<PAGE> 1
(conformed)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
____________ TO ____________
COMMISSION FILE NUMBER 33-82092
ICHOR CORPORATION
(Formerly PDG Remediation, Inc.)
(Exact name of registrant as specified in its charter)
DELAWARE 25-1741849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 OXFORD DRIVE, MONROEVILLE, PENNSYLVANIA 15146
(Address of principal executive offices) (Zip Code)
412-856-6100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of November 1, 1996, there were 2,470,320 shares of the registrant's common
stock outstanding.
<PAGE> 2
ICHOR CORPORATION AND SUBSIDIARIES
(Formerly PDG Remediation, Inc.)
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Consolidated Financial Statements and Notes to Consolidated Financial Statements
(a) Condensed Consolidated Balance Sheets as of September 30, 1996 (unaudited) and
January 31, 1996 3
(b) Consolidated Statements of Operations for the Two Months Ended September 30, 1996
and 1995 (unaudited) 4
(c) Consolidated Statements of Operations for the Eight Months Ended September 30, 1996
and 1995 (unaudited) 5
(d) Consolidated Statements of Cash Flows for the Eight Months Ended September 30, 1996
and 1995 (unaudited) 6
(e) Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ICHOR CORPORATION AND SUBSIDIARIES
(Formerly PDG Remediation, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 31,
1996 1996*
-------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 238,000 $ 362,000
Cash held in escrow 757,000 968,000
Accounts receivable - net 888,000 1,626,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,504,000 2,320,000
Other current assets 243,000 137,000
----------- -----------
TOTAL CURRENT ASSETS 3,630,000 5,413,000
PROPERTY, PLANT AND EQUIPMENT 723,000 617,000
Less: accumulated depreciation (531,000) (437,000)
------------ ------------
192,000 180,000
OTHER ASSETS 17,000 21,000
----------- -----------
TOTAL ASSETS $ 3,839,000 $ 5,614,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 677,000 $ 1,052,000
Insurance company accrual 454,000 1,284,000
Accrued liabilities 581,000 491,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 59,000 8,000
Accrued income taxes 9,000 48,000
Payable to parent - 117,000
Accrued loss on sale of discontinued operation 105,000 140,000
Current portion of long-term debt 25,000 16,000
----------- -----------
TOTAL CURRENT LIABILITIES 1,910,000 3,156,000
INSURANCE COMPANY ACCRUAL 605,000 -
LONG-TERM DEBT 41,000 20,000
STOCKHOLDERS' EQUITY
Common stock 25,000 25,000
Additional paid-in capital 4,768,000 4,768,000
Deficit (3,510,000) (2,355,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,283,000 2,438,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,839,000 $ 5,614,000
=========== ===========
</TABLE>
*Derived from audited financial statements.
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
ICHOR CORPORATION AND SUBSIDIARIES
(Formerly PDG Remediation, Inc.)
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE TWO MONTHS
ENDED SEPTEMBER 30,
------------------------------
1996 1995
---------- ----------
<S> <C> <C>
CONTRACT REVENUES $ 555,000 $ 615,000
CONTRACT COSTS 383,000 407,000
---------- ----------
Gross margin 172,000 208,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 404,000 348,000
---------- ----------
Loss from operations (232,000) (140,000)
OTHER INCOME (EXPENSE):
Interest expense (75,000) (61,000)
Interest income 1,000 1,000
---------- ----------
(74,000) (60,000)
---------- ----------
Loss from continuing operations before income taxes (306,000) (200,000)
INCOME TAX PROVISION - -
---------- ----------
LOSS FROM CONTINUING OPERATIONS (306,000) (200,000)
DISCONTINUED OPERATION:
Loss from operation of GeoLogic - (124,000)
----------- ----------
NET LOSS $ (306,000) $ (324,000)
=========== ==========
NET LOSS PER COMMON SHARE:
Loss from continuing operations $ (0.12) $ (0.08)
Discontinued operation - (0.05)
---------- ----------
Net loss per common share $ (0.12) $ (0.13)
========== ==========
AVERAGE COMMON SHARES OUTSTANDING 2,470,000 2,470,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
ICHOR CORPORATION AND SUBSIDIARIES
(Formerly PDG Remediation, Inc.)
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE EIGHT MONTHS
ENDED SEPTEMBER 30,
--------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CONTRACT REVENUES $ 3,064,000 $ 3,548,000
CONTRACT COSTS 2,320,000 2,325,000
----------- -----------
Gross margin 744,000 1,223,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,620,000 1,435,000
----------- -----------
Loss from operations (876,000) (212,000)
OTHER INCOME (EXPENSE):
Interest expense (287,000) (273,000)
Interest income 6,000 12,000
Other income 2,000 -
----------- -----------
(279,000) (261,000)
----------- -----------
Loss from continuing operations before income taxes (1,155,000) (473,000)
INCOME TAX PROVISION - -
----------- -----------
LOSS FROM CONTINUING OPERATIONS (1,155,000) (473,000)
DISCONTINUED OPERATION:
Loss from operation of GeoLogic - (599,000)
----------- -----------
NET LOSS $(1,155,000) $(1,072,000)
=========== ===========
NET LOSS PER COMMON SHARE:
Loss from continuing operations $ (0.47) $ (0.19)
Discontinued operation - (0.25)
----------- -----------
Net loss per common share $ (0.47) $ (0.44)
----------- -----------
AVERAGE COMMON SHARES OUTSTANDING 2,470,000 2,448,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
ICHOR CORPORATION AND SUBSIDIARIES
(Formerly PDG Remediation, Inc.)
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE EIGHT MONTHS
ENDED SEPTEMBER 30,
--------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,155,000) $(1,072,000)
ADJUSTMENTS TO RECONCILE NET
LOSS TO CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Depreciation and amortization 146,000 136,000
Provision for losses on accounts receivable 25,000 127,000
Other 11,000 -
CHANGES IN ASSETS AND LIABILITIES
OTHER THAN CASH:
Cash held in escrow 211,000 (385,000)
Accounts receivable 713,000 1,821,000
Costs and estimated earnings in excess of billings
on uncompleted contracts 816,000 1,639,000
Other current assets (99,000) (205,000)
Net assets of discontinued operation - (313,000)
Accounts payable (375,000) (201,000)
Billings in excess of costs and estimated earnings
on uncompleted contracts 51,000 (128,000)
Accrued income taxes payable (39,000) (1,000)
Accrued liabilities (164,000) 100,000
Payable to parent, net (116,000) (533,000)
Accrued loss on sale of discontinued operation (35,000) -
------------ -----------
TOTAL ADJUSTMENTS 1,145,000 2,057,000
------------ -----------
CASH (USED) PROVIDED BY OPERATING ACTIVITIES (10,000) 985,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (106,000) (53,000)
------------ -----------
NET CASH USED BY INVESTING ACTIVITIES (106,000) (53,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on common shares sold in initial public offering - 2,151,000
Proceeds on warrants sold - 100,000
Proceeds from debt 46,000 3,676,000
Principal payments on debt (16,000) (6,755,000)
Payments on insurance company accrual (38,000) -
------------ -----------
NET CASH USED BY FINANCING ACTIVITIES (8,000) (828,000)
------------ -----------
Net (Decrease) Increase in Cash and Short-Term Investments (124,000) 104,000
Cash and Short-Term Investments, Beginning of Period 362,000 7,000
------------ -----------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 238,000 $ 111,000
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
ICHOR CORPORATION AND SUBSIDIARIES
(Formerly PDG Remediation, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWO AND EIGHT MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying financial statements of ICHOR Corporation, formerly PDG
Remediation, Inc. (the "Corporation") are unaudited. However, in the opinion of
management, they include all adjustments necessary for a fair presentation of
financial position, results of operations and cash flows.
On September 4, 1996, the Corporation's Board of Directors voted to change the
Corporation's fiscal year end from January 31 to December 31. The Corporation
has elected to submit Form 10-Q for its third quarter as of September 30, 1996,
based upon the quarter ending date for the fiscal year ending December 31,
1996.
All adjustments made during the two and eight months ended September 30, 1996,
were of a normal, recurring nature. The amounts presented for the two and eight
months ended September 30, 1996, are not necessarily indicative of results of
operations for a full year. Additional information is contained in the Annual
Report on Form 10-K of the Corporation for the year ended January 31, 1996, as
amended by Form 10-K/A dated May 30, 1996, and should be read in conjunction
with this quarterly report.
Certain reclassifications have been made to the prior year financial statements
to conform with the current year presentation.
NOTE 2 -- BUSINESS ACTIVITIES
FLORIDA OPERATIONS
The Corporation has historically performed a substantial amount of work under a
Florida state funded site rehabilitation program, known as the "EDI Program,"
which provided for the remediation of contaminated sites related to the storage
of petroleum and petroleum products. During the Corporation's fiscal year ended
January 31, 1996, the EDI Program was substantially modified to establish a
protocol for continued work on sites based on their priority ranking and a
pre-approval process for both the scope and the cost of work for petroleum
clean up program tasks. The revised Florida state funded site rehabilitation
program is known as the "Pre-Approval Program."
As a result of the changes in the EDI Program, the Corporation experienced a
material adverse change in its operations during the last three quarters of
fiscal 1996 and in the eight-month period ended September 30, 1996, which
included substantial reductions in contract revenues and significant operating
losses since the number of sites in the Corporation's backlog immediately
eligible for continued reimbursement were significantly reduced. Further,
volume at the Corporation's thermal treatment facility, GeoLogic Recovery
Systems ("GeoLogic"), was significantly affected by the EDI Program changes
and, accordingly, the Corporation sold this facility on April 25, 1996. The
effective date of the sale of GeoLogic was January 31, 1996.
The Corporation reacted to the impact of these EDI Program changes on its
operations through the implementation of cost reductions and increased
marketing efforts at its Florida remediation service operation; planned growth
within its Pennsylvania remediation service operation; and the identification
of acquisitions to replace the revenues lost.
Although the Corporation had made some progress toward the replacement of these
revenues by increasing its backlog of high priority sites eligible under the
Pre-Approval Program, delays by the State of Florida prevented the Corporation
from commencing work on these sites. As a result of ongoing losses at the
Corporation's Florida operation, in August 1996, the Corporation made a
decision to exit the remediation market in Florida. The Corporation closed its
offices located in Melbourne, Florida, on November 1, 1996, and entered into an
agreement to sell certain assets of its Florida operation to Custom Biologicals
of Boca Raton, Florida, effective November 1, 1996.
7
<PAGE> 8
The state of Florida passed legislation at the end of May 1996 that includes
measures to satisfy the existing obligations to fund the backlog under the EDI
Program. The legislation requires clean-ups to continue on the basis of
priority rankings under the Pre-Approval Program. The legislation provides for
the State of Florida to fund the existing backlog through the issuance of
bonds, thereby enabling reimbursement applications submitted under the EDI
Program to be paid on an accelerated basis. However, in exchange for this
accelerated payment, reimbursement applications will be paid at a discount
effective January 1, 1997. The annual discount rate to be used is 3.5%, and
the present value of an application will be based upon the accelerated date the
Florida Department of Environmental Protection ("FDEP") anticipates settling a
reimbursement application, compared to the original date a reimbursement
application was scheduled to be settled.
The Corporation estimates that the acceleration of payments by the FDEP on
reimbursement applications under the EDI Program will include the early release
of cash, which is currently being held in escrow to cover future interest costs
and potential disallowances on reimbursement applications, and the termination
of interest obligations during the second quarter of calendar year 1997.
Until the FDEP establishes a schedule of anticipated payment dates, the
Corporation will not be able to determine the impact of discounting on its
operating results. However, the Corporation may be required to record an
adjustment to reflect the negative impact of the discounting on its results of
operations and financial condition.
The Corporation was required to complete all field work under the existing EDI
Program by no later than July 31, 1996, and the FDEP must be invoiced for this
work by no later than December 31, 1996.
POTENTIAL ACQUISITION
During March 1996, the Corporation entered into a letter of intent to acquire
SPATCO Environmental, Inc. ("SEI"), an environmental remediation services
company located in the southeastern United States, from its sole shareholder,
Vigour Holding & Finance b v ("Vigour Holding"). On August 21, 1996, the
Corporation entered into a definitive agreement to acquire SEI. The terms of
this agreement required the transaction to close by September 30, 1996. As this
requirement was not fulfilled, the agreement has expired.
NOTE 3 -- DISCONTINUED OPERATION
On April 25, 1996, the Corporation sold its interest in GeoLogic to Specialty
Environmental, Inc., effective as of January 31, 1996, in exchange for the
assumption by Specialty Environmental, Inc. of all of the obligations and
liabilities of GeoLogic. Concurrently, the Corporation entered into a Surrender
and Release Agreement, effective as of January 31, 1996, with respect to an
equipment lease associated with the facility in exchange for a $0.22 million
payment.
The operations of GeoLogic have been reflected as discontinued in the
accompanying financial statements. Net sales of GeoLogic were $0.2 million and
$0.8 million for the two and eight months ended September 30, 1995,
respectively.
NOTE 4 -- FEDERAL INCOME TAXES
The Corporation recognized a loss for financial reporting purposes during the
eight months ended September 30, 1996 and 1995; therefore, no income tax
provision has been recognized.
Income taxes paid by the Corporation for the eight months ended September 30,
1996 and 1995 totaled approximately $2,000 and $4,000, respectively.
NOTE 5 -- LINE OF CREDIT
PDG Environmental Services, Inc. ("PDGES"), a wholly-owned subsidiary of the
Corporation, currently maintains a Master Funding and Indemnification Agreement
with Sirrom Environmental Funding, LLC (the "Sirrom Agreement") which provides
$4.0 million of funding relative to unbilled amounts under the EDI Program
through August 21, 1997. The Corporation and PDG Environmental, Inc. ("PDGE")
are guarantors on the Sirrom Agreement. As of September 30, 1996, the
Corporation was advanced approximately $2.3 million under the
8
<PAGE> 9
Sirrom Agreement. The Corporation has provided an indemnification to Sirrom
Environmental Funding, LLC for any amounts advanced to the Corporation under
the current Sirrom Agreement and under a previous agreement which are not
reimbursed under the EDI Program in the amount of $3.0 million.
The Corporation paid interest costs totaling approximately $324,000 and
$465,000 during the eight months ended September 30, 1996 and 1995,
respectively.
NOTE 6 -- NET LOSS PER SHARE
Primary earnings per share are calculated by dividing the net loss by the
weighted average of common shares outstanding since the Corporation's common
stock was sold to the public effective February 9, 1995.
Stock options and warrants have not been reflected as exercised for purposes of
computing the primary loss per share for the two and eight months ended
September 30, 1996 and 1995, respectively, since the exercise of such options
and warrants would be anti-dilutive.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
As discussed in further detail in Item 1. Legal Proceedings contained in the
Corporation's Quarterly Reports on Form 10-Q for the quarters ended April 30
and July 31, 1996, PDGES was involved in litigation with International Surplus
Lines Insurance, Inc. ("ISLIC") as a result of insurance advances made to PDGES
by ISLIC. In July 1996, PDGES and ISLIC arrived at an agreement to settle this
matter. PDGES has agreed to pay a total of $1,135,000 in equal monthly payments
of $37,883.33 over a 30-month period. No interest will be applied. The parties
filed a Joint Stipulation for Dismissal of the matter in the U.S. District
Court for the Middle District of Florida; however, in September 1996, ISLIC
filed a motion to reopen the case. On October 21, 1996, the District Court
dismissed ISLIC's motion. However, on November 5, 1996, ISLIC filed a motion
for reconsideration of the dismissal of its motion to reopen the matter. PDGES
intends to continue to oppose any efforts to reopen this matter.
As discussed in further detail in Item 3. Legal Proceedings contained in the
Corporation's Annual Report on Form 10-K for the year ended January 31, 1996,
as amended by Form 10-K/A dated May 30, 1996, the Corporation, PDGE, certain of
its officers and directors, and the underwriters of the initial public offering
have been named as defendants in a purported class action lawsuit involving the
purchase by all persons and entities of the Corporation's common stock from
February 9, 1995, through May 23, 1995. The action alleges that the defendants
violated certain federal securities laws.
On September 1, 1995, an answer was filed on behalf of the Corporation, its
officers, directors and PDGE which generally denied the plaintiff's claim. In
December 1995, the plaintiff filed a motion for class certification, and the
underwriter defendants filed a motion to dismiss the complaint, which motion
was joined by the Corporation, its officers and directors and PDGE. In
September 1996, the motion to dismiss was denied, but the motion for class
certification is still pending. The action is still in the discovery stage.
The Corporation believes that the allegations are without merit or that there
are meritorious defenses to the allegations, and intends to defend the action
vigorously. If however, the plaintiff is successful in its claims, a judgment
rendered against the Corporation and the other defendants would likely have a
material adverse effect on the business and operations of the Corporation.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
TWO MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Contract revenues, as reported by the Corporation, decreased 10% to $555,000
for the two months ended September 30, 1996, compared to $615,000 in the two
months ended September 30, 1996. A substantial decrease in contract revenues of
39% at the Corporation's Florida remediation service operation more than offset
the 30% increase in revenues generated by the Corporation's Pennsylvania
remediation service operation. The Corporation's Florida remediation service
operation has continued to be adversely affected by changes in the EDI program,
which is discussed further under "Prospective Information," and the extreme
competitive conditions in the market for private remediation work in the State
of Florida. The Corporation exited the remediation market in Florida and
closed its office located in Florida effective November 1, 1996.
The Corporation's gross margin also decreased during the two months ended
September 30, 1996 to $172,000 compared to $208,000 reported during the two
months ended September 30, 1995 as a result of the reduction in revenues
resulting from the changes in the EDI Program as previously discussed which
more than offset an increase in gross margin reported by the Corporation's
Pennsylvania remediation service operation. Increases in gross margin for the
Pennsylvania remediation service operation resulted from an increase in
revenues combined with an improvement in the gross margin percentage earned on
projects.
Selling, general and administrative expenses increased to $404,000 in the two
months ended September 30, 1996, compared to $348,000 in the same two month
period of the prior fiscal year. Selling, general and administrative expenses
at the Corporation's Florida remediation service operation decreased in the
current two month period compared to the same period in the prior fiscal year
as a result of reductions in the work force at the Florida office and cost
reduction efforts implemented by the Corporation. Selling, general and
administrative expenses at the Corporation's Pennsylvania remediation service
operation increased slightly over the prior period primarily due to increases
in facilities rent and equipment rental and maintenance costs. Selling, general
and administrative costs associated with the corporate office were
significantly higher in the current two month period principally as a result of
legal and accounting costs associated with certain litigation involving the
Corporation and costs associated with the potential acquisition of SPATCO
Environmental Inc. ("SEI").
As a result of the factors described above, the Corporation reported a loss
from operations of $232,000 for the two months ended September 30, 1996
compared to a loss from operations of $140,000 for the two months ended
September 30, 1995.
Interest expense reported by the Corporation increased to $75,000 in the third
quarter of fiscal 1996 versus $61,000 in the third quarter of the prior fiscal
year due to higher interest rates and amounts advanced to the Corporation by
Sirrom Environmental Funding, LLC ("Sirrom") and another contractor for work
performed under the EDI Program. The increases in interest expense resulting
from funding of projects, under the EDI Program as previously described, are
offset by a decrease in interest cost on the Corporations short-term borrowings
and long-term debt due to the repayment of these borrowings in the third and
fourth quarters of the Corporation's prior fiscal year.
During the two months ended September 30, 1995, the Corporation recognized a
loss from its discontinued thermal treatment facility, GeoLogic, of $124,000
due to the shutdown of the facility for a portion of the two-month period and a
significant reduction in the volume of soil processed for the remainder of the
period.
EIGHT MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
During the eight months ended September 30, 1996, the Corporation's contract
revenues decreased by approximately 14% to $3.1 million compared to $3.5
million reported in the same eight-month period of the prior fiscal year. The
reduction in contract revenues in the current eight-month period is due to a
70% decline in revenues at the Corporation's Florida remediation service
operation due to the changes in the EDI Program in late
10
<PAGE> 11
March 1995. A substantial portion of the Corporation's contract revenues were
generated under this program in prior fiscal years. The significant decline in
revenues which the Corporation experienced at its Florida remediation service
operation was offset in part by a 141% increase in revenues at its Pennsylvania
remediation service operation, principally due to increased revenues under a
large federal contract.
The Corporation's gross margin decreased significantly in the eight months
ended September 30, 1996 to $0.7 million versus $1.2 million in the eight
months ended September 30, 1995. The majority of the decrease related to a $0.8
million reduction in gross margin at the Corporation's Florida remediation
service operation due to the changes in the EDI Program and lower margins on
other private work resulting from the extreme competitive conditions in the
Florida remediation market. Gross margins at the Corporation's Pennsylvania
remediation service operation increased by $0.3 million, an increase of 123%,
when comparing the eight months ended September 30, 1996 and 1995 due to the
increase in sales volume experienced by the Pennsylvania services operations.
Selling, general and administrative expense increased to $1.6 million for the
eight months ended September 30, 1996 versus $1.4 million in the eight months
ended September 30, 1996. The increase in the current eight months is
principally due to higher legal and accounting costs associated with certain
litigation involving the Corporation, certain insurance costs and costs
associated with the potential acquisition of SEI. In addition, selling, general
and administrative expenses at the Corporation's Florida remediation service
operation continued to remain high during the current eight month period in
spite of significantly lower revenue levels as a result of an increase in
indirect labor costs associated with marketing and proposal efforts to replace
lost revenues which more than offset reductions in other expenses due to the
Corporation's cost reduction efforts. The Corporation's Pennsylvania
remediation service operation experienced a decline in selling, general and
administrative expenses as a percentage of contract revenues in the current
eight month period compared to the prior year's eight month period as billable
labor at this operation increased.
As a result of the factors described above, the Corporation reported a loss
from operations of $0.9 million for the eight months ended September 30, 1996
versus a loss from operations of $0.2 million for the same eight month period
of the prior fiscal year.
Interest expense remained constant at $0.3 million when comparing the two eight
month periods. Although the Corporation's long-term debt decreased when
comparing the two eight-month periods, the Corporation continues to recognize
interest expense on work performed under the EDI Program which has been funded
through Sirrom and another contractor.
The Corporation recognized a loss of $0.6 million in the eight months ended
September 30, 1995 associated with its thermal treatment services facility,
GeoLogic, which was discontinued effective January 31, 1996 and sold on April
25, 1996. The losses experienced at GeoLogic resulted from reduced volume and
prices, including a shutdown of the facility during the second quarter, which
the Corporation believes was indirectly attributable to the EDI Program
changes.
LIQUIDITY AND CAPITAL RESOURCES
During the eight months ended September 30, 1996, the Corporation's liquidity
decreased by $0.1 million as cash and short-term investments totaled $0.2
million at September 30, 1996 compared to $0.3 million at January 31, 1996.
A decrease in cash and short-term investments in the current eight month period
of $0.1 million resulted from cash used to purchase property and equipment of
$0.1 million. Cash used in financing activities netted to $8,000, as proceeds
from borrowings used in the purchase of fixed assets was matched by repayments
on debt and the insurance company accrual.
Cash used by operating activities in the current eight month period of $10,000
included increases in cash from a $0.7 million reduction in accounts receivable
and a $0.8 million reduction in costs and estimated earnings in excess of
billings on uncompleted contracts due to collections on receivables and the
conversion of unbilled costs to cash primarily due to the funding received from
Sirrom for work performed under the EDI Program, a $0.2 decrease in cash held
in escrow due to the payments made to cover interest costs and expenses under
the Sirrom Agreement
11
<PAGE> 12
and settlements pursuant to another escrow agreement. The cash inflows from
operating activities were offset by a net loss for the period, as adjusted for
non-cash items, of $1.0 million, a reduction in accounts payable of $0.4
million and reductions in accrued liabilities and the payable to affiliate of
$0.2 million and $0.1 million, respectively.
During the eight months ended September 30, 1995, the Corporation's liquidity
increased by $0.1 million as cash and short-term investments totaled $0.1
million at September 30, 1995 compared to $7,000 at January 31, 1995. This net
increase in cash resulted from cash provided by operating activities of $1.0
million which was substantially offset by $0.1 used for purchases of property
and equipment and net cash used for financing activities of $0.8 million.
Cash provided by operating activities in the prior eight month period of $1.0
million resulted from decreases in accounts receivable of $1.8 million and a
$1.6 million reduction in costs and estimated earnings in excess of billings on
uncompleted contracts primarily due to the changes in the EDI Program which
enabled the Corporation to bill certain outstanding work combined with
collections on outstanding EDI receivables. The cash inflows from operating
activities were offset by a net loss for the period, as adjusted for non-cash
items, of $0.8 million, a $0.2 million decrease in accounts payable, a $0.4
million increase in cash held in escrow due to meet deposit requirements to
cover interest costs and potential adjustments of amounts funded by Sirrom for
work performed under the EDI Program, a decrease in the payable to affiliate of
$0.5 million related to the settlement of the intercompany balance outstanding
to the Corporation's prior majority owner and a $0.2 million increase in other
current assets primarily resulting from prepayments of insurance and costs of
the Corporation's financing agreement with Sirrom.
The net $0.8 million cash outflow from financing activities in the prior eight
month period included $2.25 million related to proceeds from the initial public
offering of the Corporation's common stock and warrants, and $3.7 million from
refinancing of indebtedness under lines of credit. These cash inflows were
offset by $6.7 million of principal repayments on debt which related to
repayments of the amounts outstanding under the Corporation's lines of credit.
Cash outflows of $0.05 million during the eight months ended September 30,
1995, related to the purchase of property and equipment.
The Corporation currently maintains an agreement with Sirrom which provides
$4.0 million of funding relative to unbilled amounts under the EDI Program. The
agreement with Sirrom, which expires on August 21, 1997, enables the
Corporation, through its wholly-owned subsidiary PDGES, to fund amounts billed
under the EDI Program at the prime rate of interest, as defined, plus 3%. The
Corporation is advanced 100% of amounts billed; however, it is required to
deposit 34% into an escrow account to cover potential disallowances and future
interest costs. The Corporation is a guarantor on the Sirrom Agreement. At
September 30, 1996, the Corporation has been advanced approximately $2.3
million under the Sirrom Agreement.
Due to prior and current year operating losses, the Corporation has limited
funds available to meet its ongoing working capital requirements. However, the
Corporation believes that the proceeds generated under the Sirrom Agreement
combined with cash generated from its Pennsylvania remediation service
operation should enable it to meet its ongoing liquidity requirements. The
Corporation will continue to closely monitor its liquidity requirements on an
ongoing basis and continues to implement cost reductions and conserve cash as
necessary.
PROSPECTIVE INFORMATION
During the current and prior fiscal year, the Corporation has experienced
significant operating losses, the majority of which are attributable to the
changes in the EDI Program since a substantial portion of the Corporation's
historical revenues were generated under this Program. The Corporation reacted
to the impact of these changes through the implementation of cost reductions
and increased marketing efforts at its Florida remediation service operation,
planned growth within its Pennsylvania remediation service operation, and the
identification of acquisitions to replace the revenues lost.
12
<PAGE> 13
The Corporation had made some progress toward the replacement of these revenues
by increasing its backlog of high priority sites eligible under the new
Pre-Approval Program in the State of Florida; however, delays under the new
program prevented the Corporation from commencing work on these high priority
sites. As a result of the ongoing losses which the Corporation continued to
experience at its Florida remediation service operation, in August 1996, the
Corporation made a decision to exit the remediation market in Florida. The
Corporation sold the Florida remediation service operations effective November
1, 1996, to Custom Biologicals, Inc. of Boca Raton, Florida. The sale included
office equipment, leasehold improvements, field equipment, vehicles and
backlog. The Corporation received book value for the assets and successfully
transferred leasing obligations to the purchaser.
The Corporation's definitive agreement to acquire SPATCO Environmental, Inc.,
described in its report on Form 10-Q for the quarter ended July 31, 1996,
expired on September 30, 1996, without closing.
In May 1996, the State of Florida passed legislation which included a measure
to satisfy existing obligations to fund the backlog under the EDI Program. The
legislation provides for the State of Florida to fund the existing backlog
through the issuance of bonds, thereby enabling reimbursement applications
submitted under the EDI Program to be paid on an accelerated basis. However, in
exchange for this accelerated payment, reimbursement applications will be paid
at a discount effective January 1, 1997. The annual discount rate to be used is
3.5%, and the present value of an application will be based upon the
accelerated date the FDEP anticipates settling a reimbursement application,
compared to the original date a reimbursement application was scheduled to be
settled.
The Corporation estimates that the acceleration of payments by the FDEP on
reimbursement applications under the EDI Program will include the early release
of cash, which is currently being held in escrow to cover future interest costs
and potential disallowances on reimbursement applications, and the termination
of interest obligations during the second quarter of calendar year 1997. The
Corporation was required to complete all field work under the existing EDI
Program by no later than July 31, 1996, and the FDEP must be invoiced for this
work by no later than December 31, 1996.
The Corporation will not be able to determine the impact of discounting on its
operating results until the FDEP establishes a schedule of anticipated payment
dates; however, the Corporation may be required to record an adjustment to
reflect the negative impacting of the discounting on its results of operations
and financial condition.
The Corporation, certain of its officers and directors, and the underwriters of
the initial public offering have been named in a purported class action suit
involving the purchase by all persons and entities of the Corporation's common
stock from February 9, 1995, through May 23, 1995. The action alleges that the
defendants violated certain federal securities laws. The Corporation believes
that the allegations are without merit or that there are meritorious defenses
to the allegations, and intends to defend the action vigorously. If, however,
the plaintiff is successful in its claims, a judgment rendered against the
Corporation and the other defendants would likely have a material adverse
effect on the business and operations of the Corporation. See Item 1. Legal
Proceedings.
13
<PAGE> 14
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As discussed in further detail in Item 1. Legal Proceedings contained in the
registrant's Quarterly Reports on Form 10-Q for the quarters ended April 30,
1996 and July 31, 1996, PDGES, a wholly owned subsidiary of the registrant, was
involved in litigation with International Surplus Lines Insurance, Inc.
("ISLIC") as a result of insurance advances made to PDGES by ISLIC. In July
1996, PDGES and ISLIC agreed to settle this matter. PDGES has agreed to pay a
total of $1,135,000, without interest, in equal monthly payments of $37,883.33
over a 30-month period. The parties filed a Joint Stipulation for Dismissal of
the matter in the U.S. District Court for the Middle District of Florida;
however, in September 1996, ISLIC filed a motion to reopen the case. On October
21, 1996, the District Court dismissed ISLIC's motion. However, on November 5,
1996, ISLIC filed a motion for reconsideration of the dismissal of its motion
to reopen the matter. PDGES intends to continue to oppose any efforts to reopen
this matter.
With respect to the KLEIN V. PDG REMEDIATION, INC., ET AL. matter, as
previously reported, on September 1, 1995, an answer was filed on behalf of the
registrant, its officers, directors and PDG Environmental, Inc. ("PDGE") which
generally denied the plaintiff's claim. In December 1995, plaintiff filed a
motion for class certification, and the underwriter defendants filed a motion
to dismiss the complaint, which motion was joined by the registrant, its
officers and directors and PDGE. In September 1996, the motion to dismiss was
denied, but the motion for class certification is still pending. The action is
still in the discovery stage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Information Statement was sent by the registrant to its shareholders on or
about October 11, 1996, in connection with a proposed change in the
jurisdiction of incorporation of the Corporation from the Commonwealth of
Pennsylvania to the State of Delaware (the "Reincorporation") pursuant to an
Agreement and Plan of Merger between PDG Remediation, Inc. and ICHOR
Corporation, a Delaware corporation.
The consent of shareholders holding 59.5% of the votes entitled to be cast has
been accepted, and as a result, the action has been approved and no further
consents were solicited. The registrant offered dissenters' rights to
shareholders objecting to the Reincorporation. No dissents were received by the
registrant prior to November 12, 1996, the date upon which dissenters' rights
expired. Accordingly, the Reincorporation became effective on November 13,
1996.
ITEM 5. OTHER INFORMATION
On September 4, 1996, PDG Environmental, Inc. ("PDGE"), then the majority owner
of the registrant, entered into a binding agreement to sell its 59.5% ownership
interest in the registrant, consisting of 1,470,320 shares of common stock, to
Drummond Financial Corporation, formerly CVD Financial Corporation, ("Drummond
Financial") of Vancouver, Canada, pursuant to the terms of a Loan Modification
Agreement between PDGE and Drummond Financial effective as of July 31, 1996.
The closing of the sale was subject to a number of conditions, including (a)
the reincorporation of the registrant as a Delaware corporation on or before
November 1, 1996; (b) the reincorporation of the registrant resulting in no
material liabilities to the registrant; and (c) not more than five percent (5%)
of the shareholders of the registrant exercising dissenters' rights in
connection with the reincorporation.
The registrant had satisfied all requirements for reincorporation and
reincorporated in Delaware on November 13, 1996. No material liabilities to the
registrant resulted from this reincorporation. The period to exercise
dissenters' rights expired on November 12, 1996. No dissenters' rights were
exercised.
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<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
EXHIBIT INDEX
EXHIBIT NO. AND DESCRIPTION
<TABLE>
<CAPTION>
PAGES OF SEQUENTIAL
NUMBERING SYSTEM
<S> <C>
3(i) Certificate of Incorporation of ICHOR Corporation, filed with the
Secretary of State of Delaware on September 16, 1996.
3(ii) Bylaws of ICHOR Corporation adopted effective September 17, 1996.
3(iii) Agreement and Plan of Merger, dated October 1, 1996, by and
between ICHOR Corporation and PDG Remediation, Inc., filed as
Appendix A to the registrant's Information Statement on Schedule
14C on September 17, 1996, is incorporated herein by reference.
27 Financial data schedule
</TABLE>
(b) REPORTS ON FORM 8-K:
The registrant did not file any report on Form 8-K during the two
month period ended September 30, 1996.
15
<PAGE> 16
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.
ICHOR CORPORATION
By /s/ JOHN M. MUSACCHIO
---------------------------------------
John M. Musacchio
President and Chief Operating Officer
By /s/ MICHAEL J. SMITH
---------------------------------------
Michael J. Smith
Chief Financial Officer
Date: November 13, 1996
16
<PAGE> 1
Exhibit 3(i)
CERTIFICATE OF INCORPORATION
OF
ICHOR Corporation
1. The name of the corporation is ICHOR Corporation (the "Corporation").
2. The name of its registered agent is The Corporation Trust Company and
the address of its registered office in the State of Delaware is Corporation
Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware
19801.
3. 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 the State of Delaware, as from time to time amended.
4. The total number of shares of all classes of stock which the Corporation
shall have authority to issue is Thirty-Five Million (35,000,000) shares, of
which Five Million (5,000,000) shares shall be preferred stock, $.01 par value,
and Thirty Million (30,000,000) shares shall be common stock, $.01 par value.
The preferred stock of the Corporation may be issued from time to time in one
or more series. The Board of Directors is expressly authorized, in a
resolution or resolutions providing for the issue of such preferred stock, to
fix, state and express the powers, rights, designations, preferences,
qualifications, limitations and restrictions thereof and to fix the number of
shares of such series.
Except as otherwise provided by law, the shares of stock of the
Corporation, regardless of class, may be issued by the Corporation from time to
time in such amounts, for such consideration and for such corporate purposes as
the Corporation's Board of Directors may from time to time determine.
5. In furtherance and not in limitation of the powers conferred by law, the
Board of Directors is expressly authorized to make, alter or repeal the By-laws
of the Corporation, but any By-laws so made, altered or repealed may be amended
or repealed by the stockholders entitled to vote thereon.
6. (a) The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as amended from
time to time, indemnify every person who is or was a party, or is threatened to
be made a party,
<PAGE> 2
to (i) any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, or (ii) any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor, by reason of the fact that such person serves
or has served at any time as a Director or officer of the Corporation, or who
at the request of the Corporation serves or at any time has served as a
Director or officer of another corporation (including subsidiaries of the
Corporation) or of any partnership, joint venture, trust or other enterprise,
from and against any and all of the expenses, liabilities or other matters
referred to in or covered by said law. Such indemnification shall continue as
to a person who has ceased to be a Director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person. The
Corporation may also indemnify any and all other persons whom it shall have
power to indemnify under any applicable law from time to time in effect to the
extent authorized by the Board of Directors and permitted by such law. The
indemnification provided by this Article 6 shall not be deemed exclusive of any
other rights to which any person may be entitled under any provision of the
Certificate of Incorporation, other By-Law, agreement, vote of stockholders or
disinterested Directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
(b) To the extent that a director, officer, employee or agent of the
Corporation, or a person serving in any other enterprise at the request of the
Corporation, shall have been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsection (a) of this Article
6 or in defense of any claim, issue or matter therein, he shall be indemnified
against all expenses (including attorneys' fees) actually and reasonably paid
or incurred by him in connection therewith.
(c) Any indemnification under this Article 6 (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstance because he has met the applicable standard of
conduct set forth in this Article 6. Such determination shall be made (1) by
the board of directors by a majority vote of a quorum consisting of Directors
who were not parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
Directors so directs, by independent legal counsel, who may be one
2
<PAGE> 3
of the regular independent legal counsel of the Corporation, in a written
opinion, or (3) by the stockholders.
(d) Expenses (including attorneys' fees) incurred by a person in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt by the Corporation of an
undertaking in writing by or on behalf of the person to be indemnified to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article 6. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
(e) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article 6.
(f) For purposes of this Article 6, the term "corporation" shall include
constituent corporations referred to in Subsection (h) of Section 145 of the
General Corporation Law of the State of Delaware (or any similar provision of
applicable law at the time in effect), and references to "other enterprises"
shall include employee benefit plans.
7. 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, except for liability (A) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (B) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (C) under Section 174 of the Delaware General
Corporation Law or (D) for any transaction from which the director derives an
improper personal benefit. If the Delaware General Corporation Law is amended
after this Article 7 becomes effective to authorize elimination or limitation
of liability of directors, then, upon the effective date of any such amendment,
the liability of a director of the Corporation shall, without further
3
<PAGE> 4
act, be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law as so amended. Any repeal or modification of this
article by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
8. The Corporation shall not be governed by the provisions of Section 203
of the Delaware General Corporation Law.
9. In elections for directors, voting need not be by ballot, unless
required by vote of the stockholders before the voting for the election of
directors begins.
10. The name and mailing address of the incorporator is as follows:
Richard D. Rose
One Riverfront Center
Pittsburgh, Pennsylvania 15222
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this my act and deed and the facts herein stated are true, and accordingly
have hereunto set my hand this 16th day of September, 1996.
/S/ Richard D. Rose
----------------------------
Richard D. Rose
Incorporator
4
<PAGE> 1
Exhibit 3(ii)
B Y L A W S
OF
ICHOR CORPORATION
(a Delaware Corporation)
ARTICLE I
Registered Agent, Offices and Fiscal Year
Section 1.01. Registered Agent; Registered Office. - The registered agent
of the corporation in the State of Delaware shall be The Corporation Trust
Company, and registered office of the corporation in the State of Delaware
shall be at 1209 Orange Street, Wilmington, New Castle County, Delaware 19801,
until otherwise changed by an amendment to the Certificate of Incorporation
(the "Certificate") or by the board of directors and a record of such change is
filed with the Delaware Department of State in the manner provided by law.
Section 1.02. Other Offices. - The corporation may also have offices at
such other places within or without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation
may require.
Section 1.03. Fiscal Year. - The fiscal year of the corporation shall
begin on the first day of January in each year.
ARTICLE II
Notice - Waivers - Meetings Generally
Section 2.01. Manner of Giving Notice.
(a) General Rule. - Whenever written notice is required to be given to any
person under the provisions of the Delaware General Corporation Law or by the
Certificate or these bylaws, it may be given to the person either personally or
by sending a copy thereof by first class or express mail, postage prepaid, or
by telegram (with messenger service specified), telex or TWX (with answerback
received) or courier service, charges prepaid, or by facsimile transmission, to
the address (or to the telex, TWX, facsimile or telephone number) of the person
appearing on the books of the corporation or, in the case of directors,
supplied by the director to the corporation for the purpose of notice. If the
notice is sent by mail, telegraph or courier service, it shall be deemed to
have been given to the person entitled thereto when deposited in the United
States mail or with a telegraph office or courier service for delivery to that
person or, in the case of
<PAGE> 2
telex, TWX or facsimile transmission, when dispatched or transmitted. A notice
of meeting shall specify the place, date and hour of the meeting and any other
information required by any other provision of the Delaware General Corporation
Law, the Certificate or these bylaws.
(b) Bulk Mail. - If the corporation has more than 30 stockholders, notice
of any regular or special meeting of the stockholders, or any other notice
required by the Delaware General Corporation Law or by the Certificate or these
bylaws to be given to all stockholders or to all holders of a class or series
of shares, may be given by any class of postpaid mail if the notice is
deposited in the United States mail at least twenty (20) days prior to the day
named for the meeting for any corporate or stockholder action specified in the
notice.
(c) Adjourned Stockholder Meetings. - When a meeting of stockholders is
adjourned, it shall not be necessary to give any notice of the adjourned
meeting or of the business to be transacted at an adjourned meeting, other than
by announcement of the time and place thereof at the meeting at which the
adjournment is taken. If the adjournment is for more than 30 days, or if the
board fixes a new record date for the adjourned meeting, notice of the
adjourned meeting shall be given in accordance with Section 2.03 of these
bylaws.
Section 2.02. Notice of Meetings of Board of Directors. - Notice of a
regular meeting of the board of directors need not be given. Notice of every
special meeting of the board of directors shall be given to each director by
telephone or in person or in writing at least twenty-four (24) hours (in the
case of notice by telephone, telex, TWX or facsimile transmission) or
forty-eight (48) hours (in the case of notice by telegraph, courier service or
express mail) or five (5) days (in the case of notice by first class mail)
before the time at which the meeting is to be held. Every such notice shall
state the time and place of the meeting. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the board need be
specified in a notice of the meeting.
Section 2.03. Notice of Meetings of Stockholders.
(a) General Rule. - Except as otherwise provided in Section 2.01(b)
hereof, written notice of every meeting of the stockholders shall be given by,
or at the direction of, the Secretary or other authorized person to each
stockholder of record entitled to vote at the meeting at not less than ten (10)
nor more than sixty (60) days prior to the day named for a meeting. If the
2
<PAGE> 3
Secretary neglects or refuses to give notice of a meeting, the person or
persons calling the meeting may do so. In the case of a special meeting of
stockholders, the notice shall specify the purpose or purposes for which the
meeting is called.
Section 2.04. Waiver of Notice.
(a) Written Waiver. - Whenever any notice is required to be given under
the provisions of the Delaware General Corporation Law, the Certificate or
these bylaws, a written waiver thereof, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent to the notice. Neither the business to be transacted at,
nor the purpose of, a meeting need be specified in the waiver of notice of the
meeting.
(b) Waiver by Attendance. - Attendance of a person at any meeting shall
constitute a waiver of notice of the meeting except where a person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting was not lawfully called
or convened.
Section 2.05. Modification of Proposal Contained in Notice. - Whenever the
language of a proposed resolution is included in a written notice of a meeting
required to be given under the provisions of the Delaware General Corporation
Law or the Certificate or these bylaws, the meeting considering the resolution
may without further notice adopt it with such clarifying or other amendments as
do not enlarge its original purpose.
Section 2.06. Exception to Requirement of Notice.
(a) General Rule. - Whenever any notice or communication is required to be
given to any person under the provisions of the Delaware General Corporation
Law or by the Certificate or these bylaws or by the terms of any agreement or
other instrument or as a condition precedent to taking any corporate action and
communication with that person is then unlawful, the giving of the notice or
communication to that person shall not be required.
(b) Stockholders Without Forwarding Addresses. - Notice or other
communications need not be sent to any stockholder with whom the corporation
has been unable to communicate for more than twenty-four (24) consecutive
months because communications to the stockholder are returned unclaimed or the
stockholder has otherwise failed to provide the corporation with a current
address. Whenever the stockholder provides the corporation with a current
address,
3
<PAGE> 4
the corporation shall commence sending notices and other communications to the
stockholder in the same manner as to other stockholders.
Section 2.07. Use of Conference Telephone and Similar Equipment. - Any
director may participate in any meeting of the board of directors, and the board
of directors may provide by resolution with respect to a specific meeting or
with respect to a class of meetings that one or more persons may participate
in a meeting of the stockholders of the corporation, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this section shall constitute presence in person at the meeting.
ARTICLE III
Stockholders
Section 3.01. Place of Meeting. - All meetings of the stockholders of the
corporation shall be held at such place, either within or outside of the State
of Delaware, as may be designated by the board of directors in the notice of a
meeting.
Section 3.02. Annual Meeting. - The board of directors may fix and
designate the date and time of the annual meeting of the stockholders, but if no
such date and time is fixed and designated by the board, the meeting for any
calendar year shall be held on the third Thursday in July in such year, if not a
legal holiday under the laws of the jurisdiction in which the corporation's
principal office is located, and, if a legal holiday, then on the next
succeeding business day, at 10:00 o'clock A.M., and at said meeting the
stockholders then entitled to vote shall elect directors and shall transact such
other business as may properly be brought before the meeting. If there be a
failure to hold the annual meeting for a period of 30 days after the date
designated therefor, or if no date has been designated, for a period of thirteen
months after the last annual meeting of the corporation, the Court of Chancery
may summarily order a meeting to be held upon the application of any stockholder
or director.
Section 3.03. Special Meetings. - Special meetings of the stockholders may
be called at any time by resolution of the board of directors, which may fix the
date, time and place of the meeting. If the board does not fix the date, time
or place of the meeting, it shall be the duty of the Secretary to do so. A date
fixed by the secretary shall not be more than 60 days after the
4
<PAGE> 5
date of the adoption of the resolution of the board calling the special
meeting.
Section 3.04. Quorum and Adjournment.
(a) General Rule. - A meeting of stockholders of the corporation duly
called shall not be organized for the transaction of business unless a quorum
is present. The presence, in person or by proxy, of stockholders entitled to
cast at least a majority of the votes that all stockholders are entitled to
cast on a particular matter to be acted upon at the meeting shall constitute a
quorum for the purposes of consideration and action on the matter. Shares of
the corporation owned, directly or indirectly, by it shall not be counted in
determining the total number of outstanding shares for quorum purposes at any
given time.
(b) Withdrawal of a Quorum. - The stockholders present at a duly organized
meeting can continue to do business until adjournment notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
(c) Adjournments Generally. - Any regular or special meeting of the
stockholders, including one at which directors are to be elected and one which
cannot be organized because a quorum has not attended, may be adjourned for
such period and to such place as the stockholders present and entitled to vote
shall direct.
(d) Electing Directors at Adjourned Meeting. - Those stockholders entitled
to vote who attend a meeting called for the election of directors that has been
previously adjourned for lack of a quorum, although less than a quorum as fixed
in this section, shall nevertheless constitute a quorum for the purpose of
electing directors.
(e) Other Action in Absence of Quorum. - Those stockholders entitled to
vote who attend a meeting of stockholders that has been previously adjourned
for one or more periods aggregating at least fifteen (15) days because of an
absence of a quorum, although less than a quorum as fixed in this section,
shall nevertheless constitute a quorum for the purpose of acting upon any
matter set forth in the notice of the meeting if the notice states that those
stockholders who attend the adjourned meeting shall nevertheless constitute a
quorum for the purpose of acting upon the matter.
Section 3.05. Action by Stockholders - Except as otherwise provided in the
Delaware General Corporation Law or the
5
<PAGE> 6
Certificate or these bylaws, whenever any corporate action is to be taken by
vote of the stockholders of the corporation, it shall be authorized upon
receiving the affirmative vote of a majority of the votes cast by all
stockholders entitled to vote thereon and, if any stockholders are entitled to
vote thereon as a class, upon receiving the affirmative vote of a majority of
the votes cast by the stockholders entitled to vote as a class.
Section 3.06 Organization - At every meeting of the stockholders, the
Chairman of the Board, if there be one, or, in the case of vacancy in office or
absence of the Chairman of the Board, one of the following persons present in
the order stated: the Vice Chairman of the Board, if there be one, the
President, the vice presidents in their order of rank and seniority, or a
person chosen by vote of the stockholders present, shall act as chairman of the
meeting. The Secretary or, in the absence of the Secretary, an assistant
secretary, or, in the absence of both the Secretary and assistant secretaries,
a person appointed by the chairman of the meeting, shall act as secretary of
the meeting.
Section 3.07. Voting Rights of Stockholders - Unless otherwise provided in
the Certificate, every stockholder of the corporation shall be entitled to one
vote for every share standing in the name of the stockholder on the books of
the corporation.
Section 3.08. Voting and Other Action by Proxy.
(a) General Rule. -
(1) Every stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person to act for the stockholder by proxy.
(2) The presence of or vote or other action at a meeting of stockholders
by a proxy of a stockholder shall constitute the presence of or vote or action
by the stockholder.
(3) Where two or more proxies of a stockholder are present, the
corporation shall, unless otherwise expressly provided in the proxy, accept as
the vote of all shares represented thereby the vote cast by a majority of them
and, if a majority of the proxies cannot agree whether the shares represented
shall be voted or upon the manner of voting the shares, the voting of the
shares shall be divided equally among those persons.
(b) Execution and Filing. - Every proxy shall be executed in writing by the
stockholder or by the duly authorized
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attorney-in-fact of the stockholder and filed with the Secretary of the
corporation. A telegram, telex, cable gram, datagram or similar transmission
from a stockholder or attorney-in-fact, or a photographic, facsimile or similar
reproduction of a writing executed by a stockholder or attorney-in-fact:
(1) may be treated as properly executed for purposes of this subsection;
and
(2) shall be so treated if it sets forth or be submitted with information
from which it can be determined that such transmission was authorized by the
stockholder.
(c) Revocation. A proxy, unless coupled with an interest, shall be
revocable at will, notwithstanding any other agreement or any provision in the
proxy to the contrary, but the revocation of a proxy shall not be effective
until written notice thereof has been given to the Secretary of the
corporation. An unrevoked proxy shall not be valid after three years from the
date of its execution unless a longer time is expressly provided therein. A
proxy shall not be revoked by the death or incapacity of the maker unless,
before the vote is counted or the authority is exercised, written notice of the
death or incapacity is given to the Secretary of the corporation.
(d) Expenses - The corporation shall pay the reasonable expenses of
solicitation of votes, proxies or consents of stockholders by or on behalf of
the board of directors or its nominees for election to the board, including
solicitation by professional proxy solicitors and otherwise.
Section 3.09. Voting by Fiduciaries and Pledgees - Shares of the
corporation standing in the name of a trustee or other fiduciary and shares
held by an assignee for the benefit of creditors or by a receiver may be voted
by the trustee, fiduciary, assignee or receiver. A stockholder whose shares
are pledged shall be entitled to vote the shares until the shares have been
transferred into the name of the pledgee, or a nominee of the pledgee, but
nothing in this section shall affect the validity of a proxy given to a pledgee
or nominee.
Section 3.10. Voting by Joint Holders of Shares.
(a) General Rule. - Where shares of the corporation are held in the names of
two or more persons, whether as joint tenants, tenants in common, as
fiduciaries or otherwise:
(1) if only one votes, his or her vote binds all;
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(2) if more than one vote, the act of the majority so voting binds all;
(3) if more than one vote, but the vote is evenly split on any particular
matter, the voting of the shares shall be divided proportionally among the
persons so voting the shares.
(b) Exception. - If there has been filed with the Secretary of the
corporation a copy, certified by an attorney at law to be correct, of the
relevant portions of the agreement under which the shares are held or the
instrument by which the trust or estate was created or the order of court
appointing them or of an order of court directing the voting of the shares, the
persons specified as having such voting power in the document latest in date of
operative effect so filed, and only those persons, shall be entitled to vote
the shares but only in accordance therewith.
Section 3.11. Voting by Corporations.
(a) Voting by Corporate Stockholders. - Any corporation that is a
stockholder of this corporation may vote at meetings of stockholders of this
corporation by any of its officers or agents, or by proxy appointed by any
officer or agent, unless some other person, by resolution of the board of
directors of the other corporation or a provision of its articles of
incorporation or bylaws (a copy of which resolution or provision is certified
to be correct by one of its officers, has been filed with the Secretary of this
corporation) is appointed its general or special proxy in which case that
person shall be entitled to vote the shares.
(b) Controlled Shares. - Shares of this corporation owned, directly or
indirectly, by it shall not be voted at any meeting and shall not be counted in
determining the total number of outstanding shares for voting purposes at any
given time.
Section 3.12. Determination of Stockholders of Record.
(a) Fixing Record Date. - The board of directors may fix a date prior to
the date of any meeting of stockholders as a record date for the determination
of the stockholders entitled to notice of, or to vote at, the meeting, which
time, except in the case of an adjourned meeting, shall be not more than sixty
(60) days nor less than ten (10) days prior to the date of the meeting of
stockholders. Only stockholders of record on the date fixed shall be so
entitled notwithstanding any transfer of shares on the books of the corporation
after any record date fixed as provide in this subsection. The board of
directors may similarly fix a record date
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for the determination of stockholders of record for any other purpose. When a
determination of stockholders of record has been made as provided in this
section for purposes of a meeting, the determination shall apply to any
adjournment thereof unless the board fixes a new record date for the adjourned
meeting.
(b) Determination When a Record Date is Not Fixed. - If a record date is
not fixed:
(1) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given.
(2) The record date for determining stockholders for the purpose of any
other lawful action shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
(c) Certification by Nominee. - The board of directors may adopt a
procedure whereby a stockholder of the corporation may certify in writing to
the corporation that all or a portion of the shares registered in the name of
the stockholder are held for the account of a specified person or persons.
Upon receipt by the corporation of a certification complying with the
procedure, the persons specified in the certification shall be deemed, for the
purposes set forth in the certification, to be the holders of record of the
number of shares specified in place of the stockholder making the
certification.
Section 3.13. Voting Lists.
(a) General Rule. - The officer or agent having charge of the stock ledger
or transfer books for shares of the corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting of stockholders, arranged in
alphabetical order, with the address of and the number of shares held by each.
The list shall be produced and kept open to examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting and shall be subject to the inspection of any stockholder during
the whole time of the meeting.
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(b) Effect of List. - Failure to comply with the requirements of this
section shall not affect the validity of any action taken at a meeting prior to
a demand at the meeting by any stockholder entitled to vote thereat to examine
the list; however, upon the willful neglect or refusal of the directors to
produce such a list at any meeting of directors, they shall be ineligible for
election to any office at such meeting. The stock ledger or transfer book
shall be the only evidence as to who are the stockholders entitled to examine
the list, the stock ledger or transfer book or the books of the corporation, or
to vote at any meeting of stockholders.
Section 3.14. Inspectors of Election.
(a) Appointment. - In advance of any meeting of stockholders of the
corporation, the board of directors shall appoint one or more inspectors of
election, who need not be stockholders, to act at the meeting or any
adjournment thereof. If inspectors of election are not so appointed, the
presiding officer of the meeting shall appoint one or more inspectors to act of
election at the meeting. The number of inspectors shall be one or three. A
person who is a candidate for an office to be filled at the meeting shall not
act as an inspector.
(b) Vacancies. - In case any person appointed as a inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment
made by the board of directors in advance of the convening of the meeting or at
the meeting by the presiding officer thereof.
(c) Duties - The inspectors of election shall determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the authenticity, validity and effect
of proxies, receive votes or ballots, hear and determine all challenges and
questions in any way arising in connection with nominations by stockholders or
the right to vote, count and tabulate all votes, determine the result and do
such acts as may be proper to conduct the election or vote with fairness to all
stockholders. The inspectors of election shall perform their duties
impartially, in good faith, to the best of their ability and as expeditiously
as is practical. If there are three inspectors of election, the decision, act
or certificate of a majority shall be effective in all respects as the
decision, act or certificate of a majority shall be effective in all respects
as the decision, act or certificate of all.
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(d) Report - On request of the presiding officer of the meeting or of any
stockholder, the judges shall make a report in writing of any challenge or
question or matter determined by them, and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated therein.
Section 3.15. Minors as Security Holders. - The corporation may treat a
minor who holds shares or obligations of the corporation as having capacity to
receive and to empower others to receive dividends, interest, principal and
other payments or distributions, to vote or express consent or dissent and to
make elections and exercise rights relating to such shares or obligations
unless, in the case of payments or distributions on shares, the corporate
officer responsible for maintaining the list of stockholders or the transfer
agent of the corporation or, in the case of payments or distributions on
obligations, the Treasurer or paying agent has received written notice that the
holder is a minor.
Section 3.16 Consent of Stockholders in Lieu of Meeting.
Any action required by the Delaware General Corporation Law to be taken at
any annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of the stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all share entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its registered office, its
principal place of business, or an officer or agent of the corporation having
custody of the book in which proceeding of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested.
ARTICLE IV
Board of Directors
Section 4.01. Powers; Personal Liability.
(a) General Rule. - Unless otherwise provided by statute, all powers vested
by law in the corporation shall be
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exercised by or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of, the board of directors.
(b) Personal Liability of Directors. -
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, except for liability (A) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (B) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (C) under Section 174 of the Delaware General
Corporation Law or (D) for any transaction from which the director derives an
improper personal benefit. If the Delaware General Corporation Law is amended
after this Section 4.01 (b) becomes effective to authorize elimination or
limitation of liability of directors, then, upon the effective date of any such
amendment, the liability of a director of the corporation shall, without
further act, be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law as so amended. Any repeal or modification of
this section by the stockholders of the corporation shall not adversely affect
any right or protection of a director of the corporation existing at the time
of such repeal or modification.
Section 4.02. Qualifications and Selection of Directors.
(a) Qualifications. - Each director of the corporation shall be a natural
person of full age who need not be a resident of the State of Delaware or a
stockholder of the corporation.
(b) Election of Directors. - In elections for directors, voting need not
be by ballot, unless required by vote of the stockholders before the voting for
the election of directors begins. The candidates receiving the highest number
of votes from each class or group of classes, if any, entitled to elect
directors separately up to the number of directors to be elected by the class
or group of classes shall be elected. If at any meeting of stockholders,
directors of more than one class are to be elected, each class of directors
shall be elected in a separate election.
Section 4.03. Number and Term of Office.
(a) Number. - The board of directors shall consist of such number of
directors, not less than three (3) nor more than
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fifteen (15), as may be determined from time to time by resolution of the board
of directors.
(b) Term of Office. - Each director shall hold office until the expiration
of the term for which he or she was selected and until a successor has been
selected and qualified or until his or her earlier death, resignation or
removal. A decrease in the number of directors shall not have the effect of
shortening the term of any incumbent director.
(c) Resignation. - Any director may resign at any time upon written notice
to the corporation. The resignation shall be effective upon receipt thereof by
the corporation or at such subsequent time as shall be specified in the notice
of resignation.
(d) Classified Board of Directors - The directors shall be classified in
respect of the time for which they shall severally hold office as follows:
(1) Each class shall be as nearly equal in number as possible.
(2) The term of office of at least one class shall expire in each year.
(3) With the exception of the classes of the initial board of directors,
the members of each class shall be elected for a period of three years.
(4) The initial Board of Directors shall be classified into three (3)
classes with (i) Class I serving until the annual meeting of stockholders next
following January 31, 1998; (ii) Class II serving until the annual meeting of
stockholders next following January 31, 1999; (ii) and Class III serving until
the annual meeting of stockholders next following January 31, 1997; in each
case such directors shall serve until a successor has been duly elected and
qualified, or until his or her earlier death, resignation or removal.
Section 4.04. Vacancies.
(a) General Rule. - Vacancies in the board of directors, including
vacancies resulting from an increase in the number of directors, may be filled
by a majority vote of the remaining members of the board though less than a
quorum, or by a sole remaining director, and each person so selected shall be a
director to serve until the next selection of the class for which such
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director has been chosen, and until a successor has been selected and qualified
or until his or her earlier death, resignation or removal.
(b) Action by Resigned Directors - When one or more directors resign from
the board effective at a future date, the directors then in office, including
those who have so resigned, shall have power by the applicable vote to fill the
vacancies, the vote thereon to take effect when the resignations become
effective.
Section 4.05. Removal of Directors. - The entire board of directors, or
any class of the board, or any individual director may be removed from office by
vote of the stockholders entitled to vote thereon without assigning any cause.
In case the board or a class of the board or any one or more directors are so
removed, new directors may be elected at the same meeting.
Section 4.06. Place of Meetings. - Meetings of the board of directors may
be held at such place within or without the State of Delaware as the board of
directors may from time to time appoint or as may be designated in the notice of
the meeting.
Section 4.07. Organization of Meetings. - At every meeting of the board of
directors, the Chairman of the Board, if there be one, or, in the case of a
vacancy in the office or absence of the Chairman of the Board, one of the
following offices present in the order stated: the Vice Chairman of the Board,
if there be one, the President, the vice presidents in their order of rank and
seniority, or a person chosen by a majority of the directors present, shall act
as chairman of the meeting. The Secretary or, in the absence of the Secretary,
an assistant secretary, or, in the absence of the Secretary and the assistant
secretaries, any person appointed by the chairman of the meeting, shall act a
secretary of the meeting.
Section 4.08. Regular Meetings. - Regular meetings of the board of
directors shall be held at such time and place as shall be designated from time
to time by resolution of the board of directors.
Section 4.09. Special Meetings - Special meetings of the board of
directors shall be held whenever called by the Chairman or by two or more
of the directors.
Section 4.10. Quorum of and Action by Directors.
(a) General Rule. A majority of the directors in office of the corporation
shall be necessary to constitute a quorum for
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the transaction of business and the acts of a majority of the directors present
and voting at a meeting at which a quorum is present shall be the acts of the
board of directors.
(b) Action by Written Consent - Any action required or permitted to be
taken at a meeting of the directors may be taken without a meeting if a consent
or consents thereto signed by all the directors in office is filed with the
Secretary of the corporation.
Section 4.11. Executive and Other Committees.
(a) Establishment and Powers - The board of directors may, by resolution
adopted by a majority of the entire board, establish one or more committees
consisting of one or more directors of the corporation. Any committee, to the
extent provided in the resolution of the board of directors, shall have and may
exercise all of the powers and authority of the board of directors except that
a committee shall not have any power or authority as to the following:
(1) The amendment of the Certificate (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance
of shares of stock adopted by the board of directors as provided in Section
151(a) of the Delaware General Corporation Law, fix the designations and any of
the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any class or classes of stock for the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series).
(2) The adoption of an agreement of merger or consolidation under
Sections 251, 252, 254, 255, 256, 257, 258, 263 or 264 of the Delaware General
Corporation Law.
(3) The recommendation to the stockholders of a sale, lease or exchange
of all or substantially all of the corporation's property and assets.
(4) The recommendation to the stockholders of a dissolution of the
corporation or revocation of a dissolution.
(5) The amendment of these bylaws.
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(b) Alternate Committee Members - The board may designate one or more
directors as alternate members of any committee who may replace any absent or
disqualified member at any meeting of the committee or for the purposes of any
written action by the committee. In the absence or disqualification of a
member and alternate member or members of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another director to act at the
meeting in the place of the absent or disqualified member.
(c) Term. - Each committee of the board shall serve at the pleasure of the
board.
(d) Committee Procedures. - The term "board of directors" or "board," when
used in any provision of these bylaws relating to the organization or
procedures of or the manner of taking action by the board of directors, shall
be construed to include and refer to any executive or other committee of the
board.
Section 4.12. Compensation. - The board of directors shall have the
authority to fix the compensation of directors for their services as directors
and a director may be a salaried officer of the corporation.
ARTICLE V
Officers
Section 5.01. Number, Qualifications and Designation. -The officers of the
corporation shall be a President, one or more vice presidents, a Secretary, a
Treasurer, and such other officers as may be elected in accordance with the
provisions of Section 5.03. Officers may but need not be directors or
stockholders of the corporation and shall be natural persons of full age. The
board of directors may elect from among the members of the board a Chairman of
the Board and a Vice Chairman of the Board who shall be officers of the
corporation. Any number of offices may be held by the same person.
(b) Bonding. - The corporation may secure the fidelity of any or all of its
officers by bond or otherwise.
(c) Standard of Care. - In lieu of the standards of conduct otherwise
provided by law, officers of the corporation shall be subject to the same
standards of conduct, including standards of care and loyalty and rights of
justifiable reliance, as shall at the time be applicable to directors of the
corporation.
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Section 5.02. Election, Term of Office and Resignations.
(a) Election and Term of Office. - The officers of the corporation, except
those elected by delegated authority pursuant to Section 5.03, shall be elected
annually by the board of directors, and each such officer shall hold office for
a term of one year and until a successor has been selected and qualified or
until his or her earlier death, resignation or removal.
(b) Resignations. - Any officer may resign at any time upon written notice
to the corporation. The resignation shall be effective upon receipt thereof by
the corporation or at such subsequent time as may be specified in the notice of
resignation.
Section 5.03. Subordinate Officers, Committees and Agents. - The board of
directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the corporation may
require, including one or more assistant secretaries, and one or more assistant
treasurers, each of whom shall hold office for such period, have such
authority, and perform such duties as are provided in these bylaws, or as the
board of directors may from time to time determine. The board of directors may
delegate to any officer or committee the power to elect subordinate officers
and to retain or appoint employees or other agents, or committees thereof, and
to prescribe the authority and duties of such subordinate officers, committees,
employees or other agents.
Section 5.04. Removal of Officers and Agents. - Any officer or agent of the
corporation may be removed by the board of directors with or without cause.
The removal shall be without prejudice to the contract rights, if any, of any
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
Section 5.05. Vacancies. - A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, may be filled by
the board of directors or by the officer or committee to which the power to
fill such office has been delegated pursuant to Section 5.03, as the case may
be, and if the office is one for which these bylaws prescribe a term, shall be
filled for the unexpired portion of the term.
Section 5.06. Authority. - All officers of the corporation, as between
themselves and the corporation, shall have such authority and perform such
duties in the management of the corporation as may be provided by or pursuant
to resolutions or
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orders of the board of directors or, in the absence of controlling provisions
in the resolutions or orders of the board of directors, as may be determined by
or pursuant to these bylaws.
Section 5.07. The Chairman and Vice Chairman of the Board. - The Chairman
of the Board or in the absence of the Chairman, the Vice Chairman of the Board,
shall preside at all meetings of the stockholders and of the board of
directors, and shall perform such other duties as may from time to time be
requested by the board of directors.
Section 5.08. The President. The President shall have general supervision
over the business and operations of the corporation, subject however, to the
control of the board of directors and, if the Chairman of the Board is the
Chief Executive Officer of the corporation, the Chairman of the Board. The
President shall sign, execute, and acknowledge, in the name of the corporation,
deeds, mortgages, bonds, contracts or other instruments, authorized by the
board of directors, except in cases where the signing and execution thereof
shall be expressly delegated by the board of directors, or by these bylaws, to
some other officer or agent of the corporation; and, in general, shall perform
all duties incident to the office of president and such other duties as from
time to time may be assigned by the board of directors and, if the Chairman of
the Board is the Chief Executive Officer of the corporation, the Chairman of
the Board.
Section 5.09. The Vice Presidents. - The vice presidents shall perform the
duties of the President in the absence of the President and such other duties
as may from time to time be assigned to them by the board of directors or the
President.
Section 5.10. The Secretary. - The Secretary or an assistant secretary
shall attend all meetings of the stockholders and of the board of directors and
all committees thereof and shall record all the votes of the stockholders and
of the directors and the minutes of the meetings of the stockholders and of the
board of directors and of committees of the board in a book or books to be kept
for that purpose; shall see that notices are given and records and reports
properly kept and filed by the corporation as required by law; shall be the
custodian of the seal of the corporation and see that it is affixed to all
documents to be executed on behalf of the corporation under its seal; and, in
general, shall perform all duties incident to the office of secretary, and such
other duties as may from time to time be assigned by the board of directors or
the President.
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Section 5.11. The Treasurer. - The Treasurer or an assistant treasurer
shall or provide for the custody of the funds or other property of the
corporation; shall collect and receive or provide for the collection and
receipt of moneys earned by or in any manner due to or received by the
corporation; shall deposit all funds in his or her custody as treasurer in such
banks or other places of deposit as the board of directors may from time to
time designate; shall, whenever so required by the board of directors, render
an account showing all transactions as Treasurer, and the financial condition
of the corporation; and, in general, shall discharge such other duties as may
from time to time be assigned by the board of directors or the President.
Section 5.12. Salaries. - The salaries of the officers elected by the
board of directors shall be fixed from time to time by the board of directors
or by such officer as may be designated by resolution of the board. The
salaries or other compensation of any other officers, employees and other
agents shall be fixed from time to time by the President or by such other
officer or committee to which the power to elect such officers or to retain or
appoint such employees or other agents has been delegated pursuant to Section
5.03. No officer shall be prevented from receiving such salary or other
compensation by reason of the fact that the officer is also a director of the
corporation.
ARTICLE VI
Certificates of Stock, Transfer, Etc.
Section 6.01. Share Certificates.
(a) Form of Certificates. - Certificates for shares of the corporation
shall be in such form as approved by the board of directors, and shall state
that the corporation is incorporated under the laws of the State of Delaware,
the name of the person to whom issued, and the number and class of shares and
the designation of the series (if any) that the certificate represents. If the
corporation is authorized to issue shares of more than one class or series,
certificates for shares of the corporation shall set forth upon the face or
back of the certificate (or shall state on the face or back of the certificate
that the corporation will furnish to any stockholder upon request and without
charge), a full or summary statement of the designations, voting rights,
preferences, limitations and special rights of the shares of each class or
series authorized to be issued so far as they have been fixed and determined
and the authority of the board of directors to fix and determine the
designations, voting rights, preferences, limitations
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and special rights of the classes and series of shares of the corporation.
(b) Stock Ledger. - The stock ledger or transfer books and blank share
certificates shall be kept by the Secretary or by any transfer agent or
registrar designated by the board of directors for that purpose.
Section 6.02. Issuance. - The share certificates of the corporation shall
be numbered and registered in the stock ledger or transfer books of the
corporation as they are issued. They shall be executed in such manner as the
board of directors shall determine. In case any officer, transfer agent or
registrar who has signed or authenticated, or whose facsimile signature or
authentication has been placed upon, and share certificate shall have ceased to
be such officer, transfer agent or registrar because of death, resignation or
otherwise, before the certificate is issued, the certificate may be issued with
the same effect as if the officer, transfer agent or registrar had not ceased
to be such at the date of its issue. The provisions of this Section 6.02 shall
be subject to any inconsistent or contrary agreement in effect at the time
between the corporation and any transfer agent or registrar.
Section 6.03. Transfer. - Transfers of shares shall be made on the share
register or transfer books of the corporation upon surrender of the certificate
therefor, endorsed by the person named in the certificate or by an attorney
lawfully constituted in writing. No transfer shall be made inconsistent with
the applicable provisions of the Uniform Commercial Code as in effect in the
State of Delaware and its amendments and supplements.
Section 6.04. Record Holder of Shares. - The corporation shall be entitled
to treat the person in whose name any share or shares of the corporation stand
on the books of the corporation as the absolute owner thereof, and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
or shares on the part of any other person.
Section 6.05. Lost, Destroyed or Mutilated Certificates. The holder of any
shares of the corporation shall immediately notify the corporation of any loss,
destruction or mutilation of the certificate therefor, and the board of
directors may, in its discretion, cause a new certificate or certificates to be
issued to such holder, in case of mutilation of the certificate, upon the
surrender of the mutilated certificate or, in case of loss or destruction of
the certificate, upon satisfactory proof of such loss or destruction and, if
the board of directors shall so
20
<PAGE> 21
determine, the deposit of a bond in such form and in such sum, and with such
surety or sureties, as it may direct.
ARTICLE VII
Indemnification of Directors, Officers and
Other Authorized Representatives
Section 7.01. Scope of Indemnification.
(a) The corporation shall, to the fullest extent permitted by Section 145
of the Delaware General Corporation Law, as amended from time to time,
indemnify every person who is or was a party, or is threatened to be made a
party, to (i) any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, or (ii) any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, by reason of the fact that such
person serves or has served at any time as a director or officer of the
corporation, or who at the request of the corporation serves or at any time has
served as a director or officer of another corporation (including subsidiaries
of the corporation) or of any partnership, joint venture, trust or other
enterprise, from and against any and all of the expenses, liabilities or other
matters referred to in or covered by said law. Such indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person. The corporation may also indemnify any and all other persons whom it
shall have power to indemnify under any applicable law from time to time in
effect to the extent authorized by the Board of Directors and permitted by such
law. The indemnification provided by this Section 7.01 shall not be deemed
exclusive of any other rights to which any person may be entitled under any
provision of the Certificate, these bylaws, any agreement, vote of stockholders
or disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
(b) Partial Payment. - If an indemnified representative is entitled to
indemnification in respect of a portion, but not all, of any liabilities to
which such person may be subject, the corporation shall indemnify such
indemnified representative to the maximum extent for such portion of the
liabilities.
(c) Presumption. - The termination of a proceeding by judgment, order,
settlement or conviction or upon a plea of nolo
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<PAGE> 22
contendere or its equivalent shall not of itself create a presumption that the
indemnified representative is not entitled to indemnification.
(d) Definitions. - Four purposes of this Article:
(1) "indemnified capacity" means any and all past, present and future
service by an indemnified representative in one or more capacities as a
director, officer, employee or agent of the corporation, or, at the request of
the corporation, as a director, officer, employee, agent, fiduciary or trustee
of another corporation, partnership, joint venture, trust, employee benefit plan
or other entity or enterprise;
(2) "indemnified representative" means any and all directors and
officers of the corporation and any other person designated as an indemnified
representative by the board of directors of the corporation (which may, but need
not, include any person serving at the request of the corporation, as a
director, officer, employee, agent, fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other entity or
enterprise);
(3) "liability" means any damage, judgment, amount paid in settlement,
fine, penalty, punitive damages, excise tax assessed with respect to an employee
benefit plan, or cost or expense of any nature (including, without limitation,
attorneys' fees and disbursements); and
(4) "proceeding" means any threatened, pending or completed action, suit,
appeal or other proceeding of any nature, whether civil, criminal,
administrative or investigative, whether formal or informal, and whether brought
by or in the right of the corporation, a class of its security holders or
otherwise.
Section 7.02. Proceedings Initiated by Indemnified Representatives. -
Notwithstanding any other provision of this Article, the corporation shall not
indemnify under this Article an indemnified representative for any liability
incurred in a proceeding initiated (which shall not be deemed to include counter
claims or affirmative defenses) or participated in as an intervenor or amicus
curiae by the person seeking indemnification unless such initiation of or
participation in the proceeding is authorized, either before or after its
commencement, by the affirmative vote of a majority of the directors in office.
This section does not apply to reimbursement of expenses incurred in
successfully prosecuting
22
<PAGE> 23
or defending an arbitration under Section 7.06 or otherwise successfully
prosecuting or defending the rights of an indemnified representative granted by
or pursuant to this Article.
Section 7.03. Advancing Expenses. - The corporation shall pay the expenses
(including attorneys' fees and disbursements) incurred in good faith by an
indemnified representative in advance of the final disposition of a proceeding
described in Section 7.01 or the initiation of or participation in which is
authorized pursuant to Section 7.02 upon receipt of an undertaking by or on
behalf of the indemnified representative to repay the amount if it is
ultimately determined pursuant to Section 7.06 that such person is not
entitled to be indemnified by the corporation pursuant to this Article. The
financial ability of an indemnified representative to repay an advance shall
not be a prerequisite to the making of such advance.
Section 7.04. Securing of Indemnification Obligations. -To further effect,
satisfy or secure the indemnification obligations provided herein or otherwise,
the corporation may maintain insurance, obtain a letter of credit, act as
self-insurer, create a reserve, trust, escrow, cash collateral or other fund or
account, enter into indemnification agreements, pledge or grant a security
interest in any assets or properties of the corporation, or use any other
mechanism or arrangement whatsoever in such amounts, at such costs, and upon
such other terms and conditions as the board of directors shall deem
appropriate. Absent fraud, the determination of the board of directors with
respect to such amounts, costs, terms and conditions shall be conclusive
against all security holders, officers and directors and shall not be subject
to voidability.
Section 7.05. Payment of Indemnification. - An indemnified representative
shall be entitled to indemnification within 30 days after a written request for
indemnification has been delivered to the Secretary of the corporation.
Section 7.06. Arbitration.
(a) General Rule. - Any dispute related to the right to indemnification,
contribution or advancement of expenses as provided under this Article, except
with respect to indemnification for liabilities arising under the Securities
Act of 1933 that the corporation has undertaken to submit to a court for
adjudication, shall be decided only by arbitration in the metropolitan area in
which the principal executive offices of the corporation are located at the
time, in accordance with the commercial arbitration rules then in effect of the
American Arbitration Association,
23
<PAGE> 24
before a panel of three arbitrators, one of whom shall be selected by the
corporation, the second of whom shall be selected by the indemnified
representative and the third of whom shall be selected by the other two
arbitrators. In the absence of the American Arbitration Association, or if for
any reason arbitration under the arbitration rules of the American Arbitration
Association cannot be initiated, and if one of the parties fails or refuses to
select an arbitrator or the arbitrators selected by the corporation and the
indemnified representative cannot agree on the selection of the third
arbitrator within 30 days after such time as the corporation and the
indemnified representative have each been notified of the selection of the
other's arbitrator, the necessary arbitrator or arbitrators shall be selected
by the presiding judge of the court of general jurisdiction in such
metropolitan area.
(b) Qualifications of Arbitrators. - Each arbitrator selected as provided
herein is required to be or have been a director or executive officer of a
corporation whose shares of common stock were listed during at least one year
of such service on the New York Stock Exchange or the American Stock Exchange
or quoted on the National Association of Securities Dealers Automated
Quotations System.
(c) Burden of Proof. - The party or parties challenging the right of an
indemnified representative to the benefits of this Article shall have the
burden of proof.
(d) Expenses. - The corporation shall reimburse an indemnified
representative for the expenses (including attorneys' fees and disbursements)
incurred in successfully prosecuting or defending such arbitration.
(e) Effect. - Any award entered by the arbitrators shall be final, binding
and nonappealable and judgment may be entered thereon by any party in
accordance with applicable law in any court of competent jurisdiction, except
that the corporation shall be entitled to interpose as a defense in any such
judicial enforcement proceeding any prior final judicial determination adverse
to the indemnified representative under Section 7.01(a)(2) in a proceeding not
directly involving indemnification under this Article. This arbitration
provision shall be specifically enforceable.
Section 7.07. Contribution. - If the indemnification provided for in this
Article or otherwise is unavailable for any reason in respect of any liability
or portion thereof, the corporation shall contribute to the liabilities to
which the indemnified representative may be subject in such proportion as is
appropriate to reflect the intent of this Article or otherwise.
24
<PAGE> 25
Section 7.08. Mandatory Indemnification of Directors, Officers, etc. - To
the extent that an authorized representative of the corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 145(a) or (b) of the Delaware General
Corporation Law or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees and
disbursements) actually and reasonably incurred by such person in connection
therewith.
Section 7.09. Contract Rights; Amendment or Repeal. -All rights under this
Article shall be deemed a contract between the corporation and the indemnified
representative pursuant to which the corporation and each indemnified
representative intend to be legally bound. Any repeal, amendment or
modification hereof shall be prospective only and shall not affect any rights
or obligations then existing.
Section 7.10. Scope of Article. - The rights granted by this Article shall
not be deemed exclusive of any other rights to which those seeking
indemnification, contribution or advancement of expenses may be entitled under
any statute, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in an indemnified capacity and as to action in any
other capacity. The indemnification, contribution and advancement of expenses
provided by or granted pursuant to this Article shall continue as to a person
who has ceased to be an indemnified representative in respect of matters
arising prior to such time, and shall inure to the benefit of the heirs,
executors, administrators and personal representatives of such a person.
Section 7.11. Reliance on Provisions. - Each person who shall act as an
indemnified representative of the corporation shall be deemed to be doing so in
reliance upon the rights of indemnification, contribution and advancement of
expenses provided by this Article.
ARTICLE VIII
Miscellaneous
Section 8.01. Corporate Seal. - The corporation shall have a corporate
seal in the form of a circle containing the name of the corporation, the year
of incorporation and such other details as may be approved by the board of
directors. The affixation of the corporate seal shall not be necessary to the
25
<PAGE> 26
valid execution, assignment or endorsement by the corporation of any instrument
or other document.
Section 8.02. Checks. - All checks, notes, bills of exchange or other
similar orders in writing shall be signed by such one or more officers or
employees of the corporation as the board of directors may from time to time
designate.
Section 8.03. Contracts.
(a) General Rule. - Except as otherwise provided in the Delaware General
Corporation Law in the case of transactions that require action by the
stockholders, the board of directors may authorize any officer or agent to
enter into any contract or to execute or deliver any instrument on behalf of
the corporation, and such authority may be general or confined to specific
instances.
(b) Statutory Form of Execution of Instruments. - Any note, mortgage,
evidence of indebtedness, contract or other document, or any assignment or
endorsement thereof, executed or entered into between the corporation and any
other person, when signed by one or more officers or agents having actual or
apparent authority to sign it, or by the President or Vice President and
Secretary or Assistant Secretary or Treasurer or Assistant Treasurer of the
corporation, shall be held to have been properly executed for and in behalf of
the corporation, without prejudice to the rights of the corporation against any
person who shall have executed the instrument in excess of his or her actual
authority.
Section 8.04. Interested Directors or Officers; Quorum.
(a) General Rule. - A contract or transaction between the corporation and
one or more of its directors or officers or between the corporation and another
corporation, partnership, joint venture, trust or other enterprise in which one
or more of its directors or officers are directors or officers or have a
financial or other interest, shall not be void or voidable solely for that
reason, or solely because the director or officer is present at or participates
in the meeting of the board of directors that authorizes the contract or
transaction, or solely because his, her or their votes are counted for that
purpose, if:
(1) the material facts as to the relationship or interest and as to
the contract or transaction are disclosed or are known to the board of
directors and the board authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested
26
<PAGE> 27
directors even though the disinterested directors are less than a quorum; or
(2) the material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon and the contract or transaction is
specifically approved in good faith by vote of those stockholders; or
(3) the contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified by the board of directors or
the stockholders.
(b) Quorum. - Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the board which authorizes a contract
or transaction specified in subsection (a).
Section 8.05. Deposits. - All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositaries as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees of the corporation as the board of directors
shall from time to time designate.
Section 8.06. Corporate Records.
(a) Required Records.- The corporation shall keep complete and accurate
books and records of account, minutes of the proceedings of the incorporators,
stockholders and directors and a stock ledger giving the names and addresses of
all stockholders and the number and class of shares held by each. The stock
ledger shall be kept at either the registered office of the corporation in the
State of Delaware or at its principal place of business wherever situated or at
the office of its registrar or transfer agent. Any books, minutes or other
records may be in written form or any other form capable of being converted into
written form within a reasonable time.
(b) Right of Inspection. - Every stockholder shall, upon written demand
under oath stating the purpose thereof, have a right to examine, in person or by
agent or attorney, during the usual hours for business for any proper purpose,
the stock ledger, list of stockholders and other books and records, and to make
copies or extracts therefrom. A proper purpose shall mean a purpose reasonably
related to the interest of the person as a stockholder.
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<PAGE> 28
In every instance where an attorney or other agent is the person who seeks the
right of inspection, the demand under oath shall be accompanied by a verified
power of attorney or other writing that authorizes the attorney or other agent
to so act on behalf of the stockholder. The demand under oath shall be
directed to the corporation at its registered office in the State of Delaware
or at its principal place of business wherever situated.
Section 8.07. Amendment of Bylaws. - These bylaws may be amended or
repealed, or new bylaws may be adopted, either (i) by vote of the stockholders
at any duly organized annual or special meeting of stockholders, or (ii) by
vote of a majority of the board of directors of the corporation in office at
any regular or special meeting of directors. Any change in these bylaws shall
take effect when adopted unless otherwise provided in the resolution effecting
the change.
* * * * *
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE EIGHT MONTHS ENDED SEPTEMBER 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 238,000
<SECURITIES> 0
<RECEIVABLES> 888,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,630,000
<PP&E> 723,000
<DEPRECIATION> 531,000
<TOTAL-ASSETS> 3,839,000
<CURRENT-LIABILITIES> 1,910,000
<BONDS> 41,000
0
0
<COMMON> 25,000
<OTHER-SE> 1,258,000
<TOTAL-LIABILITY-AND-EQUITY> 3,839,000
<SALES> 3,064,000
<TOTAL-REVENUES> 3,064,000
<CGS> 2,320,000
<TOTAL-COSTS> 2,320,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 287,000
<INCOME-PRETAX> (1,155,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,155,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,155,000)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
