<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the second quarterly period ended July 2, 1999
Commission file number: 0-27824
SPAR GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0684451
State of Incorporation IRS Employer Identification No.
19900 MacArthur Blvd., Suite 900, Irvine, CA 92612
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (949) 476-2200
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: [ X ] Yes
On July 30, 1999 there were 18,153,270 shares of Common Stock
outstanding.
1
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<PAGE> 2
PIA Merchandising Services, Inc.
Index
<TABLE>
<S> <C>
PART I: FINANCIAL INFORMATION
THIS FORM 10-Q IS THAT OF PIA MERCHANDISING SERVICES, INC.
(PIA) FOR THE SECOND QUARTER ENDED JULY 2, 1999 AND PRECEDES
THE MERGER BETWEEN SPAR GROUP (SPAR) AND PIA WHICH OCCURRED
ON JULY 8, 1999. THESE FINANCIAL STATEMENTS DO NOT INCLUDE
THE EFFECTS OF THE MERGER OF SPAR AND PIA.
Item 1: Financial Statements
Condensed Consolidated Balance Sheets
As of January 1, 1999 and July 2, 1999............................3
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended
July 3, 1998 and July 2, 1999.....................................4
Condensed Consolidated Statements of Cash Flows
Six Months Ended July 3, 1998 and
July 2, 1999 .....................................................5
Notes to Condensed Consolidated Financial
Statements........................................................6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................9
Risk Factors.....................................................19
Item 3: Quantitative and Qualitative Disclosures About Market Risk.......22
PART II: OTHER INFORMATION
Item 1: Legal Proceedings................................................24
Item 2: Changes in Securities and Use of Proceeds........................24
Item 4: Submission of Matters to a Vote of Security Holders..............24
Item 6: Exhibits and Reports on Form 8-K.................................26
SIGNATURES................................................................28
</TABLE>
2
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
PIA MERCHANDISING SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
January 1, July 2,
1999 1999
---------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 11,064 $ 3,611
Accounts receivable, net of allowance for
doubtful accounts and other of $821 and $450
for January 1 and July 2,1999, respectively 11,222 11,964
Income tax refund receivable 81 75
Prepaid expenses and other current assets 712 361
-------- --------
Total current assets 23,079 16,011
Property and Equipment, net (note 2) 1,991 1,514
-------- --------
Investments and Other Assets:
Investment in affiliate 553 627
Other assets 431 313
-------- --------
Total investments and other assets 984 940
-------- --------
TOTAL ASSETS $ 26,054 $ 18,465
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,194 $ 864
Income tax payable 90 39
Other current liabilities 7,951 8,545
-------- --------
Total current liabilities 9,235 9,448
Line of Credit & Long-Term Liabilities (note 3) 2,095 82
-------- --------
Total liabilities 11,330 9,530
-------- --------
Stockholders' Equity:
Common stock and additional paid-in-capital 33,800 30,810
Accumulated deficit (16,072) (21,875)
Less treasury stock at cost (3,004) --
-------- --------
Total stockholders' equity 14,724 8,935
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,054 $ 18,465
======== ========
</TABLE>
See accompanying notes.
3
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PIA MERCHANDISING SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
July 3, July 2, July 3, July 2,
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES $ 33,945 $ 21,165 $ 68,684 $ 42,791
-------- -------- -------- --------
Operating Expenses:
Field service costs 28,255 19,573 58,044 39,642
Selling expenses 2,087 1,160 4,366 2,715
General and administrative expenses 3,408 2,728 6,956 5,838
Depreciation and amortization 275 272 557 554
-------- -------- -------- --------
Total operating expenses 34,025 23,733 69,923 48,749
-------- -------- -------- --------
Operating Loss (80) (2,568) (1,239) (5,958)
Other income, net 168 105 316 195
-------- -------- -------- --------
Income (Loss) Before Provision
For Income Taxes 88 (2,463) (923) (5,763)
Provision for Income Taxes (12) (25) (24) (40)
-------- -------- -------- --------
NET INCOME (LOSS) $ 76 $ (2,488) $ (947) $ (5,803)
======== ======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE $ 0.01 $ (0.45) $ (0.18) $ (1.06)
======== ======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE $ 0.01 $ (0.45) $ (0.18) $ (1.06)
======== ======== ======== ========
BASIC WEIGHTED AVERAGE
COMMON SHARES 5,427 5,481 5,410 5,479
======== ======== ======== ========
DILUTED WEIGHTED AVERAGE
COMMON SHARES 5,557 5,481 5,410 5,479
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
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PIA MERCHANDISING SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
---------------------
July 3, July 2,
1998 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (947) $ (5,803)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 557 554
Provision for doubtful accounts & other, net 512 (87)
Equity in earnings of affiliate (77) (80)
Changes in operating assets and liabilities:
Accounts receivable (1,432) (655)
Income tax refund receivable 2,801 6
Prepaid expenses and other 120 469
Accounts payable and other liabilities (4,811) 200
-------- --------
Net cash used in operating activities (3,277) (5,396)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (263) (71)
-------- --------
Net cash used in investing activities (263) (71)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of Line of Credit -- (2,000)
Proceeds from issuance of common stock, net 92 14
-------- --------
Net cash provided (used in) by financing activities 92 (1,986)
NET DECREASE IN CASH AND
CASH EQUIVALENTS (3,448) (7,453)
CASH AND CASH EQUIVALENTS:
Beginning of period 12,987 11,064
-------- --------
End of period $ 9,539 $ 3,611
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for income taxes $ 20 $ 100
======== ========
Cash paid for interest $ -- $ 78
======== ========
Common stock issued as payment for accrued incentive $ 168 $ --
======== ========
</TABLE>
See accompanying notes.
5
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PIA MERCHANDISING SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation(1)
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. This financial information should be read in conjunction
with the consolidated financial statements and notes thereto for the
year ended January 1, 1999, included in the Company's Annual Report on
Form 10-K/A for the year ended January 1, 1999. The results of
operations for the interim periods are not necessarily indicative of
the operating results for the year.
Certain amounts have been reclassified in the prior years' consolidated
financial statements in order to conform to the current year's
presentation.
Comprehensive Income - The Company has adopted SFAS No. 130, Reporting
Comprehensive Income. For the quarter and six months ended July 3, 1998
and July 2, 1999, the Company has no reported differences between net
income (loss) and comprehensive income (loss). Therefore, statements of
comprehensive income (loss) have not been presented.
2. Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
January 1, July 2,
1999 1999
---------- -------
<S> <C> <C>
Equipment $ 3,873 $ 3,934
Furniture and fixtures 719 720
Leasehold improvements 165 174
Capitalized software development costs 1,076 1,076
------- -------
5,833 5,904
Less: Accumulated depreciation
and amortization (3,842) (4,390)
------- -------
$ 1,991 $ 1,514
======= =======
</TABLE>
- -------------
(1) This Form 10-Q is that of PIA Merchandising Services, Inc. (PIA) for
the second quarter ended July 2, 1999 and precedes the merger between
SPAR Group (SPAR) and PIA which occurred on July 8, 1999. These
financial statements do not include the effects of the merger of SPAR
and PIA.
6
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PIA MERCHANDISING SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Line of Credit
On December 10, 1998, the Company entered into a long-term revolving
line of credit agreement with a bank to provide an asset-based credit
facility with maximum borrowing up to $20.0 million. Under this
agreement, the line is to expire on December 7, 2001. All revolving
credit loans bear interest at the agent bank's prime rate plus 0.25%
(8.00% at July 2, 1999, or 8.25%), or the three month London Interbank
Offered Rate ("LIBOR") plus 2.75% (5.31% at July 2, 1999, or 8.06%) at
the Company's option. As of July 2, 1999, all outstanding balances on
the line of credit were paid. The Company's available borrowing is the
sum of 80% of all eligible accounts receivable, plus 100% of eligible
cash collateral less outstanding revolving credit loan.
Under the terms of the long-term debt agreement, the Company is subject
to certain financial covenants. Key covenants require the Company to
maintain a minimum current ratio, total liabilities to tangible net
worth ratio, tangible net worth, working capital, and net income. At
July 2, 1999, the Company did not comply with the total liabilities to
tangible net worth ratio, the tangible net worth and working capital
covenants and a forbearance to the agreement was granted by the bank.
The Company anticipates that it will not be in compliance with future
covenants and that bank forbearances will be requested. As of July 2,
1999, the line of credit had available borrowings of $2,000,000.
4. Segments
Utilizing the management approach, the Company has broken down its
business based upon the nature of services provided (i.e., dedicated,
shared service and project).
Dedicated services generally consist of regularly scheduled, routed
merchandising services performed for a specific retailer or
manufacturer by a dedicated organization. The merchandisers and
management team work exclusively for that retailer or manufacturer.
These services are normally provided under multi-year contracts.
Shared services consist of regularly scheduled, routed merchandising
services provided at the stores for multiple manufacturers, primarily
under multi-year contracts. Shared services may include activities such
as ensuring that client's products authorized for distribution are in
stock and on the shelf, adding in new products that are approved for
distribution but not present on the shelf, setting category shelves in
accordance with approved store schematics, ensuring that shelf tags are
in place, checking for the overall salability of clients' products and
selling new product and promotional items.
7
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PIA MERCHANDISING SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Project services consist primarily of specific in-store services
initiated by retailers and manufacturers, such as new product launches,
special seasonal or promotional merchandising, focused product support
and product recalls. These services are used typically for large-scale
implementations over 30 days. The Company also performs other project
services, such as new store sets and existing store resets,
re-merchandising, remodels and category implementations, under shared
service contracts or stand-alone project contracts.
The Company is unable to allocate operating expenses to these segments,
nor can it allocate specific assets to these segments. The current
financial and operating systems are unable to capture information by
these segments. Therefore, segment information includes only net
revenues (in thousands) as follows:
<TABLE>
<CAPTION>
Business Segments
----------------------------------------------
Dedicated Shared Service Projects Total
--------- -------------- -------- -----
<S> <C> <C> <C> <C>
Second Quarter 1999
Net revenues $ 7,406 $ 6,936 $ 6,823 $21,165
======= ======= ======= =======
Second Quarter 1998
Net revenues $12,405 $ 9,616 $11,924 $33,945
======= ======= ======= =======
Six Months 1999
Net revenues $13,167 $15,220 $14,404 $42,791
======= ======= ======= =======
Six Months 1998
Net revenues $22,697 $21,633 $24,354 $68,684
======= ======= ======= =======
</TABLE>
During the quarters ended July 3, 1998 and July 2, 1999, sales to two
major customers totaled $11.7 million and $8.6 million, respectively.
5. Merger Agreement
On February 28, 1999, the Company signed a definitive agreement with
the SPAR Group to merge in a stock transaction involving the issuance
of approximately 12.3 million shares of PIA stock to the shareholders
of the SPAR Group. On July 8, 1999, the Company and SPAR Group, Inc.
completed the transaction and received shareholder and regulatory
approval. In connection with the merger, the Company amended its
Certificate of Incorporation to, among other things, change its name to
SPAR Group, Inc. Shares of the Company's common stock are listed on the
Nasdaq national Market and traded under the Nasdaq symbol "SGRP".
8
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act including, in particular, the statements about PIA's plans and strategies
under the headings "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Although PIA believes that its plans, intentions and
expectations reflected in or suggested by such forward -looking statements are
reasonable, it cannot assure that such plans, intentions or expectations will be
achieved. Important factors that could cause actual results to differ materially
from the forward-looking statements made in this Quarterly Report on Form 10-Q
are set forth under the heading "Risk Factors" and elsewhere in this Quarterly
Report on Form 10-Q. All forward-looking statements attributable to PIA or
persons acting on its behalf are expressly qualified by the cautionary
statements contained in this Quarterly Report on Form 10-Q.
OVERVIEW
THIS FORM 10-Q IS THAT OF PIA MERCHANDISING SERVICES, INC. (PIA) FOR
THE SECOND QUARTER ENDED JULY 2, 1999 AND PRECEDES THE MERGER BETWEEN
SPAR GROUP (SPAR) AND PIA WHICH OCCURRED ON JULY 8, 1999. THESE
FINANCIAL STATEMENTS DO NOT INCLUDE THE EFFECTS OF THE MERGER OF SPAR
AND PIA.
PIA Merchandising Services, Inc., which changed its name to SPAR Group, Inc.
immediately following consummation of the merger on July 8, 1999 (the "Company"
or "PIA") provides merchandising services to manufacturers and retailers
principally in grocery, mass merchandiser, chain, and discount drug stores. For
the quarter ended July 2, 1999, compared to the quarter ended July 3, 1998, the
Company generated approximately 59.5% and 56.2% of its net revenues from
manufacturer clients and 40.5% and 43.8% from retailer clients, respectively.
For the six months ended July 2, 1999, compared to six months ended July 3,
1998, the Company generated approximately 63.4% and 60.4% of its net revenues
from manufacturer clients and 36.6% and 39.6% from retailer clients,
respectively.
The Company's profitability has been adversely affected by the loss of shared
service accounts. The shared service business has historically required a
significant fixed management and personnel infrastructure. Due in part to
performance issues, industry consolidation and increased competition, the
Company lost a number of shared service accounts in the last half of 1996, which
has continued through the first three months of 1999.
During 1998, the Company restructured its operations to address the significant
fixed management infrastructure and rationalize the field organization. The
restructuring resulted in a field organization that is aligned along functional
lines of selling and execution. In addition, new scheduled deployment, labor
tracking, and work generation systems now in place will continue to have a
beneficial impact on managing the direct labor costs.
In the first six months of 1999, the Company's current fixed cost structure
continued to be disproportionate to the current level of revenues and will
require rationalization of both the fixed management and field organization
structure. PIA believes that it's recent merger with the SPAR Group specifically
addresses this issue by creating a more flexible and systems driven organization
that the Company believes will reduce fixed costs and create synergies directly
improving the Company's profitability.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
The Company has experienced a decrease in the demand for dedicated client
services, and its business has decreased significantly due to the completion of
a major drug chain's dedicated program in the fourth quarter of 1998. The net
revenues associated with dedicated clients decreased, as a percentage of overall
net revenues, from 36.6% in the second quarter of 1998 to 35.0% in the second
quarter of 1999. The net revenues associated with dedicated clients increased,
as a percentage of overall net revenues, from 33.0% in the six months ended July
3, 1998 to 30.8% in the six months ended July 2, 1999. Contracts with these
dedicated clients are expected to continue throughout 1999 and beyond; however,
revenue may not be at historical levels due to the changing mix of projects and
store initiatives and the completion of a major project in the fourth quarter of
1998. The Company, prior to acquiring, currently anticipates that revenue for
the third quarter of 1999 will be lower than the previous two quarters of 1999
and the comparable prior year period, due to the scheduled completion of several
projects, the annualized effect of business lost over the last 18 months and the
impact of the Company's internal focus on restructuring operations and the low
level of new business that has been developed.
PIA's quarterly results of operations are subject to certain variability related
to the timing of retailer-mandated activity and the receipt of commissions.
Retailer-mandated activity is typically higher in the second and third quarters
of the year due to retailer scheduling of activity in off-peak shopping periods.
In addition, new product introductions increase during such periods which
requires the reset of categories as the new products gain distribution. In the
dedicated services business, PIA provides each manufacturer or retailer client
with an organization, including a management team, which works exclusively for
that client.
The amount of commissions earned by PIA under its commission-based contracts,
typically averaging 13% to 19% of total net revenues, varies seasonally, and
generally corresponds to the peak selling seasons of the clients that have
entered into these types of contracts. Historically, the Company has recognized
greater commission income in the second and fourth quarters. See "Risk Factors -
Operating Results May Fluctuate Because Commission Income is Uncertain."
RECENT TRANSACTION
On February 28, 1999, PIA entered into an agreement with SPAR Group, a privately
held affiliated group of companies to merge in a stock transaction. This
transaction received regulatory and stockholder approval, and the merger was
consummated, on July 8, 1999. As a result of the merger, PIA issued an aggregate
of 12,659,487 shares of its Common Stock to the stockholders of SPAR Group. SPAR
Group was a privately owned provider of retail marketing and sales services
offering merchandising support, incentive and motivation marketing programs,
information management, marketing research, data base marketing and promotional
analysis and forecasting with annual revenues of approximately $75 million. As a
result of the merger, the former SPAR Group stockholders own approximately 70%
of the Company's Common Stock.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 2, 1999 COMPARED TO THREE MONTHS ENDED JULY 3, 1998
NET REVENUES
Net revenues for the quarter ended July 2, 1999 decreased from the comparable
period of 1998 due principally to a decrease in all major business segments. For
the second quarter of 1999, net revenues were $21.2 million compared to $33.9
million in the second quarter of 1998, a 37.5% decrease.
The following table sets forth net revenues by client type as a percentage of
net revenues for the periods indicated:
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------
July 3, 1998 July 2, 1999
---------------- ---------------- Change
(amounts in millions) Amount % Amount % %
------- ----- ------- ----- ------
<S> <C> <C> <C> <C> <C>
Shared service client net revenues $ 9.6 28.3% $ 7.0 33.0% (27.1)%
Project client net revenues 11.9 35.1 6.8 32.1 (42.9)
Dedicated client net revenues 12.4 36.6 7.4 34.9 (40.3)
------- ----- ------- ----- -----
Net Revenue $ 33.9 100.0% $ 21.2 100.0% (37.5)%
======= ===== ======= ===== =====
</TABLE>
The Company's dedicated client net revenues have declined from $12.4 million in
the second quarter of 1998 to $7.4 million in the second quarter of 1999, a
40.3% decrease. The decrease in dedicated client net revenues for the second
quarter of 1999 compared to the second quarter of 1998 resulted primarily from
the completion of a major drug chain's dedicated program in the fourth quarter
of 1998. Management expects that net revenues from dedicated clients will
decrease in 1999 due to the completion of a $15.0 million project in the last
quarter of 1998.
Shared service client net revenues decreased from $9.6 million in the second
quarter of 1998 to $7.0 million in the second quarter of 1999, a 27.1% decrease
due to the loss of clients in 1998 and in the first six months of 1999. Shared
service client net revenue increased as a percentage of net revenue by 4.7%.
Project client net revenues decreased from $11.9 million in the second quarter
of 1998 to $6.8 million in the second quarter of 1999, a 42.9% decrease due to
the reduction in project revenue from lost shared clients and reduced levels of
new business.
The decrease in shared service and project client net revenues for the second
quarter of 1999 compared to the second quarter of 1998 resulted from a decrease
in revenue of $10.3 million from clients no longer with the Company offset
partially by an increase in revenue from new clients of $1.4 million, and by an
increase in revenue from existing shared service and project client accounts of
$1.2 million.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
OPERATING EXPENSES
The following table sets forth the operating expenses as a percentage of net
revenues for the periods indicated:
For the second quarter of 1999, field service costs decreased $8.6 million, or
30.5%, to $19.6 million, as compared to $28.2 million in the second quarter of
1998. Field service costs are comprised principally of field labor and related
costs and overhead expenses required to provide services to both shared and
dedicated service clients.
As a percentage of net revenues, field service costs in the second quarter of
1999 increased to 92.5% from 83.2% in the same period last year. The increase in
field service costs as a percentage of net revenues in the second quarter of
1999 was due primarily to the fixed cost component of field service costs.
However, total field service costs decreased by $8.6 million due to both
declining net revenues and more efficient variable field deployment.
For the quarter ended July 2, 1999, selling expenses decreased $1.0 million, or
47.6%, to $1.1 million compared to $2.1 million in the same period last year.
This decrease in costs was a result of a reduction in salaries and related
expenses resulting from a reduction in personnel. As a percentage of net
revenues, selling expenses decreased to 5.2% in the second quarter of 1999,
compared to 6.2% in the second quarter of 1998.
General and administrative expenses decreased 20.6% in the second quarter of
1999 to $2.7 million, compared to $3.4 million in the same period of 1998. The
decrease in general and administrative costs was due primarily to incentive
liabilities recorded in the first two quarters of 1998 and salary and wage staff
reductions during the quarter ended July 2, 1999. This decrease was partially
offset by a charge for pre-merger transaction costs of $0.9 million.
OTHER INCOME
Interest income decreased in the second quarter of 1999, as compared to the
second quarter of 1998, due to lower cash balances available for investment in
1999.
Interest expense increased in the second quarter of 1999 due to borrowing on the
bank revolving line of credit.
Equity in earnings of affiliate represents the Company's share of the earnings
of Alta Resources, Inc., previously known as Ameritel, Inc., a full service
telemarketing company.
INCOME TAXES
The income tax provision in the second quarters of 1999 and 1998 represent
minimum state and local taxes.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
NET LOSS
The Company incurred a net loss of $2.5 million in the second quarter of 1999 or
$0.45 per basic and diluted share compared to a net profit of approximately $0.1
million, or $0.01 per basic and diluted share, in the second quarter of 1998.
The loss in the second quarter of 1999 was primarily a result of a reduction in
shared service and project client net revenues partially offset by a reduction
in field service costs and a reduction in selling and general and administrative
costs.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JULY 2, 1999 COMPARED TO SIX MONTHS ENDED JULY 3, 1998
NET REVENUES
Net revenues for the six months ended July 2, 1999 decreased from the comparable
period of 1998 due principally to a decrease in all of it's major business
segments. For the first six months of 1999, net revenues were $42.8 million
compared to $68.7 million in the first six months of 1998, a 37.7% decrease.
The following table sets forth net revenues by client type as a percentage of
net revenues for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------
July 3, 1998 July 2, 1999
-------------- -------------- Change
(amounts in millions) Amount % Amount % %
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Shared service client net revenues $21.6 31.5% $15.2 35.5% (29.6)%
Project client net revenues 24.4 35.5 14.4 33.7 (41.0)
Dedicated client net revenues 22.7 33.0 13.2 30.8 (41.9)
----- ----- ----- ----- -----
Net Revenue $68.7 100.0% $42.8 100.0% (37.7)%
===== ===== ===== ===== =====
</TABLE>
The Company's dedicated client net revenues have declined from $22.7 million in
the first six months of 1998 to $13.2 million in the first six months of 1999, a
41.9% decrease. The decrease in dedicated client net revenues for the first six
months of 1999 compared to the first six months of 1998 resulted primarily from
the completion of a major drug chain's dedicated program in the fourth quarter
of 1998. Management expects that net revenues from dedicated clients will
decrease in 1999 due to the completion of a $15.0 million project in the last
quarter of 1998.
Shared service client net revenues decreased from $21.6 million in the first six
months of 1998 to $15.2 million in the first six months of 1999, a 29.6 decrease
due to the loss of clients in the first six months of 1998. Shared service
client net revenue increased as a percentage of net revenue by 4.0%.
Project client net revenues have decreased from $24.4 million in the first six
months of 1998 to $14.4 million in the first six months of 1999, a 41.0%
decrease due to the reduction in project revenue from lost shared clients and
reduced levels of new business.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
The decrease in shared service and project client net revenues for the first six
months of 1999 compared to the first six months of 1998 resulted from a decrease
in revenue of $22.3 million from clients no longer with the Company offset
partially by an increase in revenue from new clients of $2.6 million, and by an
increase in revenue from existing shared service and project client accounts of
$3.4 million.
OPERATING EXPENSES
The following table sets forth the operating expenses as a percentage of net
revenues for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------
July 3, 1998 July 2, 1999
---------------- ---------------- Change
(amounts in millions) Amount % Amount % %
------- ----- ------- ----- ------
<S> <C> <C> <C> <C> <C>
Field service costs $ 58.0 84.4% $ 39.7 92.7% (31.6)%
Selling expenses 4.4 6.4 2.7 6.3 (38.6)
General & administrative expenses 6.9 10.0 5.8 13.6 (15.9)
Depreciation & amortization 0.6 0.9 0.6 1.4 (0.0)
------- ----- ------- ----- -----
Total Operating Expenses $ 69.9 101.7% $ 48.8 114.0% (30.2)%
======= ===== ======= ===== =====
</TABLE>
For the first six months of 1999, field service costs decreased $18.3 million,
or 31.6%, to $39.7 million, as compared to $58.0 million in the first six months
of 1998. Field service costs are comprised principally of field labor and
related costs and overhead expenses required to provide services to both shared
and dedicated service clients.
As a percentage of net revenues, field service costs in the first six months of
1999 increased to 92.7% from 84.4% in the same period last year. The increase in
field service costs as a percentage of net revenues in the first six months of
1999 was due primarily to the fixed cost component of field service costs.
However, total field service costs decreased by $18.3 million due to both
declining net revenues and more efficient field deployment.
For the six months ended July 2, 1999, selling expenses decreased $1.7 million,
or 38.6%, to $2.7 million compared to $4.4 million in the same period last year.
This decrease in costs was a result of a reduction in salaries and related
expenses resulting from a reduction in personnel.
General and administrative expenses decreased 15.9% in the first six months of
1999 to $5.8 million, compared to $6.9 million in the same period of 1998. The
decrease in general and administrative costs was due primarily to incentive
liabilities recorded in the first two quarters of 1998 and salary and wage staff
reductions during the six months ended July 2, 1999. This decrease was partially
offset by a charge for certain severance costs of $0.5 million and pre-merger
transaction costs of $1.2 million. As a percentage of net revenues, general and
administrative expenses increased to 13.6% in the first six months of 1999,
compared to 10.0% in the first six months of 1998.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
OTHER INCOME
Interest income decreased in the first six months of 1999, as compared to the
first six months of 1998, due to lower cash balances available for investment in
1999.
Interest expense increased in the first six months of 1999 due to borrowing on
the bank revolving line of credit.
Equity in earnings of affiliate represents the Company's share of the earnings
of Alta Resources, Inc., previously known as Ameritel, Inc., a full service
telemarketing company.
INCOME TAXES
The income tax provision in the first six months of 1999 and 1998 represent
minimum state and local taxes.
NET LOSS
The Company incurred a net loss of $5.8 million in the first six months of 1999
or $1.06 per basic and diluted share compared to a net profit of approximately
$0.9 million, or $0.18 per basic and diluted share, in the first six months of
1998. The loss in the first six months of 1999 was primarily a result of a
reduction in shared service and project client net revenues partially offset by
a reduction in field service costs and a reduction in selling and general and
administrative costs.
FINANCIAL MODEL
The Company developed a financial model to assist in the understanding of the
operating results and impact of various cost functions within the organization.
This model follows more standard metrics and allows the Company to analyze and
manage at the business unit level. The following table illustrates this
financial model for the quarters and six months ended July 3, 1998 and July 2,
1999.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------ --------------------------------------
(amounts in millions) July 3, 1998 July 2, 1999 July 3, 1998 July 2, 1999
---------------- ----------------- ----------------- -----------------
Amount % Amount % Amount % Amount %
------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 33.9 100.0% $ 21.2 100.0% $ 68.7 100.0% $ 42.8 100.0%
Direct business unit field expense 23.9 70.5 16.4 77.4 49.5 72.1 32.8 76.6
------- ----- ------- ----- ------- ----- ------- -----
Gross Margin 10.0 29.5 4.8 22.6 19.2 27.9 10.0 23.4
Overhead and Allocated Field Expense 5.7 16.8 3.6 17.0 11.7 17.0 7.6 17.8
------- ----- ------- ----- ------- ----- ------- -----
Business Unit Margin 4.3 12.7 1.2 5.6 7.5 10.9 2.4 5.6
Selling, General and Administrative
Expenses 4.1 12.1 3.5 16.5 8.2 11.9 7.8 18.2
------- ----- ------- ----- ------- ----- ------- -----
Earnings (loss) before interest,
taxes, depreciation and
amortization (EBITDA) $ 0.2 0.6% $ (2.3) (10.9)% $ (0.7) (1.0)% $ (5.4) (12.6)%
======= ===== ======= ===== ======= ==== ======= =====
</TABLE>
Certain amounts within the financial model have been reclassified in prior
periods in order to conform to the current period's presentation.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
During the years ended December 31, 1997, January 1, 1999, and the first six
months of 1999, the Company incurred significant losses and experienced
substantial negative cash flow. The Company had net losses of $15.1 million for
the fiscal year ended 1997, $4.3 million for fiscal year 1998 and $5.8 million
for the six months ended July 2, 1999. The Company expects to have further
losses for the third quarter of fiscal 1999. As noted, the merger with SPAR
Group was consummated on July 8, 1999. The merger is expected to reduce fixed
costs and create synergies directly impacting the Company's profitability and
cash flow. The Company cannot guarantee, however, that it will not sustain
further losses.
The Company experienced a net decrease in cash and cash equivalents of $7.5
million for the six months ended July 2, 1999. However, with the addition of the
revolving line of credit subject to availability, timely collection of
receivables, and the Company's positive working capital position, management
believes the funding of operations over the next twelve months will be
sufficient. The Company cannot guarantee that it will not sustain further
reductions in cash.
In December 1998, two wholly owned subsidiaries of PIA entered into a loan and
security agreement with Mellon Bank, N.A. The agreement provides for a revolving
line of credit that allows maximum borrowing of $20.0 million and requires
borrowings sufficient to maintain a minimum balance of $2.0 million. The
three-year credit facility will be used for working capital purposes and
potential acquisitions. At July 2, 1999, the Company did not comply with the
total liabilities to tangible net worth ratio, the net worth, and working
capital covenants and a forbearance was granted by the bank. The Company
anticipates that it will not be in compliance with future covenants and that
bank forbearances will be requested. The Company cannot guarantee that future
forbearances will be granted by the bank. In the event that the bank elects not
to grant a forbearance for covenant non-compliance, the bank has the ability to
immediately accelerate the maturity of the credit facility, which could have a
material adverse affect on the Company.
On March 1, 1996, the Company completed an initial public offering of its Common
Stock, raising $26.5 million. Prior to this offering, the Company's primary
sources of financing were senior borrowings from a bank under a revolving line
of credit and subordinated borrowings from two stockholders. As of July 2, 1999,
the Company used the proceeds from the offering to repay bank debt of $3.4
million, to repurchase 507,000 shares of the Company's stock for approximately
$3.0 million and to fund the Company's operating losses in 1997, 1998, and the
six months ended July 2, 1999. During the six months ended July 2, 1999, the
Company had a net decrease in cash of $7.5 million, resulting from its operating
losses, a reduction in accounts payable, and an increase in accounts receivable.
Cash and cash equivalents totaled $11.1 million at January 1, 1999, compared
with $3.6 million at July 2, 1999. At January 1, 1999 and July 2, 1999 the
Company had working capital of $13.8 million and $6.6 million, respectively, and
current ratios of 2.5 and 1.7, respectively.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Net cash used in operating activities for the six months ended July 2, 1999 was
$5.4 million, compared with $3.3 million for the comparable period in 1998. This
use of cash for operating activities in 1999 resulted primarily from a decrease
in other liabilities, and a net operating loss. Net cash used in investing
activities for the six months ended July 3, 1998 and July 2, 1999 was $0.3
million and $0.1 million, respectively.
The above activity resulted in a net decrease in cash and cash equivalents of
$7.5 million for the six months ended July 2, 1999, compared to a net decrease
of $3.4 million for the comparable period in 1998.
Cash and cash equivalents and the timely collection of its receivables provide
the Company's current liquidity. However, the potential uncollectibility of
receivables due from any of the Company's major clients, or a significant
reduction in business from such clients, or the inability to acquire new clients
would have a material adverse effect on the Company's cash resources and its
ongoing ability to fund operations.
The Company may incur additional indebtedness in 1999 in connection with the
merger. SPAR Group acquired the assets of an incentive marketing company in
January 1999. A portion of the purchase price was paid through the issuance of a
promissory note in the original principal amount of $12,422,189 (plus an earn
out, if any) which matures on September 15, 1999. As of July 2, 1999, the amount
owed under the note was approximately $6.8 million, excluding the earnout
payment, if any. In addition, the stockholders of SPAR Group loaned SPAR Group
$4.3 million to facilitate the acquisition. This indebtedness was not repaid
before the merger was consummated, and the combined company has assumed these
obligations. The Company is also obligated, under certain circumstances, to pay
severance compensation to its employees in connection with the merger. Further,
the Company incurred substantial costs in connection with the transaction,
including legal, accounting and investment banking fees estimated to be an
aggregate of approximately $2.4 million and severance payments of approximately
$3.0 million. The Company is currently negotiating with major banks for a $35
million revolving line of credit to meet cash needs in connection with the
merger and future potential acquisitions in 1999. The Company cannot provide any
assurance that it will be able to secure a $35 million revolving line of credit.
YEAR 2000 SOFTWARE COSTS
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, many
date-sensitive computer applications will fail beginning January 1, 2000 because
they are unable to process dates properly beyond December 31, 1999. The Company
has reviewed its computer systems to identify areas that could be affected by
Year 2000 issues and has implemented a plan to resolve these issues.
The Company has substantially completed the evaluation of its information
technology infrastructure, software, hardware and communications systems and
believes that its critical hardware and software applications are currently Year
2000 compliant. Completion of the Company's plan to upgrade all hardware and
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
software applications to be Year 2000 compliant is expected by the end of the
third quarter of 1999. Third party vendors are also being reviewed for Year 2000
compliance and PIA expects this risk assessment to be complete by the end of
third quarter of 1999. Assessment and evaluation efforts include testing
systems, inquiries of third parties and other research. By implementing
significant systems upgrades, PIA believes that it has substantially reduced its
potential internal exposure to Year 2000 problems.
The most likely worst case scenario with respect to Year 2000 involves problems
experienced by our staffing suppliers. In such a scenario the Company's ability
to efficiently deploy the necessary staff to service its clients' needs could be
negatively affected. The Company does not anticipate that any such effects would
be of a long term nature as it has alternative methods of deploying staff that
do not involve the use of such suppliers. In the event that certain systems fail
to function properly, manual processes will be implemented. Due to the nature of
the business, the Company does not anticipate a system failure to cease the
operations, as operations are not deemed to be systems dependent. Additionally,
the Company plans to be capable of operating in the event of a systems failure
of any vendor.
The Company will utilize internal resources to reprogram, or replace and test
the software for Year 2000 modifications. The total cost of the Year 2000
project is estimated at $42,000 and is being funded through operating cash
flows. Of the total project cost, approximately $6,000 was expensed in the
fiscal year 1998, $20,000 was expensed in the first six months of 1999, and the
remaining $16,000 will be expensed in the last six months of 1999. It is not
expected that these costs will have a material effect on the results of
operations.
The extent and magnitude of the Year 2000 problem as it will affect the Company
externally, both before and after January 1, 2000, is difficult to predict or
quantify for a number of reasons. These include the lack of control over systems
that are used by third parties that are critical to the Company's operation, the
complexity of testing inter-connected networks and applications that depend on
third party networks. If any of these third parties experience Year 2000
problems, it could have a material adverse effect on the Company. The Company is
not currently aware of any material operational issues associated with preparing
its internal systems for the Year 2000, or the adequacy of critical third party
systems. The Company has not developed a contingency plan in case it does not
achieve Year 2000 compliance on or before December 31, 1999. The results of its
evaluation and assessment efforts do not indicate a need for contingency
planning. The Company intends to continue assessing its Year 2000 compliance,
implementing compliance plans and communicating with third parties about their
Year 2000 compliance. If the Company's continued efforts indicate that
contingency planning is prudent, it will undertake appropriate planning at that
time.
18
<PAGE> 19
RISK FACTORS
It is recommended that this Form 10-Q be read in conjunction with the Company's
Annual Report on Form 10-K/A for the fiscal year ended January 1, 1999. The
following risk factors should also be carefully reviewed in addition to the
other information contained in this Form 10-Q.
THE COMPANY HAS A HISTORY OF LOSSES AND MAY EXPERIENCE FUTURE LOSSES
During the years ended December 31, 1997, January 1, 1999, and the first six
months of 1999, the Company incurred significant losses and experienced
substantial negative cash flow. The Company had net losses of $15.1 million for
the fiscal year ended 1997, $4.3 million for fiscal year 1998 and $5.8 million
for the six months ended July 2, 1999. PIA expects to have further losses for
the third quarter of fiscal 1999. As noted, the merger with SPAR Group was
consummated on July 8, 1999. The merger is expected to reduce fixed costs and
return PIA profitability. The Company cannot guarantee that it will not sustain
further losses or that it will operate profitably in the future. Losses in 1997
were primarily caused by margin reductions from the loss of shared service
clients, inefficiencies in field labor execution, poor pricing decisions for
some client contracts and higher business unit overhead costs. The recognition
of $5.4 million in restructuring and other charges was also responsible for the
losses. Losses in 1998 and the first six months in 1999, were caused primarily
by margin reductions and from a decline in revenues due to loss of shared
service clients and completion of dedicated projects. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
THE COMPANY MAY HAVE DIFFICULTY MEETING IT'S FUTURE CASH NEEDS
During the first six months ended July 2, 1999, the Company experienced a
decrease in cash and cash equivalents of $7.5 million. The Company expects to
have further decreases in cash for the third quarter of fiscal 1999. Although
management believes the funding of operations over the next twelve months will
be sufficient there can be no assurance that the Company will be able to
generate sufficient cash or increase its credit line in order to operate its
business following this twelve month period. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
THE COMPANY HAS LOST BUSINESS AND MAY CONTINUE TO LOSE BUSINESS
The Company's business mix has changed significantly over the last year, and is
expected to continue to change during 1999, in response to client needs, and the
evolving third party merchandising industry. Due in part to the completion of a
major dedicated client program, and the loss of several shared service clients,
sales have declined over the last 18 months, and no sizable new dedicated
business has been sold to compensate for these losses. The Company will continue
to reduce its dedicated management and personnel infrastructure.
19
<PAGE> 20
RISK FACTORS (continued)
INDUSTRY CONSOLIDATION HAS ADVERSELY AFFECTED THE COMPANY'S BUSINESS
Because of industry consolidation, the Company has lost certain clients, and
this trend could continue to have a negative effect on the Company's client base
and results of operations. The retail and manufacturing industries are
undergoing consolidation processes that result in larger but fewer retailers and
suppliers. The Company's success depends in part upon its ability to maintain
its existing clients and to obtain new clients.
REVENUES DEPEND LARGELY ON A FEW CLIENTS
The Company's ten largest clients generated approximately 86% of PIA's net
revenues for the quarter ended July 2, 1999, and approximately 76% for the
quarter ended July 3, 1998. The Company believes the uncollectibility of amounts
due from any of its large clients, a significant reduction in business from such
clients, or the inability to attract new clients, could have a material adverse
effect on its results of operations. During the quarter ended July 2, 1999 none
of the Company's manufacturer or retailer clients accounted for greater than 10%
of net revenues other than Eckerd Drug Stores, S.C. Johnson & Sons, Inc., Buena
Vista Home Entertainment, Safeway and Ralston Purina which account for 27.8%,
12.7%, 11.8% and 11.1% and 10.7%, respectively. During the quarter ended July 3,
1998, none of the Company's manufacturer or retailer clients accounted for
greater than 10% of net revenues other than Eckerd Drug Stores, CVS Pharmacy
Incorporated, and S.C. Johnson & Sons, Inc. which accounted for 19.7%, 14.8% and
11.3% of net revenues, respectively.
For the six months ended July 2, 1999, and July 3, 1998 the Company's ten
largest clients generated approximately 82% and 75%, respectively, of the
Company's net revenue. During the six months ended July 2, 1999, none of the
Company's manufacturer or retailer clients accounted for greater than 10% of net
revenues, other than Eckerd Drug Stores, Buena Vista Home Entertainment, Safeway
and S.C. Johnson & Sons, Inc., which accounted for 22.3% and 14.1%, 12.1% and
11.9% of net revenues, respectively. During the six months ended July 3, 1998,
none of PIA's manufacturer or retailer clients accounted for greater than 10% of
net revenues other than Eckerd Drug Store and CVS Pharmacy Incorporated, which
accounted for 16.5% and 14.1% of net revenues, respectively. The majority of the
Company's contracts with its clients for shared services have multi-year terms.
OPERATING RESULTS MAY FLUCTUATE BECAUSE ITS COMMISSION INCOME IS UNCERTAIN
Approximately 17% of the Company's net revenues for the six months ended July 2,
1999 were earned under commission-based contracts. These contracts provide for
commissions based on a percentage of the client's net sales of certain of its
products to designated retailers. Under certain of these contracts, the Company
generally receives a draw on a monthly or quarterly basis, which is then applied
against commissions earned. Adjustments are made on a monthly or quarterly basis
upon receipt of reconciliations between commissions earned from the client and
the draws previously received. The reconciliations typically result in
commissions owed to the Company in excess of previous draws; however, the
Company cannot predict with accuracy the level of its clients' commission-based
sales. Accordingly, the amount of commissions in excess of or less than the
draws previously received will fluctuate and can significantly affect the
Company's operating results in any quarter.
20
<PAGE> 21
RISK FACTORS (continued)
THE COMPANY IS CONTROLLED BY A FEW STOCKHOLDERS
As a result of the merger with Spar Group the former stockholders of SPAR Group
beneficially own approximately 70% of the Company's outstanding Common Stock.
Accordingly, if they act as a group they will generally be able to elect all
directors and they will have the power to prevent or cause a change in control
of the Company. Such concentration of ownership could have the effect of making
it more difficult for a third party to acquire control of the Company in the
future, and may discourage third parties from attempting to do so.
21
<PAGE> 22
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk related to the variable interest rate on
the line of credit and the variable yield on it's cash and cash equivalent. The
Company's accounting policies for financial instruments and disclosures relating
to financial instruments require that the Company's consolidated balance sheets
include the following financial instruments: cash and cash equivalents, accounts
receivable, accounts payable and long term debt. The Company considers carrying
amounts of current assets and liabilities in the consolidated financial
statements to approximate the fair value for these financial instruments,
because of the relatively short period of time between origination of the
instruments and their expected realization. The carrying amounts of long-term
debt approximate fair value because the obligation bears interest at a floating
rate. The Company monitors the risks associated with interest rates and
financial instrument positions based on policies set by arrangement card
approved by the Board of Directors. The Company's investment policy objectives
require the preservation and safety of the principal, sufficient liquidity to
meet expected and unexpected cash requirements, and the maximization of the
return on investment based upon the safety and liquidity objectives.
The Company's revenue derived from international operations is not material and,
therefore, the risk related to foreign currency exchange rates is not material.
INVESTMENT PORTFOLIO
The Company has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents and investments. The Company
invests its cash and cash equivalents in investments in high-quality and highly
liquid investments consisting of taxable money market instruments, corporate
bonds and some tax-exempt securities. The average yields on the Company's
investments for the quarter ended July 2, 1999 were approximately 5.1 % based on
outstanding investments which ranged from $1.9 million to $7.5 million. The
average yields on the Company's investments for the quarter ended July 3, 1998
were approximately 5.1% based on outstanding investments which ranged from $9.5
million to $10.9 million.
The average yields on the Company's investments for the six months ended July 2,
1999 were approximately 5.0 % based on outstanding investments which ranged from
$1.9 million to $13.1 million. The average yields on the Company's investments
for the six months ended July 3, 1998 were approximately 5.0% based on
outstanding investments which ranged from $8.2 million to $10.9 million. As of
July 2, 1999, PIA's cash and cash equivalents and investments totaled $3.6
million and consisted primarily of taxable money market instruments, corporate
bonds and tax-exempt securities with maturities of less than one year with an
average yield of approximately 4.4%. As of July 3, 1998, PIA's cash and cash
equivalents and investments totaled $9.5 million and consisted primarily of
taxable money market instruments, corporate bonds and tax-exempt securities with
maturities of less than one year and with an average yield of approximately
4.9%. If there were a 10% change in the average yield based upon the Company's
outstanding investments of $3.6 million, interest income would increase or
decrease by approximately $16,000 per annum.
22
<PAGE> 23
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. (continued)
DEBT
The Company obtained a line of credit with Mellon Bank N.A. in December 1998 and
immediately drew down the minimum borrowing requirement of $2.0 million, and had
an outstanding balance of $2.0 million at January 1, 1999 and paid off the line
of credit as of July 2, 1999. The line of credit requires monthly interest
payments based on a variable interest rate applied to the outstanding loan
balance. The weighted average interest rate on borrowings for the quarter ended
July 2, 1999 and six months ended July 2, 1999 was 8.0% and if there were a 10%
change in the interest rate based upon the Company's minimum borrowing
requirement of $2.0 million, interest expense would increase or decrease by
$16,000 per annum.
23
<PAGE> 24
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On February 25, 1998, the Company and its Canadian subsidiary were
served with two Statements of Claim in the Ontario court (General
Division) of the Province of Ontario, Canada, filed by Merchandising
Consultants Associates ("MCA") asserting claims for alleged breach of
Confidentiality Agreements dated October 19, 1996 and July 17, 1997.
Both of these lawsuits assert that the Company and its subsidiary
improperly used confidential information provided by MCA as part of the
Company's due diligence concerning its proposed acquisition of MCA,
including alleged clientele, contracts, financial statements and
business opportunities of MCA. In addition, MCA contends that the
Company breached and allegedly reneged upon the terms for acquisition
of MCA contained in a Letter of Intent between the parties dated July
17, 1997, which by its express terms was non-binding. The Statements of
Claim sought damages totaling $10.2 million.
The Company has agreed to settle the MCA lawsuit. Both parties have
agreed to drop the lawsuit for no compensation and to execute a Full
and Final Release, releasing each other from all claims.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
Use of Proceeds - The Company received $26.5 million in net proceeds
from its initial public offering in March 1996. The Company, as
originally outlined in "Use of Proceeds" in its prospectus, has used
approximately $19.9 million through the period ended July 2, 1999 for
debt repayment, capital spending and working capital requirements and
$3.0 million to repurchase PIA's Common Stock.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on July 8, 1999.
The meeting was held to elect the Board of Directors and to vote on six
other proposals. The other proposals were:
Proposal 1: Approve the issuance of shares of PIA common stock to the
SPAR Group stockholders and the issuance of options to purchase 134,114
shares of PIA common stock to the holders of SPAR Group options in
exchange for their respective shares of SPAR Group and SPAR Group
options as consideration for the merger of a subsidiary of PIA with and
into SPAR Group;
Proposal 2: Amend PIA's Certificate of Incorporation to increase the
number of authorized shares of PIA common stock from 15 million to 47
million;
Proposal 3: Amend PIA's Certificate of Incorporation to delete the
prohibition on stockholder action by written consent without a meeting
under Delaware law;
24
<PAGE> 25
PART II: OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (continued)
Proposal 4: Amend PIA's Certificate of Incorporation to change the name
of PIA Merchandising Services, Inc. to "SPAR Group, Inc.;"
Proposal 5: Authorize an amendment, if deemed necessary by the Board of
Directors in its sole discretion, to PIA's Certificate of Incorporation
to effect a reverse stock split of the issued and outstanding shares of
PIA common stock, on the basis of one of the following ratios: one
share in exchange for every two issued and outstanding shares, one
share in exchange for three issued and outstanding shares or one share
for every four issued and outstanding shares, with the Board of
Directors having the discretion to determine the appropriate ratio to
use immediately prior to effecting the reverse stock split; and
Proposal 6: Amend PIA's Amended and Restated 1995 Stock Option Plan,
subject to consummation of the merger, to increase the number of shares
of PIA common stock reserved for issuance upon exercise of stock
options granted from 1.3 million to 3.5 million.
The number of votes cast for each director are set forth below.
For
---
Patrick W. Collins 3,185,241
J. Christopher Lewis 3,185,241
Terry R. Peets 3,185,241
John A. Colwell 3,190,516
Joseph H. Coulombe 3,185,341
Patrick C. Haden 3,185,341
Clinton E. Owens 3,191,623
Each of the nominees was elected to the Board of Directors. In
connection with the merger, each of the nominees other than Mr. Collins
and Mr. Lewis resigned and appointed Robert G. Brown and William H.
Bartels (the two principal stockholders of SPAR Group) and Robert O.
Aders to fill three of the remaining five vacancies. All of the
Proposals were approved by a majority of the stockholders.
ITEM 5: OTHER INFORMATION
Not applicable.
25
<PAGE> 26
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Certificate of Incorporation of SPAR Group, Inc.,
as amended.
3.2 By-laws of PIA (incorporated by reference to the
Form S-1).
4.1 Registration Rights Agreement entered into as of
January 21, 1992 by and between RVM Holding
Corporation. RVM/PIA, a California Limited
Partnership, The Riordan Foundation and
Creditanstalt-Bankverine (incorporated by
reference to the Form S-1).
10.1 1990 Stock Option Plan (incorporated by reference
to the Form S-1).
10.2 Amended and Restated 1995 Stock Option Plan, as
amended.
10.3 1995 Stock Option Plan for Non-employee Directors
(incorporated by reference to the Form S-1).
10.4 Employment Agreement dated as of June 25, 1997
between PIA and Terry R. Peets (incorporated by
reference to Exhibit 10.5 to the Company's Form
10-Q for the 2nd Quarter ended June 30, 1997).
10.5 Severance Agreement dated as of February 20, 1998
between PIA and Cathy L. Wood (incorporated by
reference to Exhibit 10.5 to the Company's Form
10-Q for the 1st Quarter ended April 30, 1998).
10.6 Severance Agreement dated as of August 10, 1998
between PIA and Clinton E. Owens (incorporated by
reference to Exhibit 10.6 to the Company's Form
10-Q for the 3rd Quarter ended October 2, 1998).
10.7 Amendment No. 1 to Employment Agreement dated as
of October 1, 1998 between PIA and Terry R. Peets
(incorporated by reference to Exhibit 10.7 of the
Company's Form 10-K/A for the fiscal year ended
January 1, 1999 (the "10-K/A").
10.8 Amended and Restated Severance Compensation
Agreement dated as of October 1, 1998 between PIA
and Cathy L. Wood (incorporated by reference to
Exhibit 10.8 of the Company's 10-K/A).
10.9 Loan and Security Agreement dated December 7, 1998
among Mellon Bank, N.A., PIA Merchandising Co.,
Inc., Pacific Indoor Display Co. and PIA
(incorporated by reference to Exhibit 10.9 of the
Company's 10-K/A).
10.10 Agreement and Plan of Merger dated as of February
28, 1999 among PIA, S.G. Acquisition, Inc., PIA
Merchandising Co., Inc., SPAR Acquisition, In.,
SPAR Marketing, Inc., SPAR Marketing Force, Inc.,
SPAR, Inc., SPAR/Burgoyne Retail Services, Inc.,
SPAR Incentive Marketing, Inc., SPAR MCI
Performance Group, Inc. and SPAR Trademarks, Inc.
(incorporated by reference to Exhibit 10.10 of the
Company's 10-K/A).
26
<PAGE> 27
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (continued)
10.11 Voting Agreement dated as of February 28, 1999
among PIA, Clinton E. Owens, RVM/PIA, California
limited partnership, Robert G. Brown and William
H. Bartels (incorporated by reference to Exhibit
10.11 of the Company's 10-K/A).
10.12 Amendment No 2 to Employment Agreement dated as of
February 11, 1999 between PIA and Terry R. Peets
(incorporated by reference to Exhibit 10.12 of
the Company's 10-K/A).
10.13 Special Purpose Stock Option Plan.
21.1 Subsidiaries of the Company (incorporated by
reference to the Form S-1).
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K.
Form 8-K dated July 8, 1999 and filed with the Commission on
July 23, 1999.
27
<PAGE> 28
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.
PIA MERCHANDISING SERVICES, INC.
(Registrant)
By: /s/ Cathy L. Wood
------------------------------------
Cathy L. Wood
Executive Vice President and
Chief Financial Officer
By: /s/ David J. Faulds
------------------------------------
David J. Faulds
Vice President
Corporate Controller
Dated: August 16, 1999
-------------------------
28
<PAGE> 29
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Certificate of Incorporation of SPAR Group, Inc., as amended.
3.2 By-laws of PIA (incorporated by reference to the Form S-1).
4.1 Registration Rights Agreement entered into as of January 21, 1992 by
and between RVM Holding Corporation. RVM/PIA, a California Limited
Partnership, The Riordan Foundation and Creditanstalt-Bankverine
(incorporated by reference to the Form S-1).
10.1 1990 Stock Option Plan (incorporated by reference to the Form S-1).
10.2 Amended and Restated 1995 Stock Option Plan, as amended.
10.3 1995 Stock Option Plan for Non-employee Directors (incorporated by
reference to the Form S-1).
10.4 Employment Agreement dated as of June 25, 1997 between PIA and Terry
R. Peets (incorporated by reference to Exhibit 10.5 to the Company's
Form 10-Q for the 2nd Quarter ended June 30, 1997).
10.5 Severance Agreement dated as of February 20, 1998 between PIA and
Cathy L. Wood (incorporated by reference to Exhibit 10.5 to the
Company's Form 10-Q for the 1st Quarter ended April 30, 1998).
10.6 Severance Agreement dated as of August 10, 1998 between PIA and
Clinton E. Owens (incorporated by reference to Exhibit 10.6 to the
Company's Form 10-Q for the 3rd Quarter ended October 2, 1998).
10.7 Amendment No. 1 to Employment Agreement dated as of October 1, 1998
between PIA and Terry R. Peets (incorporated by reference to Exhibit
10.7 of the Company's Form 10-K/A for the fiscal year ended January
1, 1999 (the "10-K/A").
10.8 Amended and Restated Severance Compensation Agreement dated as of
October 1, 1998 between PIA and Cathy L. Wood (incorporated by
reference to Exhibit 10.8 of the Company's 10-K/A).
10.9 Loan and Security Agreement dated December 7, 1998 among Mellon
Bank, N.A., PIA Merchandising Co., Inc., Pacific Indoor Display Co.
and PIA (incorporated by reference to Exhibit 10.9 of the Company's
10-K/A).
10.10 Agreement and Plan of Merger dated as of February 28, 1999 among
PIA, S.G. Acquisition, Inc., PIA Merchandising Co., Inc., SPAR
Acquisition, In., SPAR Marketing, Inc., SPAR Marketing Force, Inc.,
SPAR, Inc., SPAR/Burgoyne Retail Services, Inc., SPAR Incentive
Marketing, Inc., SPAR MCI Performance Group, Inc. and SPAR
Trademarks, Inc. (incorporated by reference to Exhibit 10.10 of the
Company's 10-K/A).
10.11 Voting Agreement dated as of February 28, 1999 among PIA, Clinton E.
Owens, RVM/PIA, California limited partnership, Robert G. Brown and
William H. Bartels (incorporated by reference to Exhibit 10.11 of
the Company's 10-K/A).
10.12 Amendment No 2 to Employment Agreement dated as of February 11, 1999
between PIA and Terry R. Peets (incorporated by reference to
Exhibit 10.12 of the Company's 10-K/A).
10.13 Special Purpose Stock Option Plan.
21.1 Subsidiaries of the Company (incorporated by reference to the Form
S-1).
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PIA MERCHANDISING SERVICES, INC.
The undersigned corporation, organized and existing under and by virtue
of the General Corporation Law of the State of Delaware does hereby certify as
follows:
1. That Cathy L. Wood is the duly elected and acting Secretary and
Chief Financial Officer of PIA Merchandising Services, Inc., a Delaware
corporation (the "Corporation").
2. That Article FIRST of the Certificate of Incorporation of the
Corporation is amended to read in full as follows:
"FIRST: The name of the corporation is SPAR Group, Inc. (the
"Corporation")."
3. That Article FOURTH of the Certificate of Incorporation of the
Corporation is amended to read in full as follows:
"FOURTH: The total number of shares of stock which the Corporation
shall have the authority to issue is 50,000,000, consisting of
47,000,000 shares of common stock, par value $.01 per share, and
3,000,000 shares of preferred stock, par value $.01 per share. The
preferred stock may be issued at any time, and from time to time, in
one or more series pursuant hereto or to a resolution or resolutions
providing for such issue duly adopted by the board of directors (the
"Board") of the Corporation (authority to do so being hereby
expressly vested in the Board), and such resolution or resolutions
shall also set forth the voting powers, full or limited, or none, of
each such series of preferred stock and shall fix the designations,
preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions of each such
series of preferred stock."
4. That Article TENTH of the Certificate of Incorporation of the
Corporation is hereby deleted and Article ELEVENTH is hereby renumbered as
Article TENTH.
5. That this Certificate of Amendment of Certificate of Incorporation
has been duly approved by the Board of Directors of the Corporation.
6. That this Certificate of Amendment of Certificate of Incorporation
has been duly approved by the holders of a majority of the outstanding shares of
common stock, $.01 par value per share, of the Corporation in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
<PAGE> 2
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Cathy L. Wood this 8th day July 1999.
PIA MERCHANDISING SERVICES, INC.
By: /s/ Cathy L. Wood
-------------------------------------
Cathy L. Wood,
Secretary and Chief Financial Officer
2
<PAGE> 3
CERTIFICATE OF INCORPORATION
OF
PIA MERCHANDISING SERVICES, INC.
FIRST: The name of the corporation is PIA Merchandising Services, Inc.
(the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle 19801. The name and address of the
Corporation's registered agent in the State of Delaware is The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle 19801.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may now or hereafter be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 18,000,000, consisting of 15,000,000 shares of common
stock, par value $.01 per share, and 3,000,000 shares of preferred stock, par
value $.01 per share.
FIFTH: The business and affairs of the Corporation shall be managed by
and under the direction of the Board of Directors. The exact number of directors
of the Corporation shall be fixed by or in the manner provided in the Bylaws of
the Corporation (the "Bylaws").
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(a) to adopt, repeal, rescind, alter or amend in any respect the
Bylaws, and to confer in the Bylaws powers and authorities upon the directors of
the Corporation in addition to the powers and authorities expressly conferred
upon them by statute;
(b) from time to time to set apart out of any funds or assets of
the Corporation available for dividends an amount or amounts to be reserved as
working capital or for any other lawful purpose and to abolish any reserve so
created and to determine whether any, and, if any, what part, of the surplus of
the Corporation or its net profits applicable to dividends shall be declared in
dividends and paid to its stockholders, and all rights of the holders of stock
of the Corporation in respect of dividends shall be subject to the power of the
Board of Directors so to do;
(c) subject to the laws of the State of Delaware, from time to
time to sell, lease or otherwise dispose of any part or parts of the properties
of the Corporation and to
<PAGE> 4
cease to conduct the business connected therewith or again to resume the same,
as it may deem best; and
(d) in addition to the powers and authorities hereinbefore and
by the laws of the State of Delaware conferred upon the Board of Directors, to
execute all such powers and to do all acts and things as may be exercised or
done by the Corporation; subject, nevertheless, to the express provisions of
said laws, of the Certificate of Incorporation of the Corporation and its
Bylaws.
SEVENTH: Meetings of stockholders of the Corporation may be held within
or without the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision of applicable law) outside the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws.
EIGHTH: The Corporation reserves the right to adopt, repeal, rescind,
alter or amend in any respect any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by applicable law, and
all rights conferred on stockholders herein are granted subject to this
reservation.
NINTH: 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 (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, as the same exists or hereafter may be amended or (iv) for any transaction
from which the director derived an improper benefit. If the Delaware General
Corporation Law hereafter is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended Delaware
Corporation Law. No amendment to or repeal of this Article Ninth shall apply to
or have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
TENTH: No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
2.
<PAGE> 5
ELEVENTH: The name and mailing address of the incorporator of the
Corporation are as follows:
Janis B. Salin, Esq.
c/o Riordan & McKinzie
300 South Grand Avenue, 29th Floor
Los Angeles, California 90071-3155
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 is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 29th day of November, 1995.
/s/ Janis B. Salin
------------------------------------
Janis B. Salin, Incorporator
3.
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
BETWEEN
PIA HOLDING CORPORATION,
A CALIFORNIA CORPORATION,
AND
PIA MERCHANDISING SERVICES, INC.,
A DELAWARE CORPORATION
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement") is entered
into as of this 22nd day of February, 1996 by and between PIA Holding
Corporation, a California corporation ("Merging Corporation"), and PIA
Merchandising Services, Inc., a Delaware corporation ("Surviving Corporation").
1. Merging Corporation is authorized to issue 5,000,000 shares of
preferred stock, no par value (the "Merging Corporation Preferred Stock"), and
10,000,000 shares of common stock, no par value (the "Merging Corporation Common
Stock"). As of the date hereof, there are no shares of Merging Corporation
Preferred Stock outstanding and there are 3,563,929 shares of Merging
Corporation Common Stock outstanding.
2. Surviving Corporation is authorized to issue 15,000,000 shares of
common stock, $.01 par value (the "Surviving Corporation Common Stock"), and
3,000,000 shares of preferred stock, $.01 par value (the "Surviving Corporation
Preferred Stock"). As of the date hereof, no shares of Surviving Corporation
Common Stock or Surviving Corporation Preferred Stock are outstanding.
3. Merging Corporation shall be merged with and into Surviving
Corporation (the "Merger") in accordance with the California General Corporation
Law and the General Corporation Law of the State of Delaware and on the terms
and conditions hereinafter set forth. At the Effective Time of the Merger (as
hereinafter defined), the separate existence of Merging Corporation shall cease,
Surviving Corporation shall be the surviving corporation and Surviving
Corporation shall succeed, without other transfer, to all the rights and
property of Merging Corporation and shall be subject to all the debts and
liabilities thereof in the same manner as if Surviving Corporation had itself
incurred them. All rights of creditors and all liens put on the property of each
corporation shall be preserved unimpaired; provided that such liens upon
property of Merging Corporation shall be limited to the property affected
thereby immediately prior to the Effective Time of the Merger.
4. At the Effective Time of the Merger, each share of Merging
Corporation Common Stock outstanding immediately prior to the Effective Time of
the Merger (collectively, the "Shares") shall be converted into one (1) share of
Surviving Corporation Common Stock.
5. The conversion of Shares as provided in this Agreement shall occur
automatically upon the Effective Time of the Merger without action by the
holders thereof. Each holder of such Shares thereupon shall surrender his
certificate or certificates to Surviving
1.
<PAGE> 7
Corporation and shall be entitled to receive in exchange therefor a certificate
or certificates representing the number of shares into which his Shares
theretofore represented by a certificate or certificates so surrendered shall
have been converted as aforesaid.
6. As of the Effective Time of the Merger, Surviving Corporation will
assume and continue Merging Corporation's 1990 Stock Option Plan, as amended,
and the outstanding and unexercised portions of all options to buy Common Stock
of Merging Corporation shall become options to purchase the same number of
shares of Common Stock of Surviving Corporation as the number of shares of
Common Stock of Merging Corporation subject to such options, with no other
changes in the terms and conditions of such options, including exercise prices,
and, as of the Effective Time of the Merger, Surviving Corporation hereby
assumes the outstanding and unexercised portions of such options and the
obligations of Merging Corporation with respect thereto.
7. As of the Effective Time of the Merger, Surviving Corporation will
assume all obligations under all outstanding warrants and other rights to
purchase shares of Common Stock of Merging Corporation, and the outstanding but
unexercised portions of all such warrants or other rights to purchase Common
Stock of Merging Corporation shall represent the right to acquire the same
number of shares of Common Stock of Surviving Corporation as the number of
shares of Common Stock of Merging Corporation then subject to such warrants or
other rights, with no other changes in the terms and conditions of such warrants
and other rights, including exercise prices.
8. The Certificate of Incorporation and Bylaws of Surviving Corporation
as in effect at the Effective Time of the Merger shall continue to be the
Certificate of Incorporation and Bylaws of Surviving Corporation after
consummation of the Merger.
9. From time to time as and when required by Surviving Corporation or
its successors or assigns, there shall be executed and delivered on behalf of
Merging Corporation such deeds and other instruments, and there shall be taken
or caused to be taken such further and other actions as shall be appropriate or
necessary in order to vest or perfect in or to confirm in record or otherwise in
Surviving Corporation the title to and possession of all the property, interest,
assets, rights, privileges, immunities, powers, franchises and authority of
Merging Corporation, and otherwise to carry out the purposes of this Merger
Agreement, and the officers and directors of Surviving Corporation are fully
authorized in the name and on behalf of Merging Corporation or otherwise to take
any and all such actions and to execute and deliver any and all such deeds and
other instruments.
10. Prior to the filing of this Merger Agreement with the Secretary of
Sate of the State of California and with the Secretary of State of the State of
Delaware, this Merger Agreement may be amended by written agreement of the
boards of directors of Merging Corporation and Surviving Corporation, or by
their respective officers authorized by such boards
2.
<PAGE> 8
of directors, notwithstanding approval of this Merger Agreement by the
shareholders of Merging Corporation.
11. The effective date of the Merger is February 22, 1996 (the
"Effective Time of the Merger").
12. This Merger Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original.
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Merger to be executed as of the date first above written.
PIA HOLDING CORPORATION,
a California corporation
By: /s/ Larry M. Dorr
-----------------------------------
Larry M. Dorr
Executive Vice President
Attest:
/s/ Patrick C. Haden
- ---------------------------------
Patrick C. Haden
Secretary
PIA MERCHANDISING SERVICES, INC.,
a Delaware corporation
By: /s/ Larry M. Dorr
------------------------------------
Larry M. Dorr
Executive Vice President
Attest:
/s/ Patrick C. Haden
- ---------------------------------
Patrick C. Haden
Secretary
3.
<PAGE> 9
CERTIFICATE OF APPROVAL
OF
AGREEMENT AND PLAN OF MERGER
BY
PIA MERCHANDISING SERVICES, INC.
Larry M. Dorr and Patrick C. Haden hereby certify that:
1. They are the Executive Vice President and the Secretary,
respectively, of PIA Merchandising Services, Inc., a Delaware corporation (the
"Surviving Corporation").
2. The Agreement and Plan of Merger in the form attached was duly
approved by the Board of Directors of the Surviving Corporation.
3. No shares of stock of the Surviving Corporation have been issued.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: February 22, 1996
/s/ Larry M. Dorr
-----------------------------------
Larry M. Dorr
Executive Vice President
/s/ Patrick C. Haden
-----------------------------------
Patrick C. Haden
Secretary
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
SECTION 1. Description of this Plan. This is the 1995 Stock Option Plan,
dated December 5, 1995, as amended and restated effective as of February 28,
1999 (this "Plan"), of PIA Merchandising Services, Inc., a Delaware corporation
(the "Company"). Under this Plan, officers, directors, key employees and
consultants of the Company or its wholly-owned Subsidiaries (as defined below),
and other persons directly or indirectly providing valuable services to the
Company and the Subsidiaries, to be selected as set forth below, may be granted
options ("Options") to purchase shares of the common stock, par value $0.01 per
share, of the Company ("Common Stock"). This Plan permits the granting of both
Options that qualify for treatment as incentive stock options ("Incentive Stock
Options") under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), and Options that do not qualify as Incentive Stock Options
("Nonqualified Stock Options"). For purposes of this Plan, the term "Subsidiary"
shall mean any corporation or other entity of which 50% or more of the voting
stock (or equivalent thereof) is owned by the Company or by another Subsidiary
(as so defined) of the Company.
SECTION 2. Purpose of this Plan. The purpose of this Plan and of granting
Options to specified persons is to further the growth, development and financial
success of the Company and the Subsidiaries by providing additional incentives
to certain officers, directors, key employees and consultants of, and other
persons directly or indirectly providing valuable services to, the Company and
the Subsidiaries. By assisting such persons in acquiring shares of Common Stock,
the Company can ensure that such persons will themselves benefit directly from
the Company's and the Subsidiaries' growth, development and financial success.
SECTION 3. Eligibility. The persons who shall be eligible to receive grants
of Options under this Plan shall be, at the time of the grant, the officers,
directors, key employees and consultants of, and other persons directly or
indirectly providing valuable services to, the Company and the Subsidiaries.
Notwithstanding the preceding sentence, only persons who are employees of the
Company and the Subsidiaries shall be eligible to receive grants of Incentive
Stock Options under this Plan. A person who holds an Option is herein referred
to as a "Participant." More than one Option may be granted to any Participant,
grants of Options may be made on more than one occasion to any Participant and
any individual Participant may receive grants of Options on up to 1,000,000
shares of Common Stock. Such grants of Options under this Plan may include an
Incentive Stock Option, Nonqualified Stock Option, or any combination thereof.
SECTION 4. Administration. This Plan shall be administered by the Board of
Directors (the "Board") or by the Compensation Committee established by the
Board. (The entity actually administering this Plan at any time, whether the
Board or the Compensation Committee, is referred to herein as the "Committee.")
If the Compensation Committee is authorized to administer this Plan at any time,
it shall, if possible, be composed solely of two or more Non-Employee Directors,
as such term is defined in Rule 16b-3(b)(3) under the Securities Exchange Act of
1934 (the "Exchange Act") and of persons who are "outside directors" within the
meaning of Code Section 162(m). The Committee shall meet at such times and
places as it determines and may meet through a telephone conference call. A
majority of its members shall constitute a quorum, and the decision of a
majority of those present at any meeting at which a quorum is present shall
constitute the decision of the Committee. A memorandum signed by all the members
of the Committee shall constitute the decision of the Committee without
necessity, in such event, for holding an actual meeting. The Committee is
authorized and empowered to administer this Plan and, subject to this Plan (a)
to select the Participants, to specify the number of shares of Common Stock with
respect to which Options are granted to each Participant, to specify the terms
of the Options and whether such Options shall be Incentive Stock Options or
Nonqualified Stock Options, and in general to grant Options; (b) to determine
the dates upon which Options shall be granted and the terms and conditions
thereof in a manner consistent with this Plan, which terms and conditions need
not be identical as to the various Options granted; (c) to interpret this Plan;
(d) to prescribe, amend and rescind rules relating to this Plan; (e) to
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Option previously granted by the Committee; (f) to
determine the rights and obligations of Participants under this Plan; (g) to
specify the Option Price (as hereinafter defined); (h) to accelerate the time
during which an Option may be exercised, including, but not limited to, upon a
change of control of the Company, and to otherwise accelerate the time or extend
the post-
1
<PAGE> 2
termination exercise period during which an Option may be exercised, in each
case notwithstanding the provisions in the Option Agreement (as defined in
Section 13) stating the time during which it may be exercised; and (i) to make
all other determinations deemed necessary or advisable for the administration of
this Plan. The good faith interpretation and construction by the Committee of
any provision of this Plan or of any Option granted under it shall be final,
conclusive and binding. No member of the Committee shall be liable for any
action or determination made in good faith with respect to this Plan or any
Option granted under it.
SECTION 5. Shares Subject to this Plan. The number of shares of Common
Stock in respect of which Options may be granted under this Plan is 3,500,000,
subject to adjustment as provided in Section 12 hereof. Upon the expiration,
termination or cancellation, in whole or in part, for any reason of an
outstanding Option or any portion thereof which shall not have vested or shall
not have been exercised in full, any shares of Common Stock then remaining
unissued which shall have been reserved for issuance upon such exercise shall
again become available for the granting of additional Options under this Plan.
Notwithstanding the foregoing, shares subject to a terminated Option shall
continue to be considered to be outstanding for purposes of determining the
maximum number of shares that may be issued to a Participant. Similarly, the
repricing of an Option will be considered the grant of a new Option for this
purpose.
SECTION 6. Option Price. Except as provided in Section 12 hereof, the
purchase price per share (the "Option Price") of the shares of Common Stock
underlying each Incentive Stock Option shall be not less than the fair market
value of such shares on the date of granting of the Incentive Stock Option;
provided, however, that if the Participant is a ten percent (10%) stockholder of
the Company as detailed in Code Section 422(b)(6) at the time such Option is
granted (determined after taking into account the constructive ownership rules
of Section 424(d) of the Code), the Option Price shall be not less than 110
percent (110%) of said fair market value. The Option Price of the shares of
Common Stock underlying each Nonqualified Stock Option shall be not less than
eighty-five percent (85%) of the fair market value of such shares on the date of
granting of the Nonqualified Stock Option; provided, however, that with respect
to any Nonqualified Stock Option granted to a "covered employee" (as such term
is defined in Section 162(m) of the Code), the Option Price of the shares of
Common Stock underlying such Nonqualified Stock Option shall be not less than
the fair market value of such shares on the date of granting of such
Nonqualified Stock Option. The fair market value of such shares shall, unless
otherwise expressly determined by the Committee for good reason, shall be (i)
the last reported sale price of the Common Stock on the Nasdaq National Market,
if the Common Stock is quoted on the Nasdaq National Market, (ii) the last
reported sale price of the Common Stock on a national securities exchange, if
the Common Stock is listed on a national securities exchange, or (iii) if the
Common Stock is not so reported or listed, the average of the last reported bid
and asked price of the Common Stock in such market as the Common Stock may be
traded.
SECTION 7. Restrictions on Grants; Vesting of Options. Notwithstanding any
other provisions set forth herein or in any Option Agreement, no Options may be
granted under this Plan subsequent to December 5, 2005. All Options granted
pursuant to this Plan shall be granted pursuant to Option Agreements, as
described in Section 13 hereof. The vesting of all Options may be based on the
Company's attaining of performance criteria as specified at the time of the
granting thereof and/or may also be based on the passage of time. The Committee
shall determine the performance criteria, the performance measurement period and
the vesting schedule applicable to each Option or group of Options in a
schedule, a copy of which shall be filed with the records of the Committee and
attached to each Option Agreement to which the same applies. The performance
criteria, the performance measurement period and the vesting schedule and period
of exercisability need not be identical for all Options granted hereunder.
Following the conclusion of each applicable performance measurement period, the
Committee shall determine, in its sole good faith judgment, the extent, if at
all, that each Option subject thereto shall have vested based upon the
applicable performance criteria and vesting schedule. To the extent any Option
shall not have vested, because the applicable performance criteria has not been
met, and does not also vest based on the passage of time, it shall, to that
extent, automatically terminate and cease to be exercisable to such extent
notwithstanding the stated term during which it may be exercised. The Committee
shall promptly notify each affected Participant of such determination. The
Committee may periodically review the performance criteria applicable to any
Option or Options and, in its sole good faith judgment, may adjust the same to
reflect unanticipated major events, such as catastrophic occurrences, mergers,
acquisitions and the like.
2
<PAGE> 3
SECTION 8. Special Limitations on Incentive Stock Options. To the extent
that the aggregate fair market value (determined at the time the respective
Incentive Stock Option is granted) of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by a Participant
during any calendar year under all incentive stock option plans of the Company
and the Subsidiaries exceeds $100,000, or such other limit as may be required by
the Code, such excess Incentive Stock Options shall be treated as Nonqualified
Stock Options. The Committee shall determine, in accordance with applicable
provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of a Participant's Incentive Stock Options will not
constitute Incentive Stock Options because of such limitation and shall notify
the Participant of such determination as soon as practicable after such
determination.
SECTION 9. Exercise of Options. Subject to all other provisions of this
Plan, once vested, each Option shall be exercisable for the full number of
shares of Common Stock subject thereto, or any part thereof, in such
installments and at such intervals as the Committee may determine in granting
such Option, provided that no option may be exercisable subsequent to its
termination date. Once vested, and prior to its termination date, an Option may
be exercised by the Participant by giving written notice to the Company
specifying the number of full shares to be purchased and accompanied by payment
of the full purchase price therefor in cash, by check or in such other form of
lawful consideration as the Committee may approve from time to time, including,
without limitation and in the sole discretion of the Committee, the assignment
and transfer by the Participant to the Company of outstanding shares of Common
Stock theretofore held by the Participant. In connection with such assignment
and transfer, the Company shall have the right to deduct any fractional share to
be paid to the Participant. Once vested, and prior to its termination date, an
Option may only be exercised by the Participant or, in the event of death of the
Participant, by the person or persons (including the deceased Participant's
estate) to whom the deceased Participant's rights under such Option shall have
passed by will or the laws of descent and distribution. Notwithstanding the
foregoing in the immediately preceding sentence, in the event of disability
(within the meaning of Section 22(e)(3) of the Code) of a Participant, a
designee, or if the Participant has no designee, the legal representative, of
such Participant may exercise the Option on behalf of such Participant (provided
such Option would have been exercisable by such Participant) until the right to
exercise such Option expires, as set forth in such Participant's particular
Option Agreement.
SECTION 10. Issuance of Common Stock. The Company's obligation to issue
shares of its Common Stock upon exercise of an Option is expressly conditioned
upon the compliance by the Company with any registration or other qualification
obligations with respect to such shares under any state or federal law or
rulings and regulations of any government regulatory body and the making of such
investment representations or other representations and undertakings by the
Participant (or the Participant's legal representative, heir or legatee, as the
case may be) in order to comply with the requirements of any exemption from any
such registration or other qualification obligations with respect to such shares
which the Company in its sole discretion shall deem necessary or advisable. Such
required representations and undertakings may include representations and
agreements that such Participant (or the Participant's legal representative,
heir or legatee): (a) is purchasing such shares for investment and not with any
present intention of selling or otherwise disposing of such shares; and (b)
agrees to have a legend placed upon the face and reverse of any certificates
evidencing such shares (or, if applicable, an appropriate data entry made in the
ownership records of the Company) setting forth (i) any representations and
undertakings which such Participant has given to the Company or a reference
thereto, and (ii) that, prior to effecting any sale or other disposition of any
such shares, the Participant must furnish to the Company an opinion of counsel,
satisfactory to the Company and its counsel, to the effect that such sale or
disposition will not violate the applicable requirements of state and federal
laws and regulatory agencies; provided, however, that any such legend or data
entry shall be removed when no longer applicable. The Company, during the term
of this Plan, will at all times reserve and keep available, and will use its
reasonable efforts to obtain from any regulatory body having jurisdiction any
requisite authority in order to issue and sell such number of shares of Common
Stock as shall be sufficient to satisfy the requirements of this Plan. The
inability of the Company to obtain, from any regulatory body having
jurisdiction, authority reasonably deemed by the Company's counsel to be
necessary for the lawful issuance and sale of any shares hereunder shall relieve
the Company of any liability in respect of the non-issuance or sale of such
shares as to which such requisite authority shall not have been obtained.
SECTION 11. Non-transferability. Except as otherwise provided below, an
Option may not be sold, pledged, assigned, hypothecated, transferred or disposed
of in any manner other than by will or by the laws of
3
<PAGE> 4
descent or distribution. The Committee may, in its discretion, authorize all or
a portion of any Nonqualified Stock Option granted to a Participant to be on
terms which permit transfer by such Participant to (a) the spouse, children or
grandchildren of the optionee ("Immediate Family Members"), (b) a trust or
trusts for the exclusive benefit of such Immediate Family Members, or (c) a
partnership in which such Immediate Family Members are the only partners,
provided that (i) there may be no consideration for any such transfer, and (ii)
the Option Agreement (defined below) pursuant to which such Options are granted
must be approved by the Committee, and must expressly provide for
transferability in a manner consistent with this Section 11. Following transfer,
any such Options shall continue to be subject to the same terms and conditions
as were applicable immediately prior to transfer, provided that for purposes of
Sections 9 and 10 hereof the term "Participants" shall be deemed to refer to the
transferee. The events of termination of employment of Section 25 hereof shall
continue to be applied with respect to the original Participant, following which
the Options shall be exercisable by the transferee only to the extent, and for
the periods specified in the Option Agreement. Any permitted transferee shall be
required prior to any transfer of an Option or shares of Common Stock acquired
pursuant to the exercise of an Option to execute a written undertaking to be
bound by the provisions of the applicable Option Agreement.
SECTION 12. Adjustments Upon Capitalization and Corporate Changes;
Substitute Options. Subject to Section 15(b) hereof, if the outstanding shares
of the Common Stock of the Company are changed into, or exchanged for, a
different number or kind of shares or securities of the Company through
reorganization, merger, recapitalization or reclassification, or if the number
of outstanding shares is changed through a stock split, stock dividend, stock
consolidation or like capital adjustment, or if the Company makes a distribution
in partial liquidation or any other comparable extraordinary distribution with
respect to its Common Stock, an appropriate adjustment shall be made by the
Committee in the number, kind or Option Price of shares as to which Options may
be granted. A corresponding adjustment shall likewise be made in the number,
kind or Option Price of shares with respect to which unexercised Options have
theretofore been granted. Any such adjustment in an outstanding Option, however,
shall be made without change in the total price applicable to the unexercised
portion of the Option but with a corresponding adjustment in the price for each
share covered by the Option. In making such adjustments, or in determining that
no such adjustments are necessary, the Committee may rely upon the advice of
counsel and accountants to the Company, and the good faith determination of the
Committee shall be final, conclusive and binding. No fractional shares of stock
shall be issued under this Plan on account of any such adjustment.
If the Company at any time should succeed to the business of another
corporation through a merger or consolidation, or through the acquisition of
stock or assets of such corporation or its subsidiaries, Options may be granted
under this Plan to option holders of such corporation or its subsidiaries, in
substitution for options to purchase stock of such corporation held by them at
the time of succession. The Committee, in its sole and absolute discretion,
shall determine the extent to which such substitute Options shall be granted (if
at all), the person or persons to receive such substitute Options (who need not
be all option holders of such corporation), the number of Options to be received
by each such person, the Option Price of such Option (which may be determined
without regard to Section 6 hereof) and the terms and conditions of such
substitute Options; provided, however, that the Option Price of each such
substituted Option which is an Incentive Stock Option shall be an amount such
that, in the sole and absolute judgment of the Committee (and in compliance with
Section 424(a) of the Code in the case of an Incentive Stock Option), the
economic benefit provided by such Option is not greater than the economic
benefit represented by the option in the acquired corporation as of the date of
the Company's acquisition of such corporation.
SECTION 13. Option Agreement. Each Option granted under this Plan shall be
evidenced by a written stock option agreement (an "Option Agreement") executed
by the Company and the Participant which (a) shall contain each of the
provisions and agreements herein specifically required to be contained therein,
(b) shall indicate whether such Option is to be an Incentive Stock Option or a
Nonqualified Stock Option, and if an Incentive Stock Option, shall contain terms
and conditions permitting such Option to qualify for treatment as an incentive
stock option under Section 422 of the Code, and (c) may contain such other terms
and conditions as the Committee deems desirable and which are not inconsistent
with this Plan.
SECTION 14. Rights as a Stockholder. A Participant or permitted transferee
of a Participant shall have no rights as a stockholder with respect to any
shares covered by an Option until the date of an entry evidencing such ownership
is made in the stock transfer books of the Company (the "Exercise Date"). No
adjustment
4
<PAGE> 5
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which the
record date is prior to the Exercise Date.
SECTION 15. Termination of Options, Acceleration of Options.
(a) Each Option shall terminate and expire, and shall no longer be subject
to exercise, as the Committee may determine in granting such Option, and each
Option granted under this Plan shall set forth a termination date thereof,
which, subject to earlier termination as set forth in Section 7 hereof or this
Section 15, or as otherwise set forth in any particular Option Agreement, with
respect to Nonqualified Stock Options, shall be no later than ten years from the
date such Option is granted, and with respect to Incentive Stock Options, shall
also be no later than ten years from the date such Option is granted unless the
Participant is a ten percent (10%) stockholder of the Company (as described in
Section 422(b)(6) of the Code, and determined after taking into account the
constructive ownership rules of Section 424(d) of the Code) at the time such
Option is granted, in which case the Option shall terminate and expire no later
than five years from the date of the grant thereof. An Incentive Stock Option
shall contain any additional termination events required by Section 422 of the
Code.
(b) Subject to Section 15(c) hereof, unless the Committee shall, in its
sole discretion, determine otherwise, upon (i) the dissolution, liquidation or
sale of all or substantially all of the business, properties and assets of the
Company, (ii) upon any reorganization, merger or consolidation in which the
Company does not survive, (iii) upon any reorganization, merger, consolidation
or exchange of securities in which the Company does survive and any of the
Company's stockholders have the opportunity to receive cash, securities of
another corporation and/or other property in exchange for their capital stock of
the Company, or (iv) upon any acquisition by any person or group (as defined in
Section 13(d) of the Securities Act of 1934) of beneficial ownership of more
than fifty percent (50%) of the Company's then outstanding shares of Common
Stock (each of the events described in clauses (i), (ii), (iii) or (iv) is
referred to herein individually as an "Extraordinary Event"), this Plan and each
outstanding Option shall terminate. In such event each Participant shall have
the right until 10 days before the effective date of the Extraordinary Event to
exercise, in whole or in part, any unexpired Option or Options issued to the
Participant, to the extent that said Option is then vested and exercisable
pursuant to the provisions of said Option or Options and of Section 7 hereof.
The termination of employment of, or the termination of a consulting or other
relationship with, a Participant for any reason shall not accelerate or
otherwise affect the number of shares with respect to which an Option may be
exercised;
provided, however, that the Option may only be exercised with respect to that
number of shares which could have been purchased under the Option had the Option
been exercised by the Participant on the date of such termination.
(c) Notwithstanding the provisions of Section 7 or paragraphs (a) or (b) of
this Section 15, or any provision to the contrary contained in a particular
Option Agreement, the Committee, in its sole discretion, at any time, or from
time to time, may elect to accelerate the vesting of all or any portion of any
Option then outstanding. The decision by the Committee to accelerate an Option
or to decline to accelerate an Option shall be final, conclusive and binding. In
the event of the acceleration of the exercisability of Options as the result of
a decision by the Committee pursuant to this Section 15(c), each outstanding
Option so accelerated shall be exercisable for a period from and after the date
of such acceleration and upon such other terms and conditions as the Committee
may determine in its sole discretion; provided, however, that such terms and
conditions (other than terms and conditions relating solely to the acceleration
of exercisability and the related termination of an Option) may not adversely
affect the rights of any Participant without the consent of the Participant so
adversely affected. Any outstanding Option which has not been exercised by the
holder at the end of such stated period shall terminate automatically and become
null and void.
SECTION 16. Withholding of Taxes. The Company, or a Subsidiary, as the case
may be, may deduct and withhold from the wages, salary, bonus and other income
paid by the Company or such Subsidiary to the Participant the requisite tax upon
the amount of taxable income, if any, recognized by the Participant in
connection with the exercise in whole or in part of any Option, or the sale of
Common Stock issued to the Participant upon the exercise of an Option, as may be
required from time to time under any federal or state tax laws and regulations.
This withholding of tax shall be made from the Company's (or such Subsidiaries')
concurrent or next payment of wages, salary, bonus or other income to the
Participant or by payment to the
5
<PAGE> 6
Company (or such Subsidiaries) by the Participant of the required withholding
tax, as the Committee may determine. The Company may permit the Participant to
elect to surrender, or authorize the Company to withhold, shares of Common Stock
(valued at their fair market value on the date of surrender or withholding of
such shares) in satisfaction of the Company's withholding obligation, however,
no fractional shares of Common Stock shall be delivered, nor shall any cash in
lieu of fractional shares be paid, by the Company. The Company shall have the
right to deduct fractional shares to be paid to the Participant as a result of
such surrender or withholding of shares.
SECTION 17. Effectiveness and Termination of this Plan. This Plan became
effective on the date on which it was adopted by the Board and was approved by
approved by the stockholders of the Company within 12 months of December 5,
1995. This Plan shall terminate at the earliest of the time when all shares of
Common Stock which may be issued hereunder have been so issued, or at such time
as set forth in Section 15(b) hereof; provided, however, that the Board may in
its sole discretion terminate this Plan at any other time. Unless earlier
terminated by the Board, this Plan shall terminate on December 5, 2005. Subject
to Section 15(b) hereof, no such termination shall in any way affect any Option
then outstanding.
SECTION 18. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date on which the Committee makes the determination
granting such Option. Notice of the determination shall be given to each
Participant to whom an Option is so granted within a reasonable time after the
date of such grant.
SECTION 19. Amendment of this Plan. The Board may (a) make such changes in
the terms and conditions of granted Options as it deems advisable, provided each
Participant adversely affected by such change consents thereto, and (b) make
such amendments to this Plan as it deems advisable. Such amendments and changes
shall include, but not be limited to, acceleration of the time at which an
Option may be exercised. The Board may obtain stockholder approval of any
amendment to this Plan for any reason (including in order to take advantage of
certain exemptions under Code Section 162(m) or Code Section 422), but shall not
be required to do so unless required by law or by the rules of the Nasdaq
National Market or any stock exchange on which the Common Stock may then be
listed.
SECTION 20. Transfers and Leaves of Absence. For purposes of this Plan, (a)
a transfer of a Participant's employment or consulting relationship, without an
intervening period, between the Company and a Subsidiary shall not be deemed a
termination of employment or a termination of a consulting relationship, and (b)
a Participant who is granted in writing a leave of absence shall be deemed to
have remained in the employ of, or in a consulting relationship with, the
Company (or a Subsidiary, whichever is applicable) during such leave of absence.
Notwithstanding the foregoing, for purposes of determining the exercisability of
an Incentive Stock Option, a Participant who is on a leave of absence that
exceeds 90 days will be considered to have terminated his or her employment on
the 91st day of the leave of absence, unless the Participant's rights to
reemployment are guaranteed by statute or contract.
SECTION 21. No Obligation to Exercise Option. The granting of an Option
shall impose no obligation on the Participant to exercise such Option.
SECTION 22. Governing Law. This Plan and any Option granted pursuant to
this Plan shall be construed under and governed by the laws of the State of
Delaware without regard to conflict of law provisions thereof.
SECTION 23. Not an Employment or Other Agreement. Nothing contained in this
Plan or in any Option Agreement shall confer, intend to confer or imply any
rights of employment or any rights to any other relationship or rights to
continued employment by, or rights to a continued consulting relationship with,
the Company or any Subsidiaries in favor of any Participant or limit the ability
of the Company or any Subsidiaries to terminate, with or without cause, in its
sole and absolute discretion, the employment of, or relationship with, any
Participant, subject to the terms of any written employment or other agreement
to which a Participant is a party.
SECTION 24. Termination of Employment. The terms and conditions under which
an Option may be exercised after a Participant's termination of employment shall
be determined by the Committee and shall be specified in the Option Agreement.
The conditions under which such post-termination exercises shall be
6
<PAGE> 7
permitted with respect to Incentive Stock Options shall be determined in
accordance with the provisions of Section 422 of the Code.
SECTION 25. Indemnification. In addition to such other rights of
indemnification as they may have as directors, the members of the Committee
shall be indemnified by the Company to the fullest extent permitted by law
against the reasonable expenses, including reasonable attorneys' fees, actually
and necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with this Plan or any Option granted thereunder, and against all
amounts paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member is not entitled to
indemnification under applicable law; provided that within 60 days after
institution of any such action, suit or proceeding such Committee member shall
in writing offer the Company the opportunity, at the Company's expense, to
handle and defend the same.
7
<PAGE> 1
EXHIBIT 10.13
SPECIAL PURPOSE STOCK OPTION PLAN
SECTION 1. Description and Purpose of this Plan. This is the Special
Purpose Stock Option Plan of PIA Merchandising Services, Inc., a Delaware
corporation (the "Company"). This Plan has been created to provide for the
issuance of substitute options ("Substitute Options") to the holders of
outstanding stock options ("SAI Options") granted by SPAR Acquisition, Inc., a
Nevada corporation ("SAI"), as required by the terms of that certain Agreement
and Plan of Merger dated as of February 28, 1999 by and among the Company, SAI
and certain other parties named therein (the "Merger Agreement"). Substitute
Options granted under this Plan will not qualify as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
SECTION 2. Issuance of Substitute Options. As required by Section 2.04 of
the Merger Agreement, the Company shall, promptly following the Effective Time
(as such term is defined in the Merger Agreement) execute and deliver to each
holder of an SAI Option, against delivery and cancellation of such SAI Option, a
Substitute Option containing substantially the same provisions as the SAI Option
being canceled, including, without limitation, (i) the same per share exercise
price and (ii) providing for the right to purchase such number of shares of the
Company's common stock ("Common Stock") as shall be equal to the number of
shares of SAI's common stock that such holder was entitled to purchase pursuant
to the SAI Option being surrendered (a "Substitute Option Agreement"). The
persons receiving Substitute Options under this Plan are hereinafter referred to
as the "Participants.") The Company shall have no obligations to issue any
Substitute Options to any Participant prior to the Effective Time. This Plan
shall terminate immediately upon the termination of the Merger Agreement in
accordance with its terms.
SECTION 3. Shares Subject to this Plan. The number of shares of Common
Stock in respect of which Substitute Options may be granted under this Plan is
134,114, subject to adjustment as provided in Section 6 hereof. After the
initial grant of Substitute Options as provided in the Merger Agreement, no
further Substitute Options may be granted under this Plan.
SECTION 4. Administration. This Plan shall be administered by the Board of
Directors of the Company (the "Board"). The Board shall have the exclusive and
binding right to (i) interpret this Plan, (ii) prescribe, amend and rescind
rules relating to this Plan; (iii) authorize any person to execute on behalf of
the Company any instrument required to effectuate the grant of an Substitute
Option; (iv) determine the rights and obligations of Participants under this
Plan; and (v) make all other determinations deemed necessary or advisable for
the administration of this Plan. The good faith interpretation and construction
by the Board of any provision of this Plan or of any Substitute Option shall be
final, conclusive and binding. No member of the Board shall be liable for any
action or determination made in good faith with respect to this Plan or any
Substitute Option.
SECTION 5. Issuance of Common Stock. The Company's obligation to issue
shares of its Common Stock upon exercise of a Substitute Option by any
Participant is expressly conditioned upon the compliance by the Company with any
registration or other qualification obligations with respect to such shares
under any state or federal law or rulings and regulations of any government
regulatory body and the making of such investment representations or other
representations and undertakings by such Participant (or such Participant's
legal representative, heir or legatee, as the case may be) in order to comply
with the requirements of any exemption from any such registration or other
qualification obligations with respect to such shares which the Company in its
sole discretion shall deem necessary or advisable. Such required representations
and undertakings may include representations and agreements that such
Participant (or such Participant's legal representative, heir or legatee) (i) is
purchasing such shares for investment and not with any present intention of
selling or otherwise disposing of such shares and (ii) agrees to have a legend
placed upon the face and reverse of any certificates evidencing such shares (or,
if applicable, an appropriate data entry made in the ownership records of the
Company) setting forth (A) any representations and undertakings which such
Participant has given to the Company or a reference thereto, and (B) that, prior
to effecting any sale or other disposition of any such shares, such Participant
must furnish to the Company an opinion of counsel,
1
<PAGE> 2
satisfactory to the Company and its counsel, to the effect that such sale or
disposition will not violate the applicable requirements of state and federal
laws and regulatory agencies; provided, however, that any such legend or data
entry shall be removed when no longer applicable. The Company, during the term
of this Plan, will at all times reserve and keep available, and will use its
reasonable efforts to obtain from any regulatory body having jurisdiction any
requisite authority in order to issue and sell such number of shares of Common
Stock as shall be sufficient to satisfy the requirements of this Plan. The
inability of the Company to obtain, from any regulatory body having
jurisdiction, authority reasonably deemed by the Company's counsel to be
necessary for the lawful issuance and sale of any shares hereunder shall relieve
the Company of any liability in respect of the non-issuance or sale of such
shares as to which such requisite authority shall not have been obtained.
SECTION 6. Adjustments Upon Capitalization and Corporate Changes. If the
outstanding shares of the Common Stock are changed into, or exchanged for, a
different number or kind of shares or securities of the Company through
reorganization, merger, recapitalization or reclassification, or if the number
of outstanding shares is changed through a stock split, stock dividend, stock
consolidation or like capital adjustment, or if the Company makes a distribution
in partial liquidation or any other comparable extraordinary distribution with
respect to its Common Stock, an appropriate adjustment shall be made by the
Board in the number, kind or exercise price of shares with respect to which
unexercised Substitute Options have been granted; provided, however, that in no
event shall the exercise price be less than the par value of the Common Stock at
such time. In making such adjustments, or in determining that no such
adjustments are necessary, the Board may rely upon the advice of counsel and
accountants to the Company, and the good faith determination of the Board shall
be final, conclusive and binding.
SECTION 7. Rights as a Stockholder. A Participant shall have no rights as a
stockholder with respect to any shares covered by a Substitute Option until the
date of an entry evidencing such ownership is made in the stock transfer books
of the Company (the "Exercise Date"). Except as otherwise provided in Section 6,
no adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the Exercise Date. Upon (i) the dissolution,
liquidation or sale of all or substantially all of the business, properties and
assets of the Company, (ii) upon any reorganization, merger or consolidation in
which the Company does not survive, (iii) upon any reorganization, merger,
consolidation or exchange of securities in which the Company does survive and
any of the Company's stockholders have the opportunity to receive cash,
securities of another corporation and/or other property in exchange for their
capital stock of the Company, or (iv) upon any acquisition by any person or
group (as defined in Section 13(d) of the Securities Act of 1934) of beneficial
ownership of more than fifty percent (50%) of the Company's then outstanding
shares of Common Stock (each of the events described in clauses (i), (ii), (iii)
or (iv) is referred to herein individually as an "Extraordinary Event"), this
Plan and each outstanding Substitute Option shall terminate. In such event each
Participant shall have the right until 10 days before the effective date of the
Extraordinary Event to exercise, in whole or in part, any unexpired Substitute
Option held by such Participant to the extent that such Substitute Option is
then vested and exercisable pursuant to the provisions thereof.
SECTION 8. Withholding of Taxes. The Company, or a Subsidiary, as the case
may be, may deduct and withhold from the wages, salary, bonus and other income
paid by the Company or such Subsidiary to any Participant the requisite tax upon
the amount of taxable income, if any, recognized by such Participant in
connection with the exercise in whole or in part of any Substitute Option, or
the sale of Common Stock issued to any Participant upon the exercise of any
Substitute Option, as may be required from time to time under any federal or
state tax laws and regulations. This withholding of tax shall be made from the
Company's (or such Subsidiary's) concurrent or next payment of wages, salary,
bonus or other income to such Participant or by payment to the Company (or such
Subsidiary) by such Participant of the required withholding tax, as the Board
may determine.
SECTION 9. Amendment of this Plan. The Board may (a) make such changes in
the terms and conditions of outstanding Substitute Options as it deems
advisable, provided each Participant adversely affected by such change consents
thereto, and (b) make such amendments to this Plan as it deems advisable. The
Board may obtain shareholder approval of any amendment to this Plan for any
reason (including in order to take advantage of certain exemptions under Code
Section 162(m)), but shall not be required to do so
2
<PAGE> 3
unless required by law or by the rules of the Nasdaq National Market or any
stock exchange on which the Common Stock may then be listed.
SECTION 10. Governing Law. This Plan and any Substitute Option granted
pursuant to this Plan shall be construed under and governed by the laws of the
State of Delaware without regard to conflict of law provisions thereof.
SECTION 11. Not an Employment or Other Agreement. Nothing contained in this
Plan or in any Substitute Option Agreement shall confer, intend to confer or
imply any rights of employment or any rights to any other relationship or rights
to continued employment by, or rights to a continued consulting relationship
with, the Company or any Subsidiary in favor of any Participant or limit the
ability of the Company or any Subsidiary to terminate, with or without cause, in
its sole and absolute discretion, the employment of, or relationship with, any
Participant, subject to the terms of any written employment or other agreement
to which such Participant is a party.
SECTION 12. Indemnification. In addition to such other rights of
indemnification as they may have as directors, the members of the Board shall be
indemnified by the Company to the fullest extent permitted by law against the
reasonable expenses, including reasonable attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with this Plan or any Substitute Option granted hereunder, and
against all amounts paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which it shall
be adjudged in such action, suit or proceeding that such Board member is not
entitled to indemnification under applicable law.
3
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-02-1999
<PERIOD-END> JUL-02-1999
<CASH> 3,611
<SECURITIES> 0
<RECEIVABLES> 12,414
<ALLOWANCES> 450
<INVENTORY> 0
<CURRENT-ASSETS> 16,011
<PP&E> 5,904
<DEPRECIATION> 4,390
<TOTAL-ASSETS> 18,465
<CURRENT-LIABILITIES> 9,448
<BONDS> 0
0
0
<COMMON> 60
<OTHER-SE> 8,875
<TOTAL-LIABILITY-AND-EQUITY> 18,465
<SALES> 0
<TOTAL-REVENUES> 42,791
<CGS> 0
<TOTAL-COSTS> 39,642
<OTHER-EXPENSES> 9,107
<LOSS-PROVISION> (102)
<INTEREST-EXPENSE> 82
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</TABLE>
