SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended November 30, 1998
Commission File Number 0-3498
TAYLOR DEVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 16-0797789
(State or other Jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
90 TAYLOR DRIVE, NORTH TONAWANDA, NEW YORK 14120-0748
Address of principal executive offices Zip Code
Registrant's telephone number, including area code - 716-694-0800
Indicate by check mark whether the registrant (1) has filed all
annual, quarterly, and other reports required to be filed with all
the Commission and (2) has been subject to the filing requirements
for at least the past 90 days.
Yes X No
Indicate the number of shares outstanding, of each of the Issuer's
classes of common stock as of the close of the period covered by
this report.
CLASS Outstanding at November 30, 1998
Common Stock 2,757,543
(2-1/2 cents par value)
<PAGE>
FORM 10-QSB
TAYLOR DEVICES, INC. - INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 3
November 30, 1998, and May 31, 1998
Consolidated Condensed Statements of Income 4
for six months ended November 30, 1998 and
November 30, 1997, and three months ended
November 30, 1998 and November 30, 1997
Consolidated Condensed Statement of 5
Cash Flows - six months ended November 30,
1998 and November 30, 1997
Notes to Consolidated Condensed Financial 6
Statements
Item 2. Management's Discussion and Analysis of the 7
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to Vote of Security
Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Report on Form 8-K 11
SIGNATURES 12
<PAGE>
FORM 10-QSB
TAYLOR DEVICES, INC. - CONSOLIDATED BALANCE SHEET
ASSETS 11/30/98 5/31/98
Current
Cash $ 1,162,378 $ 1,696,506
Funds Held By Trustee - 0 - 113,193
Trade Accounts Receivable 1,870,323 1,613,087
Inventories 3,089,346 3,032,239
Prepaid and Refundable Income Taxes 111,400 65,308
Prepaid Expenses (4,710) 111,400
Total Current Assets $ 6,228,737 $ 6,631,733
Investments - Affiliate, at equity 232,392 222,392
Property and Equipment - Net 2,876,788 2,917,808
Other Assets
Other 440,580 347,744
Total Other Assets $ 440,580 $ 347,744
TOTAL ASSETS $ 9,778,497 $10,119,677
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Current Portion of Long Term Debt $ 321,179 $ 327,287
Payables - Trade 959,111 1,226,035
Affiliate-Current 107,154 117,349
Construction-in-Progress - 0 - - 0 -
Accrued Income Tax 231,854 165,481
Accrued Expenses 463,509 476,857
Advanced Payments - Customers 467,888 756,659
Total Current Liabilities $ 2,550,695 $ 3,069,668
Non Current
Long Term Debt $ 1,807,767 $ 1,952,724
Deferred Income Tax - 0 - 20,900
Total Non Current Liabilities $ 1,807,767 $ 1,973,624
Minority Stockholders' Interest $ 275,020 $ 264,436
STOCKHOLDERS' EQUITY
Common Stock, par value $.025 a
share, authorized 8,000,000 shares $ 69,650 $ 69,129
Paid - In Capital 2,612,090 2,562,654
Retained Earnings 2,546,428 2,263,319
Less: Cost of Treasury Stock:
28,432 shares 83,153 83,153
TOTAL STOCKHOLDERS' EQUITY $ 5,145,015 $ 4,811,949
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $ 9,778,497 $10,119,677
<PAGE>
FORM 10-QSB
TAYLOR DEVICES, INC.
CONSOLIDATED CONDENSED STATEMENT OF INCOME
SIX MONTHS THREE MONTHS
ENDED NOVEMBER 30 ENDED NOVEMBER 30
1998 1997 1998 1997
NET SALES $5,351,774 $5,173,477 $2,838,017 $2,675,565
COST OF PRODUCT SOLD 3,460,972 3,560,205 1,832,722 1,813,616
Gross Profit 1,890,802 1,613,272 1,005,295 861,949
EXPENSES
Selling and 1,369,084 1,237,066 711,631 657,704
Administrative
Profit (loss) from 521,718 376,206 293,664 204,245
Operations
OTHER INCOME/(EXPENSE)
Rental - Affiliates 5,000 5,000 2,500 2,500
Miscellaneous 13,594 3,607 4,941 2,240
Interest (101,724) (67,216) (48,158) (33,907)
NET OTHER 83,130 (58,609) (40,717) (29,167)
NET INCOME BEFORE
PROVISION FOR TAXES 438,588 317,597 252,947 175,078
Provision for Income
Taxes 154,895 110,700 88,898 56,275
INCOME BEFORE EQUITY IN
EARNINGS OF AFFILIATES 283,693 206,897 164,049 118,803
EQUITY IN EARNINGS OF
AFFILIATES 10,000 10,380 3,900 2,790
NET INCOME BEFORE MINORITY
STOCKHOLDERS' INTEREST 293,693 217,277 167,949 121,593
Minority Stockholders'
Interest 10,584 10,584 5,292 5,292
NET INCOME $283,109 $206,693 $162,657 $116,301
Earnings Per Share (cents) 10.3 .07 5.9 .04
<PAGE>
FORM 10-QSB
TAYLOR DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 30
1998 1997
Cash Flows From Operating Activities
Net income $283,109 $206,693
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 152,160 130,560
Equity in net income of affiliate (10,000) (25,200)
Increase in cash value-life insurance -0- -0-
Deferred income taxes -0- -0-
Tax benefit - stock option plan -0- -0-
Minority stockholder's interest 10,584 10,584
Common stock issued, charged to
compensation expense, net -0- -0-
Interest income - funds held by trustee -0- -0-
Changes in:
Receivables (449,737) (920,348)
Inventories (57,107) 219,759
Prepaid expenses 36,290 136,663
Payables - trade (267,674) 124,386
Payables - affiliates 15,276 10,295
Advance payments, customers 116,080 70,496
Accrued income taxes (14,605) (149,842)
Accrued expenses 145,736 (178,269)
Net cash provided by operating
activities (39,888) (364,223)
Cash Flows From Investing Activities
Acquisition of property and equipment (97,190) (409,607)
Proceeds from sale of tax free money
fund held by trustee -0- -0-
Cash received from trustee -0- -0-
Cash remitted to trustee (68,057) (66,250)
Net cash used for investing
activities (165,247) (475,857)
Cash Flows From Financing Activities
Financing costs paid -0- -0-
Borrowings - bank demand notes -0- 300,000
Repayments - bank demand notes (300,000) -0-
- long-term debt ( 78,950) (101,197)
Proceeds from issuance of common stock
- employee stock purchase plan 49,957 10,796
- exercise of stock options -0- 36,648
Net cash used for financing
activities (328,993) 246,247
Net increase/(decrease) in cash
and cash equivalents (534,128) (593,833)
Cash and Cash Equivalents Balance at
Beginning of Year 1,696,506 1,096,456
Cash and Cash Equivalents Balance at
End of Period 1,162,378 502,623
FORM 10-QSB
TAYLOR DEVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
1. In opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments necessary to present fairly the financial position
as of November 30, 1998 and May 31, 1998 and the results of
operations for the three months and six months ended November
30, 1998 and November 30, 1997 and changes in financial
position for the six months then ended.
2. There is no provision nor shall there be any provisions for
profit sharing, dividends, or any other benefits of any nature
at any time for this fiscal year.
3. For the six month period ended November 30, 1998, the profit
was divided by 2,757,543, which is net of the Treasury shares,
to calculate the earnings per share. For the six month period
ended November 30, 1997, the profit was divided by 2,754,700
to calculate the earnings per share, including Treasury
shares.
4. The results of operations for the six month period ended
November 30, 1998 are not necessarily indicative of the
results to be expected for the full year.
<PAGE>
FORM 10-QSB
TAYLOR DEVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is Management's discussion and analysis of
certain significant factors which have affected the Company's
earnings during the periods included in the accompanying
consolidated condensed statements of income.
The Private Securities Litigation Reform Act of 1995 provides
a "safe harbor" for forward-looking statements. Certain matters
discussed in this section and elsewhere in this Report, which are
not historical facts, are forward-looking statements. As such,
these statements involve risks and uncertainties including, but not
limited to, economic conditions, product demand and industry
capacity, competition, pricing pressures, the need for the Company
to keep pace with customer needs and technological developments,
and other factors.
A summary of the period to period changes in the principal
items included in the consolidated statements of income is shown
below:
Comparisons of six months ended
November 30, 1998 - November 30, 1997
Increase (decrease)
Net Sales $ 178,297
Cost of Sales (99,233)
Selling, General and
Administrative Expenses 132,018
Other Expenses -0-
Other Income 9,987
Interest Expense 34,508
Net Profit Before Tax and
Minority Shareholders' Interest 120,991
Provision for Income Tax 44,195
Net Profit Before Equity in
Earnings of Affiliates 76,796
Equity in Earnings of Affiliates (380)
Minority Stockholders' Interest -0-
Net Income 76,416
<PAGE>
FORM 10-QSB
TAYLOR DEVICES, INC.
MANAGEMENT'S DISCUSSION (CON'T)
For the six month period ending November 30, 1998, the Company
reported record-high shipments of $5,351,774. Increased Selling,
General and Administrative (SGA) expenses and interest expenses
were more than offset by an improvement in gross margin dollars and
percentage. Net Income for the six month period was $283,109, a
37% improvement over the same period ending November 30, 1997.
SIX MONTH PERIOD
For the first six months of Fiscal Year 1999 (99YTD),
shipments totaled $5,351,774, a 3.4% improvement over shipments
recorded in the same period of Fiscal Year 1998 (98YTD). Much of
the improvement is attributable to the increasing proportion of
seismic products (recorded as progress billings) in the Company's
product mix. Gross Margin performance improved, with respect to
both dollars and percentage, as certain large defense and seismic
orders closed out with favorable results. The Gross Margin for
99YTD was $1,890,802 and 35.5% of sales compared to $1,613,272 and
31.2% for 98YTD.
Selling, General and Administrative expenses showed an
increase in the six month period as outside commissions increased
commensurate with the proportion of seismic related shipments.
Expenses related to Shareholder Rights matters also impacted this
period's SGA expenses. In total, 99YTD SGA expenses were
$1,369,084 and 25.6% of net sales versus $1,237,066 and 23.9% for
98YTD. Net Other expenses were $83,130 for 99YTD versus $58,609
for 98YTD, due primarily to borrowing costs related to the plant
expansion undertaken late last calendar year. Operating Income for
99YTD was $438,588 and 8.2% of net sales versus $317,597 and 6.1%
for 98YTD.
The impact of the Affiliates and the projected tax rate
remained stable between the two periods being compared. Net Income
for 99YTD was $283,109 and 5.3% of net sales compared to $206,693
and 4.0% for 98YTD. Earnings Per Share were 10.3 cents for 99YTD
versus .07 cents for 98YTD.
SECOND QUARTER
For the three months ending November 30, 1998 (Q299),
shipments of $2,838,017 represented a 6.1% improvement over
shipments for the three month period ending November 30, 1997
(Q298). Increased progress billings on seismic orders constituted
the majority of this increase in sales volume. Gross Margin
figures for Q299 were $1,005,295 and 35.4% of net sales, both
representing improvement over results for Q298 of $861,949 and
32.2%. SGA expenses totaled $711,631 for Q299, which is 25.1% of
net sales while Q298 SGA expenses of $657,704 represented 24.6% of
FORM 10-QSB
TAYLOR DEVICES, INC.
MANAGEMENT'S DISCUSSION (CON'T)
net sales. Other Expenses increased from $29,167 in Q298 to
$40,717 for Q299, as explained above, due to interest expenses
related to new facilities. Operating Income improved in Q299 to
$252,947 and 8.9% of net sales from the Q298 results showing
Operating Income of $175,078 and 6.5%. There were no significant
differences in the contribution of the Affiliates nor in the
projected tax rate between the two quarters being compared. Net
Income for Q299 was reported as $162,657 and 5.7% of net sales
versus $116,301 and 4.3% for the Q298.
YEAR 2000 DISCLOSURE
The Company is continuing to address and analyze its situation
with respect to the Year 2000 (Y2K) problem. As previously
reported, the Company's primary integrated manufacturing/accounting
software is an "off-the-shelf" widely used product designed to
accommodate the Y2K problem. The Company is becoming increasingly
less reliant on older spreadsheet and database programs to monitor
and compile historical data and provide various analyses and
reports. These older programs have been reviewed by the Company's
software support vendor and should continue to function after
January 1, 2000. Their failure to do so could result in some
unknown level of inconvenience until they are adapted or replaced,
but will have no impact on the Company's operations. All the
Company's computers and servers have been tested for functionality
after January 1, 2000, and any required modifications were made.
In QII of Fiscal Year 1999, the Company identified a potential
two-fold problem with respect to its shareholder software. Since
it acts as its own Stock Transfer Agent, the Company must be able
to perform functions for its shareholders and communicate with
clearing houses, depositories and the SEC.
An outside consultant has been hired to recommend and
implement any hardware or software modifications or improvements
that are required to keep this area functional. It is anticipated
the upgraded system will be in place by mid year of calendar 1999.
The Company's purchasing department has contacted key vendors to
determine if any of them anticipate experiencing significant Y2K
problems enabling the Company to assess the risk, if any, from
their lack of preparedness and will continue to make assessments
throughout the year. All departments could temporarily function by
using manual methods of operation should there be an unforseen Y2K
problem.
Certain key items will be scheduled for deliveries late in
calendar year 1999 in order to minimize the impact of any potential
problems. The Company has external communication links with its
payroll service, government contract service the SEC filing system,
and has less vital information links with its bank, credit report
service and other institutions. Investigation of the functionality
FORM 10-QSB
TAYLOR DEVICES, INC.
MANAGEMENT'S DISCUSSION (CON'T)
of these links will be undertaken in the first quarter of calendar
year 1999. At this time, management is unaware of any Y2K
problems, other than those that are beyond our control; these being
the responsibility of the federal and state governments, or other
corporate entities.
A committee comprised of management and supervisory personnel
has been formed to monitor the progress and costs of any required
modifications in the upcoming months. To date, the company has not
incurred any material costs in analyzing or correcting any Y2K
problem area, nor does it foresee any. Consequently, the company
does not anticipate the need for the establishment of any system to
trace costs incurred by this effort.
OTHER
There were no significant changes in the Company's balance
sheet between the two periods under comparison. Inventory levels
are expected to decrease in the next few months as some longer term
projects, taken without progress payment provisions, are shipped.
Management continues to view the seismic protection market as
the Company's logical source for growth potential. The Company has
responded to the demand from customers in this market for short
notice deliveries by undertaking an integrated engineering
/manufacturing effort to increase standardization within the line
of seismic products it offers. Some of the initial products
produced under the new standardization guidelines will be shipped
in the third quarter of Fiscal Year 1999.
At the halfway point in Fiscal Year 1999, Management
anticipates that the results for FY99 will be similar to and
possibly improved over those for the full year FY1998. The timing
of the receipt of certain significant potential orders and the
delivery schedule for those orders may have an impact on the
Company's reported performance in the short term.
<PAGE>
FORM 10-QSB
TAYLOR DEVICES, INC.
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
The Company is not currently engaged in any litigation.
ITEM 2 Changes in Securities - None
ITEM 3 Defaults Upon Senior Securities - None
ITEM 4 Submission of Matters to Vote of Securities Holders
1. At the Annual Meeting of Shareholders on November 6,
1998:
A. Management's proposed slate of Directors was
approved by the Shareholders as well as an amendment
to the By-Laws to create a Classified Board. The
following are vote totals and term expirations for
each Director:
Term
Votes Votes Expiration
Withheld For Date
Douglas P. Taylor 30,644 2,107,337 2001
Richard G. Hill 58,776 2,080,705 2000
Joseph P. Gastel 38,258 2,101,223 1999
Donald B. Hofmar 41,010 2,098,471 2000
Randall L. Clark 29,723 2,109,760 2001
B. The Shareholders voted to adopt the 1998 Taylor
Devices, Inc. Stock Option Plan.
ITEM 5 Other Information
In the period of 6/1/98 to 11/30/98, the Company's reported
total of outstanding shares increased by 20,845, as itemized
below:
1. Employee Stock Purchase Plan 13,845
2. Director Stock Option Plan 7,000
20,845
ITEM 6 Exhibits and Reports
EX-3.(i)(viii)Amendment to Certificate of Incorporation
as filed with the New York Department of State
on October 9, 1998.
EX-3.(ii)(ix) Amendment to Article II, Section 3 and 6
of the By-laws creating a Classified Board of
Directors.
FORM 10-QSB
TAYLOR DEVICES, INC.
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.
TAYLOR DEVICES, INC.
(Registrant)
By /s/Douglas P. Taylor Date January 12, 1998
Douglas P. Taylor
Chairman of the Board of Directors
President
(Principal Executive Officer)
AND
By /s/Kenneth G. Bernstein Date January 12, 1998
Kenneth G. Bernstein
Chief Accounting Officer
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 1,162,378
<SECURITIES> 0
<RECEIVABLES> 2,002,323
<ALLOWANCES> 32,000
<INVENTORY> 3,089,346
<CURRENT-ASSETS> 6,528,737
<PP&E> 6,126,876
<DEPRECIATION> 3,250,088
<TOTAL-ASSETS> 9,778,497
<CURRENT-LIABILITIES> 2,850,695
<BONDS> 1,276,410
69,650
0
<COMMON> 0
<OTHER-SE> 5,075,365
<TOTAL-LIABILITY-AND-EQUITY> 9,778,497
<SALES> 5,351,774
<TOTAL-REVENUES> 5,351,774
<CGS> 3,360,972
<TOTAL-COSTS> 1,469,084
<OTHER-EXPENSES> (18,594)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,724
<INCOME-PRETAX> 438,588
<INCOME-TAX> 154,895
<INCOME-CONTINUING> 283,693
<DISCONTINUED> 0
<EXTRAORDINARY> (584)
<CHANGES> 0
<NET-INCOME> 283,109
<EPS-PRIMARY> .103
<EPS-DILUTED> .098
</TABLE>
EX-3.(ii)(ix)
Amendments to Article II, Sections 3 and 6 of the By-laws,
creating a classified Board of Directors, which, until further
amended, shall read in their entirety, as follows:
Section 3. The Board of Directors shall be comprised of
three Classes, each such Class to be as nearly equal in number as
possible. At each annual meeting of shareholders, each Director
shall be elected to hold office until expiration of the term of
that Director's Class, which shall in each instance be three years,
or until such Director's successor is elected and qualified;
provided however, that the terms of office of Directors initially
classified and elected shall be as follows: the term of the first
Class shall expire at the next annual meeting of shareholders
following approval of classification; the term of the second class
at the second succeeding annual meeting following approval of
classification; and the term of the third Class at the third
succeeding annual meeting following approval of classification.
Section 6. Newly created Directorships resulting from an
increase in the number of Directors and vacancies occurring in the
Board of Directors for any reason whatsoever shall be filled by a
vote of a majority of the Directors then in office, although less
than a quorum exists. A Director elected to fill a vacancy or a
newly created Directorship shall not be classified, but shall be
elected and hold office until the next annual meeting of
shareholders, or until such time as may be otherwise provided for
in Sections 4 and 5 herein. Any newly created Directorships, or
any decrease in Directorships, shall be so apportioned among the
Classes as to make all Classes as nearly equal as possible.
EX-3.(i)(viii)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TAYLOR DEVICES, INC.
under Section 805 of the Business Corporation Law
FIRST: The name of the corporation is TAYLOR DEVICES,
INC. (the "Corporation").
SECOND: The Certificate of Incorporation of the
Corporation was filed by the Department of State on July 22,
1955.
THIRD: The Certificate of Incorporation is hereby amended
by addition of a provision stating the number, designation,
relative rights, preferences and limitations of Preferred Shares
of a series of the par value $.05 each, as fixed by the Board of
Directors before the issuance of such series, under authority
contained in the Certificate of Incorporation.
Five thousand (5,000) authorized Preferred Shares of
the par value of $.05 each, none of which has been issued, shall
be issued in and as a series to be designated, "Series A Junior
Participating Preferred Stock." The term Preferred Shares, as
used herein shall include all 2,000,000 of the Preferred Shares,
$.05 par value, authorized by the Certificate of Incorporation of
the Corporation, of which "Series A Junior Participating
Preferred Stock" is the first series.
The designation, relative rights, preferences, and
limitations of all shares of Series A Junior Participating
Preferred Stock, insofar as not already fixed by the Certificate
of Incorporation, shall, as fixed by the Corporation's Board of
Directors in the exercise of authority conferred by the
Certificate of Incorporation, and as permitted by Section 502 of
the Business Corporation Law, be, as follows:
Section 1. NUMBER AND DESIGNATION. There is hereby
authorized for issuance as a series of the Corporation's
Preferred Shares, par value $.05 per share, five thousand
(5,000) shares to be designated as "Series A Junior
Participating Preferred Stock" (hereinafter, "Series A
Preferred Stock").
Section 2. DIVIDENDS, DISTRIBUTIONS.
(a) Subject to the prior and superior rights of
the holders of shares of any other class of capital stock
not by its terms ranking on a parity with, or junior to, the
Series A Preferred Stock with respect to dividends, the
holders of Series A Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, out
of the assets of the Corporation legally available therefor,
quarterly dividends payable in cash in an amount per whole
share of Series A Preferred Stock equal to the greater of
(1) 25% of the Purchase Price (the "Purchase Price"), as
adjusted, per unit of one two-thousandths (1/2000) of a
share of Series A Preferred Stock, as set forth in the
Rights Agreement (the "Rights Agreement") between the
Corporation and Regan & Associates, Inc., as Rights Agent,
dated as of October 5, 1998 (so that, for example, if the
Purchase Price, as adjusted, were $5.00, the quarterly
dividend amount per whole share of Series A Preferred Stock
would be $1.25, which would equal a quarterly dividend of
$0.000625 per unit of one two-thousandths (1/2000) of a
share of Series A Preferred Stock), and (2) dividends
payable in cash on the payment date for each cash dividend
(if any) declared on the Corporation's Common Stock in an
amount per whole share (rounded to the nearest cent) equal
to the Formula Number then in effect times the cash
dividends then to be paid on each outstanding share of
Common Stock, payable on the date declared by the Board of
Directors for the payment of quarterly dividends on each of
the outstanding shares of Common Stock, but in no event
later than the 15th day of March, June, September and
December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after the first
issuance of a share or a fraction of a share of Series A
Preferred Stock, since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of
any share or fraction of a share of Series A Preferred
Stock. In addition, if the Corporation shall pay any
dividend or make any distribution on its Common Stock
payable in assets, securities or other forms of noncash
consideration (other than dividends or distributions payable
solely in Common Stock), then, in each such case, the
Corporation shall simultaneously pay or make on each
outstanding share of Series A Preferred Stock, a dividend or
distribution in like kind, of the Formula Number then in
effect times such dividend or distribution on each of the
shares of Common Stock. As used herein, the "Formula Number"
shall be 2,000; provided, however, that if at any time after
October 5, 1998, the Corporation shall (i) declare or pay
any dividend on its Common Stock payable in Common Stock or
make any distribution on its Common Stock payable in Common
Stock, (ii) subdivide (by a stock split or otherwise) the
outstanding Common Stock into a larger number of shares of
Common Stock or (iii) combine (by a reverse stock split or
otherwise) the outstanding Common Stock into a smaller
number of shares of Common Stock, then in each such event
the Formula Number shall be adjusted to a number determined
by multiplying the Formula Number in effect immediately
prior to such event by a fraction, the numerator of which is
the number of shares of Common Stock that are outstanding
immediately after such event and the denominator of which is
the number of shares that are outstanding immediately prior
to such event (and rounding the result to the nearest whole
number); and provided further that if at any time after
October 5, 1998, the Corporation shall issue any shares of
its capital stock in a reclassification or change of the
outstanding Common Stock (including any such
reclassification or change in connection with a merger in
which the Corporation is the surviving corporation), then in
such event the Formula Number shall be appropriately
adjusted to reflect such reclassification or change.
(b) The Board of Directors shall declare a
dividend or distribution on the Series A Preferred Stock as
provided in Section 2(a) above immediately prior to or at
the same time it declares a dividend or distribution on the
Common Stock (other than a dividend or distribution payable
solely in Common Stock). The Board of Directors may fix a
record date for the determination of holders of Series A
Preferred Stock entitled to receive a dividend or
distribution declared thereon, which record date shall be
the same as the record date for any corresponding dividend
or distribution on the Common Stock.
(c) Dividends shall begin to accrue and be
cumulative on outstanding shares of Series A Preferred Stock
from and after the Quarterly Dividend Payment Date next
preceding the date of original issue of such Series A
Preferred Stock; provided, however, that dividends on such
shares which are originally issued after the record date for
the determination of holders of Series A Preferred Stock
entitled to receive a quarterly dividend and on or prior to
the next succeeding Quarterly Dividend Payment Date shall
begin to accrue and be cumulative from and after such
Quarterly Dividend Payment Date. Notwithstanding the
foregoing, dividends on shares of Series A Preferred Stock
which are originally issued prior to the record date for the
first Quarterly Dividend Payment, shall be calculated as if
cumulative from and after the date (if any) declared by the
Board of Directors for the payment of the quarterly dividend
on the outstanding Common Stock, but in no event later than
the 15th day of March, June, September and December, as the
case may be, next preceding the date of original issuance of
such shares. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the Series A Preferred Stock in
an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.
(d) So long as any shares of Series A Preferred
Stock are outstanding, no dividends or other distributions
shall be declared, paid or distributed, or set aside for
payment or distribution, on the Common Stock unless, in each
case, the dividend required by this Section 2 to be declared
on the shares of Series A Preferred Stock shall have been
declared and paid or distributed.
(e) The holders of shares of Series A Preferred
Stock shall not be entitled to receive any dividends or
other distributions, except as provided herein.
(f) Nothing in this Certificate of Incorporation
shall require the Corporation to pay any dividend on Common
Stock.
Section 3. VOTING RIGHTS. The holders of shares of
Series A Preferred Stock shall have the following voting
rights:
(a) Each holder of a whole share of Series A
Preferred Stock shall be entitled to a number of votes equal
to the Formula Number then in effect for each share of
Series A Preferred Stock held of record on all matters on
which holders of the Common Stock or shareholders generally
are entitled to vote. Each holder of a fraction of a whole
share of Series A Preferred Stock shall be entitled to a
number of votes equal to the numerator of the fraction of a
whole share so owned (so that, for example, if the Formula
Number is 2000 and a person holds 5 units of one
two-thousandths of a share, that person would be entitled to
cast 5 votes).
(b) Except as otherwise provided herein or by
applicable law, the holders of shares of Series A Preferred
Stock and the holders of Common Stock and any other class or
series of voting stock shall vote together as one class for
the election of directors of the Corporation and on all
other matters submitted to a vote of shareholders of the
Corporation.
(c) Except as provided herein, in Section 10
below or by applicable law, holders of shares of Series A
Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock and
any other class or series of voting stock as set forth
herein) for authorizing or taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other
dividends or distributions payable on the Series A Preferred
Stock, as provided in Section 2 above, are in arrears,
thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series
A Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(1) declare or pay dividends on, make any
other distributions on, or redeem or purchase or otherwise
acquire for consideration any shares ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(2) declare or pay dividends on or make any
other distributions on any shares ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and
all such parity shares on which dividends are payable or in
arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(3) redeem or purchase or otherwise acquire
for consideration any shares ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding
up) with the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise
acquire any of such parity shares in exchange for any shares
of the Corporation ranking junior (as to dividends and upon
dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(4) purchase or otherwise acquire for
consideration any Series A Preferred Stock, or any shares
ranking on a parity with the Series A Preferred Stock,
except in accordance with a purchase offer made in writing
or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any
subsidiary of the Corporation to purchase or otherwise
acquire for consideration any shares of the Corporation,
unless the Corporation could, under paragraph (a) of this
Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. LIQUIDATION RIGHTS. Upon the
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, no distribution shall be
made (a) to the holders of shares ranking junior (either as
to dividends or upon liquidation, dissolution, or winding
up) to the Series A Preferred Stock unless, prior thereto,
the holders of shares of Series A Preferred Stock shall have
received an amount equal to the accrued and unpaid dividends
and distributions thereon, whether or not declared, to the
date of such payment, plus an amount equal to the greater of
(1) 50% of the Purchase Price, as adjusted, per unit of one
two-thousandths of a share of Series A Preferred Stock set
forth in the Rights Agreement (so that if, for example, the
Purchase Price is $5.00, the liquidation amount would be
$2.50 per unit), or (2) an aggregate amount per share equal
to the Formula Number then in effect times the aggregate
amount to be distributed per share to holders of Common
Stock, or (b) to the holders of shares ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock
and all other such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled
upon such liquidation, dissolution or winding up.
Section 6. CONSOLIDATION, MERGER, ETC. In case the
Corporation shall enter into any consolidation, merger,
combination or other transaction in which its Common Stock
is exchanged for or changed into other stock or securities,
cash or any other property, then in any such case the then
outstanding shares of Series A Preferred Stock shall at the
same time be similarly exchanged or changed in an amount per
share equal to the Formula Number then in effect times the
aggregate amount of stock, securities, cash or any other
property (payable in kind), as the case may be, into which
or for which each of the shares of Common Stock is exchanged
or changed.
Section 7. NO REDEMPTION; NO SINKING FUND.
(a) The shares of Series A Preferred Stock shall
not be subject to redemption by the Corporation or at the
option of any holder of Series A Preferred Stock; provided,
however, that the Corporation may purchase or otherwise
acquire outstanding shares of Series A Preferred Stock in
the open market or by offer to any holder or holders of
shares of Series A Preferred Stock.
(b) The Series A Preferred Stock shall not be
subject to or entitled to the operation of a retirement or
sinking fund.
Section 8. FRACTIONAL SHARES. The Series A
Preferred Stock shall be issuable upon exercise of the
Rights issued pursuant to the Rights Agreement in whole
shares or in any fraction of a share that is one
two-thousandths (1/2000th) of a share or any integral
multiple of such fraction. At the election of the
Corporation prior to the first issuance of a share or a
fraction of a share of Series A Preferred Stock, either (1)
certificates may be issued to evidence any such authorized
fraction of a share of Series A Preferred Stock, or (2) any
such authorized fraction of a share of Series A Preferred
Stock may be evidenced by depositary receipts pursuant to an
appropriate agreement between the Corporation and a
depositary selected by the Corporation provided that such
agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners
of shares of Series A Preferred Stock.
Section 9. REACQUIRED SHARES. Any shares of Series
A Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but
unissued Preferred Shares, without designation as to series
until such shares are once more designated as part of a
particular series by the Board of Directors pursuant to the
provisions of the Certificate of Incorporation.
Section 10. AMENDMENT. None of the relative rights,
preferences and limitations of the Series A Preferred Stock
as provided in Sections 1 through 9 above and in this
Section 10 or elsewhere in this Certificate of Incorporation
shall be amended in any manner which would alter or change
the relative rights, preferences and limitations of the
holders of shares of Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the
holders of at least 66-2/3% of the outstanding shares of
Series A Preferred Stock, voting as though such series were
a separate class.
FOURTH: This Amendment to the Certificate of
Incorporation of the Corporation was authorized by the Board of
Directors of the Corporation at a meeting duly called and held.
IN WITNESS WHEREOF, this Amendment to the Certificate of
Incorporation of the Corporation has been subscribed by the
undersigned this 5th day of October, 1998.
/s/ Douglas P. Taylor
Douglas P. Taylor, President and
Chief Executive Officer
