in the case of a subdivision, distribution, combination or reclassification
thereof.
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<PAGE>
(ii) Whenever any adjustment is made in the number of shares of Common
Stock into which shares of Series B Preferred Stock may be converted pursuant to
the foregoing provision, the Corporation shall, as soon as reasonably
practicable thereafter, prepare a written statement signed by an executive
officer of the Corporation, setting forth the adjusted Conversion Rate,
determined as provided herein, and, in reasonable detail, the facts requiring
such adjustment. The Corporation shall mail such statement to all holders of
record of shares of Series B Preferred Stock then outstanding at their
respective addresses appearing on the stock records of the Corporation.
(a) In the event of any merger or consolidation of the Corporation in
which the Corporation does not survive, sale of all or substantially all of the
Corporation's assets, or substantial reorganization of the Corporation, all the
outstanding Series B Preferred Stock shall be converted into Common Stock
immediately prior to such merger, consolidation, sale or reorganization (subject
to any voting rights of the holders of the Series B Preferred Stock), in
accordance with the provisions of this subsection (e). Upon any such conversion,
each share of Series B Preferred Stock shall be converted into a number of
shares of Common Stock equal to the greater of (i) the number of shares of
Common Stock that would have been received had such share of Series B Preferred
Stock been converted into Common Stock at the Conversion Rate in effect pursuant
to subsection (d) hereof immediately prior to such merger, consolidation, sale
or other reorganization, or (ii) the number of shares of Common Stock determined
by dividing the liquidation preference such share of Series B Preferred Stock
would than have been entitled to receive pursuant to Section 5 hereof upon a
liquidation of the Corporation, by the Fair Value of a share of Common Stock on
the day preceding the effective date of such merger, consolidation, sale or
other reorganization.
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<PAGE>
(f) The Corporation shall at all times reserve and keep available out
of authorized Common Stock, solely for the purpose of effecting the conversion
of the Series B Preferred stock, the full number of shares of Common Stock
issuable upon conversion of all Series B Preferred Stock at any time
outstanding.
7. Redemption at Option of Corporation. The Corporation shall have the
right and option, if funds are legally available therefor, to redeem any or all
of the outstanding shares of Series B Preferred Stock, on a date set by the
Board of Directors any time on or after July 15, 1997, at a price per share of
$2.00, plus the per share amount of all accrued but unpaid dividends on the
Series B Preferred Stock (whether or not declared) to the date or redemption
(the "Redemption Price"). If the Company redeems less than all of the shares of
Series B Preferred Stock, such redemption shall be completed on a pro rata basis
in accordance with the number of shares of Series B Preferred Stock owned by
each holder immediately prior to such redemption.
8. Redemption at Option of Holder. Each holder of Series B Preferred
Stock may, at such holder's option, require the Corporation to redeem any or all
of the shares of Series B Preferred Stock held by him, at a per share price
equal to the Redemption Price, at any time during the sixty day period
commencing July 16, 1997 and ending September 16, 1997. The Corporation shall
make payment for the shares of Series B Preferred Stock surrendered for
redemption within thirty days of the Corporation's receipt of notice of the
holder's exercise of its option to redeem such shares (the "Redemption Notice");
provided, however, that when funds are not legally available to redeem all of
the outstanding Series B Preferred Stock surrendered for redemption, the
Corporation shall redeem that number of shares for which funds are legally
available in proportion to the aggregate redemption price for all of the Series
B Preferred Stock surrendered for redemption and in the order of receipt by the
Corporation of the Redemption Notices (all Redemption Notices received on the
same day shall be deemed to be received at the same time). The Corporation shall
be required to redeem the remaining shares of Series B Preferred Stock
surrendered for redemption at such time or times thereafter as funds for
redemption become legally available on the foregoing basis as in the order of
receipt by the Corporation of the Redemption Notices.
9. Status of Reacquired Shares. Shares of Series B Preferred Stock
redeemed, purchased, converted into Common Stock or otherwise acquired by the
Corporation and cancelled, shall have the status of authorized and unissued
shares of Series B Preferred Stock.
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<PAGE>
10. Pre-emptive Rights. The holders of shares of Series B Preferred
Stock shall have no pre-emptive rights.
11. Number of Shares. The number of shares constituting the Series B
Preferred Stock shall be, and the same is hereby fixed as, 450,000 and shall not
be increased, except in accordance with the consent of holders of a majority of
the outstanding shares of Series B Preferred Stock.
12. Stated Capital. The amount to be capital at all times for each
share of Series B Preferred Stock shall be its par value or $.01 per share.
RESOLVED, FURTHER, that the President and the Secretary of the
Corporation be, and they hereby are, authorized and directed to prepare and file
a Certificate of Designation in accordance with this resolution and as required
by lav.
IN WITNESS WHERE0F, we have executed this Certificate of Designation
and do affirm the foregoing as true under the penalties of perjury this 13th day
of August, 1992.
By: /s/ Daniel E. Miller By: /s/ Paul J. Evanson
----------------------- -------------------------
Daniel E.Miller Paul J. Evanson
Secretary Chairman of the Board
of Directors
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<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
LYNCH SERVICES CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware
("Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by the unanimous
written consent of its members, filed with the minutes of the Board, adopted a
resolution proposing and declaring advisable the following amendment to the
Restated certificate of Incorporation of the Corporation:
RESOLVED, that the Restated Certificate of Incorporation of Lynch
Services Corporation be amended by changing the First Article thereof
so that, as amended, said Article shall be and read as follows:
"The name of the Corporation is THE MORGAN GROUP, INC."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 141, 242 and 228 of the General
Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, said Lynch Services Corporation has caused this
Certificate of Amendment to be signed by Charles Baum, its chairman, and
attested by Daniel E. Miller, its Secretary, this 5th day of March, 1993.
LYNCH SERVICES CORPORATION
By: /s/ Charles Baum
----------------------------
Charles Baum
Chairman
ATTEST:
By: /s/ Daniel E. Miller
--------------------------
Daniel E. Miller
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED AND AMENDED CERTIFICATE OF INCORPORATION
OF
THE MORGAN GROUP, INC.
THE MORGAN GROUP, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware
("Corporation'), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by the unanimous
written consent of its members, filed with the minutes of the Board, adopted
resolutions proposing and declaring advisable the following amendments to the
Restated and Amended Certificate of Incorporation of the Corporation:
I.
RESOLVED, that the Restated and Amended Certificate of
Incorporation of The Morgan Group, Inc. be amended by changing the
first paragraph of the Fourth Article thereof so that, as amended, said
paragraph of said Article shall be and read as follows:
"The aggregate number of shares of a classes of capital stock which the
Corporation shall have the authority to issue is 12,100,000 shares of
capital stock, consisting of 2,100,000 shares of Preferred Stock, par
value $.01 per share, and 10,000,000 shares of Common Stock, par value
$.015 per share."
<PAGE>
II.
RESOLVED, that the Restated and Amended Certificate of
Incorporation of The Morgan Group, Inc. be amended by changing the
subsection entitled "Common Stock" of the Fourth Article thereof so
that, as amended, said subsection of said Article shall be and read as
follows:
"Common Stock.
"Subject to the preferential rights, if any, of the Preferred
Stock, the powers, preferences and rights of the shares of the Common
Stock, and the qualifications, limitations or restrictions thereof, are
as follows:
"1. Designation
"(a) Seven million five hundred thousand (7,500,000) shares of
Common Stock are hereby designated "Class A Common Stock" and two
million five hundred thousand (2,500,000) shares of Common Stock are
hereby designed "Class B Common Stock", each class having the rights,
preferences, privileges and restrictions specified herein.
"(b) Immediately upon the filing of this Certificate of
Amendment of the Restated and Amended Certificate of Incorporation of
The Morgan Group, Inc. ("Certificate of Amendment") by the Secretary of
State of the State of Delaware every three (3) issued and outstanding
shares of stock of the Corporation heretofore designated "Common Stock,
par value $0.01 per share," shall become and be deemed to be, and shall
automatically convert into, two (2) shares of Class A Common Stock, par
value $.015 per share, except that the 1,800,000 issued and outstanding
shares of Common Stock, par value $.01 per share, owned by Lynch
Corporation shall become and be deemed to be, and shall automatically
convert into 1,200,000 shares of Class B Common Stock par value $.015
per share.
(c) Certificates for shares of Common Stock, .01 par value per
share, outstanding upon filing of this Certificate of Amendment, shall
thereafter represent only shares of Class A Common Stock, par value
$.015 per share, or, in the case of shares held by Lynch Corporation,
Class B Common Stock, par value $.015 per share, as provided in the
foregoing Section l(b).
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<PAGE>
"2. Voting
"(a) At every meeting of the stockholders, every holder of
Class A Common Stock shall be entitled to one (1) vote in person or by
proxy for each share of Class A Common Stock standing in his name on
the transfer books of the Corporation and every holder of Class B
Common Stock shall be entitled to two (2) votes in person or by proxy
for each share of Class B Common Stock standing in his name on the
transfer books of the Corporation; provided, that (i) the holders of
shares of Class A Common Stock are entitled, voting separately as a
class, to elect one member of the Board of Directors and (ii) the
holders of shares of Class A and Class B Common Stock vote together as
a single class upon the election of all remaining directors. Except as
may be otherwise required by law or by this Article Fourth, the holders
of Class A Common Stock and Class B Common Stock shall vote together as
a single class, subject to any voting rights which may be granted to
holders of Preferred Stock.
"(b) Unless otherwise provided by statute, any action required
to be taken at any annual or special meeting of the Stockholders of the
Corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may not be taken by holders of Class A
Common Stock by means of any form of written consent. The holders of
all other classes of capital stock of the Corporation may take such
action without a meeting by means of a written consent that meets the
requirements set forth in the Corporation's By-laws, as amended or
restated from time to time.
"(c) The Corporation shall not issue any additional shares of
Class B Common Stock after the date of filing of this Certificate of
Amendment (except in connection with pro rata stock splits and stock
dividends as hereinafter provided) unless and until such issuance is
authorized by the holders of a majority of the voting power of the
shares of Class A Common Stock and of Class B Common Stock entitled to
vote, each voting separately as a class.
"(d) Every reference in this Certificate of Amendment to a
majority or other proportion of shares of stock shall refer to such
majority or other proportion of the votes of such shares of stock.
"3. Transfer
"(a) No person holding shares of Class B Common Stock of
record (hereinafter called a "Class B Holder") may transfer, and the
Corporation shall not register the transfer of, such shares of Class B
Common Stock, whether by sale, assignment, gift, bequest, appointment
or otherwise, and any transfer of shares not permitted hereunder shall
cause such shares automatically to be converted into Class A Common
Stock as provided by subsection (b) of this Subsection 3.
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<PAGE>
"(b) Any transfer of shares of Class B Common Stock not
permitted hereunder shall result in the automatic conversion of the
transferee's shares of Class B Common Stock into shares of Class A
Common Stock effective on the date on which certificates representing
such shares are presented for transfer on the books of the Corporation
or on such earlier date that the if Corporation receives notice of such
attempted transfer.
"(c) Shares of Class B Common Stock shall be registered in the
name of the beneficial owners thereof and not in "street" or "nominee"
name. For this purpose, a "beneficial owner" of any shares of Class B
Common Stock shall mean an entity which possesses the power, either
singly or jointly, to direct the voting or disposition of such shares.
"(d) Share of Class A Common Stock are transferable without
restriction, subject to applicable law.
"4. Conversion Rights
"(a) Subject to the terms and conditions of this subsection 4,
each share of Class B Common Stock shall be convertible at any time or
from time to time, at the option of the holder thereof, at the office
of any transfer agent for Class B Common Stock, and at such other place
or places, if any, as the Board of Directors may designate, or if the
Board of Directors shall fail so to designate, at the principal office
of the Corporation (attention of the Secretary of the Corporation),
into one (1) fully paid and nonassessable share of Class A Common
Stock. Before any holder of Class B Common Stock shall be entitled to
convert the same into Class A Common Stock, be shall surrender the
certificate or certificates for such Class B Common Stock at the office
of said transfer agent (or other place as provided above), 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 (such
endorsements or instruments of transfer to be in form satisfactory to
the Corporation), and shall give written notice to the Corporation at
said office that he elects so to convert said Class B Common Stock in
accordance with the terms of this subsection 4, and shall state in
writing therein the name or names in which he wishes the certificate or
certificates for Class A Common Stock to be issued. Every such notice
of election to convert shall constitute a contract between the holder
of such Class B Common Stock and the Corporation, whereby the holder of
such Class B Common Stock shall be deemed to subscribe for the amount
of Class A Common Stock which he shall be entitled to receive upon such
conversion, and, in satisfaction of such subscription, to deposit the
Class B Common Stock to be converted and to release the Corporation
from all liability thereunder, and thereby the Corporation shall be
deemed to agree that the surrender of the certificate or certificates
therefor and the extinguishment of liability thereon shall constitute
full payment of such subscription for Class A Common Stock to be issued
upon such conversion. The Corporation will as soon as practicable after
such deposit of a certificate or certificates for Class B Common Stock,
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<PAGE>
accompanied by the written notice and the statement above prescribed,
issue and deliver at the office of said transfer agent (or other place
as provided above) to the person for whose account such Class B Common
Stock was so surrendered, or to his nominee(s) or transferee(s), a
certificate or certificates for the number of full shares of Class A
Common Stock to which be shall be entitled as aforesaid. Subject to the
provisions of clause (c) of this subsection 4, such conversion shall be
deemed to have been made as of the date of such surrender of the Class
B Common Stock to be converted; and the person or persons entitled to
receive the Class A Common Stock issuable upon conversion of such Class
B Common Stock shall be treated for all purposes as the record holder
or holders of such Class A Common Stock on such date.
"(b) The issuance of certificates for shares of Class A Common
Stock upon conversion of shares of Class B Common Stock shall be made
without charge for any stamp or other similar tax in respect of such
issuance. However, if any such certificate is to be issued in a name
other than that of the holder of the share or shares of Class B Common
Stock converted, the person or persons requesting the issuance thereof
shall pay to the Corporation the amount of any tax which may be payable
in respect of any transfer involved in such issuance or shall establish
to the satisfaction of the Corporation that such tax has been paid.
"(c) The Corporation shall not be required to convert Class B
Common Stock, and no surrender of Class B Common Stock shall be
effective for that purpose, while the stock transfer books of the
Corporation are closed for any purpose; but the surrender of Class B
Common Stock for conversion during any period while such books are so
closed shall become effective for conversion immediately upon the
reopening of such books, as if the conversion had been made on the date
such Class B Common Stock was surrendered.
"(d) The Corporation shall reserve and keep available, solely
for the purpose of issue upon conversion of the outstanding shares of
Class B Common Stock, such number of shares of Class A Common Stock as
shall be issuable upon the conversion of all such outstanding shares of
Class B Common Stock, provided that nothing contained herein shall be
construed to preclude the Corporation from satisfying its obligations
in respect of the conversion of the outstanding shares of Class B
Common Stock by delivery of shares of Class A Common Stock which are
held in the treasury of the Corporation. If any shares of Class A
Common Stock, required to be reserved for purposes of conversion
hereunder, require registration with or approval of any governmental
-5-
<PAGE>
authority under any federal or state law before such shares of Class A
Common Stock may be issued upon conversion the Corporation will use
reasonable efforts to cause such shares to be duly registered or
approved to permit such issuance upon conversion, as the case may be.
All shares of Class A Common Stock issued upon conversion of shares of
Class B Common Stock, will, upon issue, be fully paid and nonassessable
and not entitled to any preemptive rights.
"(e) All shares of Class B Common Stock received by the
Corporation upon conversion thereof into Class A Common Stock will be
retired and not reissued except as provided elsewhere in the
Corporation's Restated and Amended Certificate of Incorporation.
"5. Dividends and Other Distributions. Subject to the rights of the
holders of Preferred Stock, and subject to any other provisions of the
Corporation's Restated and Amended Certificate of Incorporation, as
amended from time to time, holders of Class A Common Stock and Class B
Common Stock shall be entitled to receive such dividends and other
distributions in cash, stock or property of the Corporation as may be
declared thereon by the Board of Directors from time to time out of
assets or funds of the Corporation legally available therefor; provided
that in the case of cash dividends, (i) if, at any time, a cash
dividend is paid on the Class A Common Stock, a cash dividend must also
be paid on the Class B Common Stock in an amount per share of Class B
Common Stock that is not greater than 100%, nor less than 50%, of the
amount of the cash dividend paid on each share of the Class A Common
Stock or (ii) if, at any time, a cash dividend is paid on the Class B
Common Stock, a cash dividend must also be paid on the Class A Common
Stock in an amount that is not greater than 200%, nor less than 100%,
of the amount of the cash dividend paid on each share of the Class B
Common Stock, such that a cash dividend may not be paid on either the
Class A Common Stock or the Class B Common Stock unless a cash dividend
is also paid on the other as aforesaid; and provided, further, that in
the case of dividends or other distributions payable in stock of the
Corporation other than Preferred Stock, including distributions
pursuant to stock splits or divisions of stock of the Corporation other
than Preferred Stock, which occur after the initial issuance of shares
of Class B Common Stock by the Corporation, only shares of Class A
Common Stock shall be distributed with respect to Class A Common Stock
and only shares of Class B Common Stock in an amount per share equal to
the amount per share paid with respect to the Class A Common Stock
shall be distributed with respect to Class B Common Stock, and that, in
the case of any combination or reclassification of the Class A Common
Stock, the shares of Class B Common Stock shall also be combined or
reclassified so that the number of shares of Class B Common Stock
outstanding immediately following such combination or reclassification
shall bear the same relationship to the number of shares outstanding
immediately prior to such combination or reclassification as the number
of shares of Class A Common Stock outstanding immediately following
such combination or reclassification bears to the number of shares of
Class A Common Stock outstanding immediately prior to such combination
or reclassification.
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<PAGE>
"6. Liquidation Rights. In the event of any dissolution, liquidation or
winding up of the affairs of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts and
other liabilities of the Corporation, and subject to prior payment in
full of all amounts payable to the holders of Preferred Stock, the
remaining assets and funds of the Corporation, if any still exist,
shall be divided among and paid ratably to the holders of Class A
Common Stock and Class B Common Stock. A merger or consolidation of the
Corporation with or into any other corporation or a sale or conveyance
of all or any part of the assets of the Corporation (which shall not in
fact result in the liquidation of the Corporation and the distribution
of assets to stockholders) shall not be deemed to be a voluntary or
involuntary liquidation or dissolution or winding up of the Corporation
within the meaning of this subsection 6.
"7. Preemptive, Subscription and Redemption Rights. The holders of
Class A Common Stock and Class B Common Stock shall have no preemptive,
subscription or redemption rights."
III.
RESOLVED, that the Restated and Amended Certificate of Incorporation of
The Morgan Group, Inc. be amended by inserting a new Eighth Article thereof so
that, as amended, said new Article shall be and read as follows:
"EIGHTH:
"1. Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director or an officer of the
Corporation or is or was serving or has agreed to serve at the request of the
Corporation as a director, officer, employee or agent of another corporation,
including, without limitation, any subsidiary, partnership, joint venture, trust
or other enterprise, including service with respect to any employee benefit plan
(hereinafter an `indemnitee'), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that, except as provided in Section 3 hereof with
respect to proceedings to enforce rights to indemnification, the Corporation
shall indemnify any such indemnitee in connection with the proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation.
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<PAGE>
"2. The right to indemnification conferred in Section I of this Article
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement Of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of the undertaking (hereinafter an `undertaking'),
by or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections 1 and 2 of this Article shall be contract rights
and such rights shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
"3. If a claim under Section I or 2 of this Article is not paid in full
by the Corporation within sixty days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of expenses,
in which case the applicable period shall be twenty days, the indemnitee may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such Suit, or in a
suit brought by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the indemnitee shall also be entitled to be paid
the expense of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of
expenses), it shall be a defense that, and (ii) in any suit by the Corporation
to recover an advancement of expenses pursuant to the terms of an undertaking,
the Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard or
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article or otherwise shall be on the Corporation.
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<PAGE>
"4. The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
Restated and Amended Certificate of Incorporation, By-laws, agreement, vote of
stockholders or disinterested directors or otherwise.
"5. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, Liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
"6. The Corporation may, to the extent authorized from time to time by
a majority vote of the disinterested directors, grant rights to indemnification
and to the advancement of expenses to any employee or agent of the Corporation
or any per-son who is or was serving or has agreed to serve at the request of
the Corporation as an employee or agent of another corporation, including,
without limitation, any subsidiary of the Corporation, partnership, joint
venture, trust or other enterprise, including service with respect to an
employee benefit plan, to the fullest extent of the provisions of this Article
with respect to the indemnification and advancement of the expenses of directors
and officers of the Corporation."
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<PAGE>
IV.
RESOLVED that the Restated and Amended Certificate of
Incorporation of The Morgan Group, Inc. be amended by redesignating the
Eighth Article thereof so that, as amended, said Article shall be the
Ninth Article.
V.
RESOLVED, that Section 2 of the Certificate of Designations,
Rights and Preferences of Series B Preferred Stock of the Corporation
be amended so that, as amended, said Section shall be and read as
follows:
"2. Voting Rights. The holders of the Shares of Series B
Preferred Stock, as such, shall, subject to the right of holders of
Class A Common Stock, voting as a separate class, to elect one (1)
director, be entitled to one vote per share of Series B Preferred Stock
on all matters submitted to a vote or consent of stockholders of the
Corporation."
VI.
RESOLVED, that Sections 6(a) and (d) of the Certificate of
Designations, Rights and Preferences of Series B Preferred Stock of the
Corporation be amended so that, as amended, said Sections shall be and
read as follows:
"6. Conversion
"(a) Holders of the Series B Preferred Stock may, at
any time and at their option, upon surrender of the
certificates therefor, convert any or all of the Series B
Preferred Stock held by them into shares of the Corporation's
Class A Common Stock at the conversion rate in effect at the
time of such conversion (an "Optional Conversion"). Each three
and three-eighths (3-375) shares of Series B Preferred Stock
shall initially be convertible into one share of Class A
Common Stock. The shares of Series B Preferred Stock shall be
converted automatically, and holders of the Series B Preferred
Stock shall surrender the shares of Series B Preferred Stock
held by them for conversion (a "Mandatory Conversion") upon
the declaration by the Securities and Exchange Commission (the
"SEC") of the effectiveness of a registration statement filed
by the Corporation with respect to a public offering of Class
A Common Stock under the Securities Act of 1933, as amended,
if the offering price of the Class A Common Stock in the
public offering equals or exceeds $4.50 per share; provided,
however, that (i) the holders shall not be required to
surrender a number of shares greater than that number of
shares of Series B Preferred Stock which, when multiplied by
the Conversion Rate then in effect, equals or exceeds fifty
percent of the dollar amount raised in the public offering,
and (ii) if the public offering is not consummated within
thirty (30) days after the registration statement is declared
effective by the SEC; any holder of the Series B Preferred
Stock may rescind the Mandatory Conversion upon delivery of
written notice of rescission to the Secretary of the
Corporation. Any Mandatory Conversion shall be made by the
holders in proportion to the number of shards of Series B
Preferred Stock held by them immediately prior to such
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<PAGE>
conversion. Payment or adjustment shall be made upon such
conversion for unpaid and accrued dividends of any shares of
Series B Preferred Stock which shall be converted. The
Corporation shall not be required to issue fractional shares
of Class A Common Stock upon any conversion, but shall pay in
lieu thereof, as soon as practicable after the date the Series
B Preferred Stock is surrendered for conversion pursuant to
subparagraph (b) hereof, an amount in cash equal to the same
fraction of the market value of a full share of Class A Common
Stock. For such purposes, the market value of a share of Class
A Common Stock shall be the fair market value thereof, as
reasonably determined by the Corporation's Board of Directors
or as determined by reference to the price per share of the
Class A Common Stock in the public offering ("Fair Value").
All shares of Class A Common Stock which may be issued upon
the conversion of the Series B Preferred Stock will, upon
issuance, be validly issued, fully paid and nonassessable."
"(d) The Conversion Rate shall be subject to
adjustment from time to time as follows:
"(i) If, on or following the date hereof, the
Corporation shall, at any time or from time to time, while
shares of Series B Preferred Stock shall be outstanding, (1)
pay a dividend or make a distribution in Class A Common Stock
(or securities convertible into or exchangeable for shares of
Class A Common Stock), (2) subdivide its outstanding shares of
Class A Common Stock into a greater number of shares, (3) make
a distribution on its Class A Common Stock in shares of its
capital stock other than Class A Common Stock, (4) combine its
outstanding shares of Class A Common Stock into a smaller
number of shares, or (5) issue by reclassification of its
Class A Common Stock any shares of its capital stock (provided
, that the original reclassification of Common Stock, par
value $.01 per share, into shares of Class A Common Stock and
shares of Cass B Common Stock, par value $.015 per share,
effectuated by the Certificate of Amendment of which this
provision is a part shall require no adjustment), then the
number of shoes of Class A Common Stock into which shares of
Series B Preferred Stock may be converted shall be
proportionately increased or decreased, as the case may be,
and the Conversion rate in effect immediately prior to the
record date fixed for the determination of shareholders
entitled to such dividend or distribution, or immediately
prior to such subdivision, combination or reclassification, as
the case may be, shall be correspondingly increased or
decreased, as the case may be, to produce such results (taking
into account fractional interest in shares of the Class A
Common Stock to the nearest tenth of a share, and for the
purposes of the foregoing, considering such fractional
interests as outstanding fractional shares). Similar
adjustments shall be made if any of the events described
hereinabove shall thereafter occur or recur. An adjustment
made pursuant hereto shall become effective immediately after
the record date, in the case of a dividend payable in Class A
Common Stock (or other securities) and immediately after the
effective date, in the case of a subdivision, distribution,
combination or reclassification thereof.
-11-
<PAGE>
(ii) Whenever any adjustment is made in the number of shares
of Class A Common Stock into which shares of Series B Preferred Stock
may be converted pursuant to the foregoing provision, the Corporation
shall, as soon as reasonably practicable thereafter, prepare a written
statement signed by an executive officer of the Corporation, setting
forth the adjusted Conversion Rate, determined as provided herein, and,
in reasonable detail, the facts requiring such adjustment. The
Corporation shall mail such statement to all holders of record of
shares of Series B Preferred Stock then outstanding at their respective
addresses appearing on the stock records of the Corporation."
VII.
RESOLVED, that Sections 6(b), (c), (e) and (f) and Section 9
of the Certificate of Designations, Rights and Preferences of Series B
Preferred Stock of the Corporation be amended by replacing each
reference to "Common Stock" with the term "Class A Common Stock" and
the reference in Section 3(iii) of the Certificate of Designations,
Rights and Preferences of Series B Preferred Stock of the Corporation
to "Common Stock, par value $.01 per share" be replaced with a
reference to "Common Stock, par value $.015 per share."
-12-
<PAGE>
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 141, 242 and 228 of the General
Corporation Law of the State of Delaware.
[The remainder of this page intentionally left blank.]
-13-
<PAGE>
IN WITNESS WHEREOF, The Morgan Group, Inc. has caused this Certificate
of Amendment to be signed by Philip J. Ringo, its President, and attested by
John Paul Hoyer, its Assistant Secretary, this 4th day of June,1993.
THE MORGAN GROUP, INC.
By: /s/ Philip J. Ringo
--------------------------------
Philip J. Ringo, President
ATTEST:
By: /s/ John Paul Hoyer
----------------------------
John Paul Hoyer
Assistant Secretary
-14-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED AND AMENDED CERTIFICATE OF INCORPORATION
OF
THE MORGAN GROUP, INC.
THE MORGAN GROUP, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware
("Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by the unanimous
written consent of its members, filed with the minutes of the Board, adopted
resolutions proposing and declaring advisable the following amendments to the
Restated and Amended Certificate of Incorporation of the Corporation:
RESOLVED, that, subject to the approval of the shareholders as
hereinafter described, the Restated and Amended Certificate of Incorporation of
the Morgan Group, Inc. be amended by changing Section 3(a) to read as follows:
<PAGE>
(a) No person holding shares of Class B Common Stock
of record (hereinafter called a "Class B Holder") may
transfer, and the Corporation shall not register the transfer
of, such shares of Class B Common Stock, whether by sale,
assignment, gift, bequest, appointment or otherwise, and any
transfer of shares not permitted hereunder shall cause such
shares automatically to be converted into Class A Common Stock
as provided by subsection (b) of this Subsection 3; provided,
however, (1) that the shares of Class B Common Stock may be
transferred without being converted into shares of Class A
Common Stock to (i) a corporation or other business entity by
which the Class B Holder is Wholly-Owned, (ii) a direct or
indirect Wholly-Owned subsidiary of the Class B Holder, or
(iii) a Wholly-Owned subsidiary of a corporation or other
business entity of which the Class B Holder is a Wholly-Owned
subsidiary, provided such transfer is not made with a view
toward disposing of a transferee subsidiary to an unrelated
party in order to avoid the effect of the conversion of the
shares, and (2) that the shares of Class B Common Stock may be
transferred to Lynch Interactive Corporation, in order to
effect the spin-off of Lynch Interactive Corporation to the
shareholders of Lynch Corporation, and may be subsequently
transferred to Brighton Communications Corporation, a
Wholly-Owned subsidiary of Lynch Interactive Corporation, all
without the shares of Class B Common Stock being converted to
shares of Class A Common Stock. The term Wholly-Owned shall
mean ownership of all common equity interests of a business
entity.
SECOND: That at the annual meeting of the stockholders, held on April
29, 1999, the shareholders entitled to vote in respect of the amendment approved
the amendment.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 141, 211 and 242 of the General
Corporation Law of the State of Delaware.
[The remainder of this page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, The Morgan Group, Inc. has caused this Certificate
of Amendment to be signed by Dennis Duerksen, Treasurer, Vice President and
Chief Financial Officer, this 21st day of June, 1999.
THE MORGAN GROUP, INC.
By: /s/ Dennis Duerksen
-----------------------------------------
Dennis Duerksen, Treasurer, Vice President
and Chief Financial Officer.
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This schedule contains unaudited summary financial information extracted
from the Registrant's consolidated financial statements for the 6 months ended
June 30, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
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<EPS-BASIC> .12
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<TABLE> <S> <C>
<ARTICLE> 5
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This schedule contains unaudited summary financial information extracted
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June 30, 1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000906609
<NAME> The Morgan Group, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
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<PERIOD-TYPE> 6-MOS
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