<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1998
REGISTRATION NO. 333-38059
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE PRIMA GROUP INTERNATIONAL, INC.
(Exact Name Of Registrant As Specified In Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3541 56-2042959
(State or other jurisdiction (Standard Industrial (IRS Employer
of incorporation or organization) Classification Code Identification No.)
Number)
</TABLE>
447 S. SHARON AMITY ROAD, SUITE 250
CHARLOTTE, NC 28211
(704) 366-8999
(Address, Telephone No. of principal executive offices)
JAMES R. CURRIER, SR.
447 S. SHARON AMITY ROAD, SUITE 250
CHARLOTTE, NC 28211
(704) 366-8999
(Name, Address and Telephone No. of Agent for Service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
C. RICHARD RAYBURN, JR., ESQ. KEVIN A. CUDNEY, ESQ.
W. SCOTT COOPER, ESQ. JONATHAN P. FREEDMAN, ESQ.
RAYBURN, MOON & SMITH, P.A. DORSEY & WHITNEY LLP
227 W. TRADE ST., SUITE 1200 REPUBLIC PLAZA BLDG., SUITE 4400
CHARLOTTE, NC 28202 370 SEVENTEENTH STREET
(704) 334-0891 DENVER, CO 80202-5644
(303) 629-3400
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING
BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE
<S> <C> <C> <C>
Common Stock,
par value $0.01 per share... 2,300,000 shares $11.00 $25,300,000
<CAPTION>
TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO REGISTRATION
BE REGISTERED FEE PAID (3)
<S> <C>
Common Stock,
par value $0.01 per share... $7,938.45
</TABLE>
(1) Includes 300,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457.
(3) The Registrant paid $7,938.45 with prior filings of the Registration
Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
PROSPECTUS (SUBJECT TO COMPLETION, DATED APRIL 30, 1998)
2,000,000 SHARES
[logo appears here]
THE PRIMA GROUP INTERNATIONAL, INC.
COMMON STOCK
------------------------
All of the 2,000,000 shares (the "Shares") of Common Stock, par value $0.01
per share (the "Common Stock"), offered hereby are being sold by The PRIMA Group
International, Inc., a Delaware corporation (the "Company"), the sole assets of
which consist of 99.98% ownership of Prima Industrie S.p.A. and 60% indirect
ownership of Prima Electronics S.p.A., each a Societa per Azioni organized under
the laws of the Republic of Italy.
------------------------
PRIOR TO THIS OFFERING (THIS "OFFERING"), THERE HAS BEEN NO PUBLIC MARKET
FOR THE COMMON STOCK OF THE COMPANY, AND THERE CAN BE NO ASSURANCE THAT SUCH A
MARKET WILL DEVELOP AFTER COMPLETION OF THIS OFFERING OR THAT, IF DEVELOPED, IT
WILL BE SUSTAINED. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING
PRICE WILL BE BETWEEN $9 AND $11 PER SHARE (THE "OFFERING PRICE"). SEE
"UNDERWRITING" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING
THE INITIAL PUBLIC OFFERING PRICE. THE COMMON STOCK HAS BEEN APPROVED FOR
QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "TPGI."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 6 HEREOF AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)(3)
<S> <C> <C> <C>
Per Share........................................... $ $ $
Total............................................... $ $ $
</TABLE>
(1) The Company has agreed to sell to the Underwriters a warrant to purchase
200,000 shares of Common Stock, exercisable at a price per share equal to
150% of the Offering Price. In addition, see "Underwriting" for information
concerning indemnification arrangements with the Underwriters and other
compensation payable to the Underwriters.
(2) Before deducting expenses payable by the Company estimated at $800,000 and a
non-accountable expense allowance payable to the Underwriters in an amount
equal to three percent (3%) of the gross proceeds of this Offering (the
"Non-Accountable Expense Allowance"), or approximately $
($ if the Over-Allotment Option (as herein after defined) is
exercised in full).
(3) The Company has granted to the Underwriters an option, exercisable within 30
days after the date hereof, to purchase up to an aggregate of 300,000 shares
of Common Stock from the Company, solely to cover over-allotments, if any
(the "Over-Allotment Option"). If the Underwriters exercise the
Over-Allotment Option in full, the total price to public, underwriting
discounts and commissions and proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
------------------------
The Shares are offered, subject to prior sale, when, as and if delivered to
and accepted by the Underwriters named herein and subject to the approval of
certain legal matters by counsel for the Underwriters, and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Shares will be made on or about , 1998, at the
offices of Chatfield Dean & Co., Greenwood Village, Colorado, against payment
therefor in immediately available funds.
------------------------
CHATFIELD DEAN & CO.
, 1998
<PAGE>
[picture appears here]
CAD/CAM Application
3-D Laser Head
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PLEASE NOTE THAT, PURSUANT TO REGULATION M, PROMULGATED UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, SHORT SALES PRIOR TO THE EFFECTIVE DATE OF
THIS OFFERING ARE PROHIBITED.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN
THIS PROSPECTUS: (I) REFLECTS THE ISSUANCE OF (A) 2,700,000 SHARES OF COMMON
STOCK TO SUBSTANTIALLY ALL OF THE SHAREHOLDERS OF PRIMA INDUSTRIE S.P.A. ("PRIMA
INDUSTRIE") IN EXCHANGE FOR THEIR STOCK INTERESTS IN PRIMA INDUSTRIE AND (B) 300
SHARES OF COMMON STOCK TO JAMES R. CURRIER, SR. AND GIOVANNI CIAMARONI FOR CASH;
AND (II) ASSUMES NO EXERCISE OF THE OVER-ALLOTMENT OPTION.
THE COMPANY
The PRIMA Group International, Inc. (the "Company") is an international
provider of software-controlled, robotic, precision laser cutting and welding
systems (the "Products"). The Company designs, manufactures and sells
two-dimensional ("2-D") Products that cut and weld shapes on a flat surface, and
three-dimensional ("3-D") Products that trim, punch, slot and weld shaped or
profiled materials. The Company's Products are used in automotive prototype
development and the manufacture of consumer durable goods. The Company's
customers include major European and North American automotive manufacturers
such as BMW, Fiat, Ford, Chrysler, Mercedes-Benz, Nissan, Peugeot, Renault and
Volvo. They are also used by Tier One suppliers (suppliers that provide goods
and services directly to automotive manufacturers) for the manufacture of
automotive components that are incorporated into the vehicles sold by these
manufacturers.
Prima Industrie and Prima Electronics are ISO 9001 certified, which means
that they have each obtained certification under an international protocol that
their respective production processes incorporate quality practices, disciplines
and checks and balances on a fully documented basis. As part of the
certification process, each company has been examined by a member of the
International Organization for Standardization to assess compliance with the
international protocol. The certification provides assurances to customers that
the required goods or services will fully meet customer expectations. See
discussion under "Business -- Quality."
The Company believes that it has a leading position in the market for the
manufacture and sale of 3-D precision laser cutting and welding systems. The
Company's advantages are based on proprietary processes and technologies for
automated robotic systems that integrate traditional machine tool equipment with
lasers, laser optics and computer technology. These robotic systems utilize
electronic process control systems that interface with computer-aided
engineering/computer-aided design/computer-aided manufacturing ("CAE/CAD/CAM")
software to convert engineering designs into instructions for machinery
operations.
The Company believes, based upon its own analysis of industry projections,
that, by 2015, an additional 160 automotive assembly plants will be constructed
outside Europe, the United States and Japan, representing an increase of 80%
over the current 200 assembly facilities worldwide. These new plants and their
Tier One suppliers will be equipped with advanced factory automation systems,
potentially including those provided by the Company, in place of traditional
manufacturing and assembly technologies. The Company expects vigorous demand for
its Products in developing markets, as well as accelerating demand within Europe
and the United States, as older automotive assembly operations are retrofitted,
relocated or replaced.
The Company, through Prima Electronics S.p.A. ("Prima Electronics"), its
majority-owned subsidiary, designs and manufactures state-of-the-art software
and hardware-based industrial process controls for the Company's equipment and
for other industrial equipment manufacturers. Industrial process controls
function as the "brains" of machinery, directing all aspects of its operation.
Prima Electronics' primary outside customer is Atlas Copco Airpower NV ("Atlas
Copco"), one of the world's leading suppliers of power generation and pneumatic
equipment. In 1997, sales to Atlas Copco represented approximately 62% of the
total revenues of Prima Electronics. All such sales were made pursuant to a
supply contract between Prima Electronics and Atlas Copco. The supply contract
covers the supply of products until December 31, 2001. Prior to December 31,
2001, the contract may be terminated only by the mutual consent of Prima
Electronics and Atlas Copco, unless Prima Electronics fails to perform as
required under the supply contract. After December 31, 2001, either party has
the right to terminate the contract on 18 months' notice. See "History of the
Company -- Prima Electronics."
3
<PAGE>
The Company's goal is to exploit its technological superiority to become
the leading international provider of fully integrated, robotic systems for the
precision cutting and finishing stages of the manufacturing process. The Company
also intends to become a recognized supplier of industrial process controls for
the machine tool industry. The specific elements of the Company's strategy to
achieve these objectives are as follows:
(Bullet) Enhance the Company's Products for use in higher volume production
environments;
(Bullet) Maintain and expand its current market share in 2-D and 3-D
Products through aggressive global marketing;
(Bullet) Market Prima Electronics' industrial process controls through
worldwide distribution channels;
(Bullet) Develop, as a discrete profit center, comprehensive warranty and
service, training and support, preventive maintenance programs and
upgrades for the Company's Products;
(Bullet) Expand the licensing of its technology for the manufacture and
sale of the Company's 2-D Products outside Europe; and
(Bullet) Achieve vertical and horizontal integration through strategic
acquisitions and joint ventures.
THIS OFFERING
<TABLE>
<S> <C>
Common Stock outstanding prior to this Offering....... 2,700,300 shares
Common Stock offered.................................. 2,000,000 shares
Common Stock to be outstanding after this Offering.... 4,700,300 shares
Use of Offering proceeds.............................. Equity contribution to subsidiary; marketing and sales promotion;
research and development; funding transactions with certain officers;
and general corporate purposes and working capital, including
providing a line of credit facility to subsidiaries
Nasdaq National Market symbol......................... TPGI
</TABLE>
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues.................................................... $44,186 $42,315 $38,560 $28,396 $28,779
Operating income (loss)........................................... 2,181 1,411 75 (3,798) (1,304)
Gain on sale of assets............................................ 441 1,059 -- -- --
Net income (loss) (2)............................................. 1,363 1,335 (2,400) (5,270) (765)
Pro forma earnings (loss) per share (2)(3)(4)..................... .50 .49 (1.39) (2.70) (.38)
Pro forma weighted average common and common equivalent shares
outstanding (4)................................................. 2,700 2,700 1,721 1,954 2,033
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
AS
ACTUAL ADJUSTED(5)
------- ------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................................... $ 1,330 $12,458
Working capital................................................... 6,332 21,885
Total assets...................................................... 33,909 44,662
Total liabilities................................................. 28,531 23,731
Stockholders' equity.............................................. 5,378 20,931
</TABLE>
- ---------------
(1) This financial data reflects the financial condition and operations of Prima
Industrie prior to the acquisition by the Company of substantially all of
the issued and outstanding capital stock of Prima Industrie.
(2) Net income includes gain on sale of equipment of $427,000 (net of tax) in
1997 and net gain on sale of subsidiaries of $766,000 (net of tax) in 1996.
These items are considered by management to be nonrecurring. The effect on
earnings per share of these amounts (net of tax) is $.16 in 1997 and $.28 in
1996.
(3) An aggregate of $450,000 will be paid to Messrs. Currier and Ciamaroni in
1998 under their employment agreements as non-competition payments. In
addition, the Company will lend an aggregate of $1,200,000 to Messrs.
Currier and Ciamaroni that they will use to retire indebtedness to a
stockholder of the Company incurred in connection with their purchase of
shares of Prima Industrie from that stockholder." See "Use of Proceeds" and
"Certain Transactions."
(4) The historical share and per share amounts have been retroactively restated
to reflect the exchange of substantially all of the outstanding shares of
Prima Industrie for 2,700,000 shares of Common Stock of the Company, which
occurred on April 23, 1998. See Note 15 to the financial statements at page
F-21.
(5) Adjusted to reflect (a) the sale by the Company of 2,000,000 Shares offered
hereby at an assumed Offering Price of $10.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses
payable by the Company, (b) application of the estimated net proceeds
therefrom as described herein, and (c) the acquisition by the Company of
substantially all of the issued and outstanding capital stock of Prima
Industrie. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK,
INCLUDING RISKS RELATING TO THE COMPANY, THE INDUSTRIES IN WHICH THE COMPANY
OPERATES AND THE SECURITIES MARKETS IN GENERAL. IN ADDITION TO OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED
CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE
SHARES OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE DESCRIBED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT
MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN THE FOLLOWING RISK FACTORS.
DEPENDENCE ON AUTOMOTIVE INDUSTRY. A significant portion of the Company's
revenues are derived from the automotive industry. The automotive industry is
cyclical and has experienced significant periodic downturns, which often have
had an adverse effect on the demand for capital goods equipment used in the
production of automobiles. The Company believes that downturns in the automotive
industry will continue to occur in the future and may result in decreased demand
for the Company's Products. At the same time, however, the automotive industry
tends to exempt from capital expenditure cutbacks capital goods that increase
productivity. Furthermore, since the Company sells its Products in both Europe
and North America, it is unlikely that these markets will experience the effects
of an economic downturn simultaneously, thereby moderating the Company's
exposure to adverse automotive business cycles. The Company has significant
sales of its 2-D Products to customers in other business segments outside of the
automotive industry that will further moderate the effects of the adverse
automotive cycles; however, the benefit from non-automotive business may lessen,
as the Company intends to focus product and technology development activities on
the automotive industry for a substantial portion of its future growth. In
addition, the Company believes that its ability to reduce expenses in a future
downturn will be constrained by the need for continual investment in research
and development and the need to maintain extensive ongoing customer service and
support capability. Accordingly, any downturn in the automotive industry could
have a material adverse effect on the Company's business, financial condition
and results of operations.
RISKS OF DOING BUSINESS IN ITALY; RISKS OF UNENFORCEABILITY OF CIVIL
LIABILITIES AGAINST FOREIGN PERSONS. While the Company's corporate headquarters
are in the United States, the majority of its operations are carried on in or
near Turin, Italy, and a substantial number of the Company's officers and
directors reside in Italy and other countries in Europe. Accordingly, the
operations of the Company will be subject to political, social and economic
conditions in Italy. Italy has two different economic regions -- the North,
starting at Rome and extending to the northern borders with France, Switzerland
and Austria, and the South, extending from Rome southward, and including Sicily
and Sardinia. Northern Italy is one of Europe's richest regions, while Southern
Italy is one of its poorest. The Italian government continues to confront the
problem of providing aid and social welfare programs to the residents of the
South without increasing the burden on the comparatively wealthy residents of
the North. A new factor in this decades-old problem is the budget deficit and
national debt requirements that European states must satisfy to be eligible to
join the European Monetary Union (the "EMU") which has, as one of its primary
objectives, the establishment of a single European currency by 1999. Although a
dispute arose over the 1998 proposed budget that included cuts in pension and
healthcare programs, the budget was eventually passed. The impetus for the
budget cuts was the requirements for entry into the EMU. Italy appears to have
met the criteria for entry into the EMU.
Another factor in the North/South regional controversy in Italy is the
phasing-out of special tax relief for manufacturers located in the South, due to
EMU rules on state aid. The institution by the Italian government of tax, labor
and social security programs that cover Northern and the Southern Italy for the
most part equally has resulted in higher taxes and an unpredictable regulatory
environment.
A substantial number of the directors and executive officers of Prima
Industrie and Prima Electronics, as well as those of the Company, reside outside
the United States (principally in the Republic of Italy). All or a substantial
portion of the assets of the Company and of these persons are located outside
the United States. As a result, it may not be possible for investors to effect
service of process within the United States upon such persons or to enforce
against them judgments obtained in United States courts predicated upon the
civil liability provisions of the Federal securities laws of the United States.
The Company has been advised by its Italian counsel, Chiomenti Studio Legale,
that (a) enforceability in Italy, in actions for enforcement of final judgments
of United States courts, of civil liabilities predicated upon the Federal
securities laws of the United States is subject, among other things, to the
Italian courts' determination that enforcement would not violate Italian public
policy and (b) in original actions in Italy to enforce such liabilities, an
Italian court would examine the merits of the claims in accordance with Italian
procedure and applicable conflict of laws rules and would not necessarily apply
United States substantive laws.
Prima Industrie and Prima Electronics are each an Italian Societa per
Azioni (an "S.p.A."). The S.p.A. is the form of organization closest to a U.S.
corporation; however, under Italian law, if a S.p.A. has a single shareholder,
then the single
6
<PAGE>
shareholder will, in the case of the insolvency of the S.p.A., be liable for all
of the debts of the S.p.A. incurred during the time when it was the single
shareholder. At present, there are at least two independent shareholders of
Prima Industrie and Prima Electronics. However, there is some uncertainty under
Italian law as to this issue, and there can be no assurance that the current
structure will allow the Company to avoid liability for the debts of Prima
Industrie in the event that Prima Industrie becomes insolvent. Moreover, if the
Company were to acquire all of the share capital of Prima Industrie, it would be
possible that the assets of the Company would be subject to the liabilities of
Prima Industrie arising after the date of this Prospectus in the event of the
insolvency of Prima Industrie. See "History of the Company."
DEPENDENCE UPON THE CONTINUATION OF CHANGING TRENDS IN THE MANUFACTURING
INDUSTRY. Historically, manufacturers have utilized tool and die technology both
to stamp the shape of a component and to cut and finish its details. The use of
precision laser cutting and welding systems as a replacement for tool and die
technology in the precision cutting and finishing stages of manufacturing has
been limited to prototype development and relatively low volume production runs
because these systems do not process components as quickly as do tool and die
systems. The Company believes that certain trends in the manufacturing industry
are causing an increasing emphasis on lower volume production runs and a
decreasing emphasis on processing speed for precision cutting and finishing. A
key component of the Company's strategy is to take advantage of the continued
and expanded use of precision laser cutting and welding systems as a result of
these trends. There can be no assurance, however, that these trends will
continue or, indeed, that they will not reverse course. The deceleration or
reversal of any of these trends could have a material adverse effect on the
Company's growth strategy, and, therefore, its business, financial condition and
results of operations. See "Business -- Strategy" and "-- the Automotive
Fabrication Process."
HISTORIC LACK OF PROFITABILITY. Prior to 1996, Prima Industrie experienced
several years of net operating losses. These losses were financed by capital
infusions and loans. A substantial part of Prima Industrie's profits in 1996 are
attributable to gains resulting from the sale of Sapri S.p.A., a subsidiary of
Prima Industrie, rather than from ongoing operations. While Prima Industrie has
changed its business plan to focus on precision laser cutting and welding
systems and experienced increased profitability in 1997, there can be no
assurance that this business plan will continue to produce profitable results.
See "History of the Company," "Management's Discussion and Analysis of Financial
Condition and Results of Operation" and "Business -- Strategy."
RISKS ASSOCIATED WITH LICENSING. The Company's strategy for expansion of
its market for 2-D Products is to license its technology to other entities for
the manufacture and distribution of those Products in geographic regions in
which the Company has not achieved market penetration. See
"Business -- Strategy." Since a license will grant to the licensee exclusive
rights in a specified territory outside of Europe, the success of the Company's
strategy will depend on the ability of the Company's management to select
licensees that will aggressively promote the products made under such licenses.
While the Company expects to enter into license agreements that give the Company
certain termination rights if the licensee is not performing as required, the
ability of the Company to enforce those rights will depend upon the laws and the
judicial system of the territory in which the licensee is resident.
The Company has entered into licenses with Strippit, Inc. ("Strippit") to
market the Company's 2-D Products in North America and with Beijing Machinery
and Electricity Institute to market certain of the Company's 2-D Products in
China (the "China License"). Strippit is a wholly owned subsidiary of Idex
Corporation. Idex Corporation has announced that it is offering to sell Strippit
and has commenced a process to solicit bids for the acquisition of Strippit.
The purchase of Strippit by an entity with interests adverse to those of the
Company could have a material adverse effect on the Company's licensing
activities in North America. Accordingly, the Company is monitoring the auction
process. See "Business -- Licensing." The implementation of the China License
has been delayed, because it must be approved by the government of the People's
Republic of China. There can be no assurance that the requisite approval will be
forthcoming for consummation of the China License and for the payments required
thereunder. Delays in the approval of the China License, and the payment of
royalties required to be made thereunder, could adversely affect the Company's
financial performance in 1998.
COMPETITION. To remain competitive, the Company believes that it will be
required to manufacture and deliver products to customers on a timely basis with
high quality and that it will also be required to maintain a high level of
capital commitment to research and development and to sales and marketing. There
can be no assurance that the Company will have sufficient resources to continue
to make the investments necessary to maintain its competitive position. In
addition, there can be no assurance that the Company's larger competitors in the
2-D market place, which have substantially greater financial resources than the
Company, will not attempt to enter the 3-D marketplace. The chances of
competitors with a larger capital base entering the 3-D market will increase if
the 3-D market expands at the rate that the Company expects. See "Business --
Competition."
CURRENCY RISKS. The Company's profitability has been affected by the
changes in the relative values of the Italian Lira ("Lit"), the German Deutsche
Mark ("DM") and the U.S. Dollar ("Dollar"). The Company purchases various
components of
7
<PAGE>
its Products, including most of its lasers, in DM denominated transactions. It
also has had significant delays in collecting its accounts receivable. These
factors exacerbate the effects that result from the traditional volatility of
the Lit. The planned conversion under the EMU to a single currency in January of
1999 will affect the Company's profitability as the conversion occurs, but the
effect cannot be predicted. As the Company attempts to increase total revenues
by new or increased sales in North and South America and Asia, currency risks
will continue to affect its profitability, although management expects that
these non-European transactions will be denominated in Dollars. For as long as
the Lit remains volatile against the Dollar and other important trading
currencies, the Company will attempt to minimize exposure to exchange rate
fluctuations by purchasing goods and services in currencies with more favorable
exchange rates. Management will continue to monitor the Company's exposure to
currency fluctuations and use forward currency purchases to minimize the effect
of these fluctuations; however, exchange rate fluctuations may have a material
adverse effect on the Company's business, financial condition and results of
operations. In the future, the Company may be required to sell its products in
other currencies, making the management of currency fluctuations more difficult
and exposing the Company to greater risks in this regard. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RISK OF EXPANSION OF FOREIGN OPERATIONS. The Company's growth strategy
involves an aggressive expansion of its business in Europe, the Americas and the
Pacific Rim. There can be no assurance that the Company will be able to manage
this expansion effectively or that the Company's investment in these activities
will enable it to compete successfully in these markets or to meet the service
and support needs of its customers. Additionally, a significant portion of the
Company's sales and operations could be subject to certain additional risks as a
result of continued expansion into foreign markets, including tariffs and other
barriers, difficulties in staffing and managing foreign subsidiary and branch
operations, currency exchange risks and exchange controls, potentially adverse
tax consequences and the possibility of difficulty in collecting its accounts
receivable. Further, while the Company is presently in full compliance with
export controls, these rules could change in the future and make it more
expensive, difficult or impossible for the Company to export its products to
various countries. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business."
DEPENDENCE ON KEY SUPPLIERS. Certain of the components and subassemblies
included in the Company's products are obtained from a limited group of
suppliers. In particular, there are few alternative sources for certain laser
and optical components used in the Company's Products. In addition, the Company
is increasingly outsourcing the manufacture of subassemblies. In the fourth
quarter of 1997, the Company sold, through an agreement with a leasing company,
certain machine tools and equipment to Macromeccanica S.p.A. ("Macromeccanica")
and the Company has entered into a supply agreement with Macromeccanica for it
to provide certain subassemblies to the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview." If
the Company is unable to obtain a sufficient quantity of components or
subassemblies, or if such items do not meet the Company's quality standards,
delays or reductions in product shipments could occur, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Manufacturing."
GOVERNMENTAL REGULATION. The Company's products are subject to numerous
foreign government standards and regulations that are regularly being amended.
Although the Company endeavors to meet foreign technical and regulatory
standards, there can be no assurance that the Company's products will continue
to comply with foreign government standards and regulations, or changes thereto,
or that it will be cost-effective for the Company to redesign its products to
comply with such standards and regulations. Although Prima Industrie and Prima
Electronics have each received ISO 9001 certification, the inability of the
Company to design or redesign products to comply with foreign standards would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Manufacturing" and "-- Quality."
RAPID TECHNOLOGICAL CHANGE; ACCEPTANCE OF NEW PRODUCT INTRODUCTIONS.
Precision laser cutting and welding equipment and processes are subject to rapid
technological change. The Company believes that its future success will depend
in part upon its ability to continue to enhance its products and to develop and
manufacture new products with improved capabilities. In order to enhance and
improve its products and develop new products, among other things, the Company
must work closely with its customers to integrate its laser cutting and welding
equipment into its customer's production systems. There can be no assurance that
future technologies will not render the Company's Products obsolete or that the
Company will be able to develop and introduce new Products or enhancements to
its existing products and processes in a timely manner that satisfy customer
needs or achieve market acceptance. The failure to do so could materially
adversely affect the Company's business, financial condition and results of
operations. See "Business -- Research and Development."
8
<PAGE>
RISKS ASSOCIATED WITH PROFIT MARGINS ON NEW PRODUCTS. The Company has
historically experienced low profit margins with the introduction of new
Products and for a substantial period thereafter. The inability of the Company
to improve profit margins for new Products will adversely affect the Company's
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Results of Operations."
RISKS ASSOCIATED WITH RAPID AND SUBSTANTIAL MANUFACTURING EXPANSION. To
meet current and anticipated demand for its Products, the Company must
substantially increase the rate by which it manufactures and tests its Products
by the end of 1998. Additionally, the Company may underestimate the costs
required to increase its manufacturing capacity, which may materially adversely
affect the Company's business, financial condition and results of operations. In
addition to increasing manufacturing and assembly capacity at its facilities in
Turin, Italy, the Company plans to commence assembly operations in North America
within two years. However, there can be no assurance that the Company will be
successful and commence assembly operations on schedule. The failure of the
Company to commence assembly operations on schedule could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Manufacturing."
LIKELY FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's quarterly
operating results have fluctuated in the past and are likely to fluctuate
significantly in the future, depending upon a variety of factors. Such factors
may include: the demand for precision laser cutting and welding systems in
general and, in particular, for the Company's Products; the timing and size of
orders from the Company's base of customers; the ability of the Company to
manufacture, test and deliver its Products in a timely and cost-effective
manner; the timing of new product announcements and releases by the Company and
its competitors; the entry of new competitors into the market for precision
laser cutting and welding equipment; the ability of the Company to manage its
costs as it begins to supply its Products in larger volumes; and the Company's
ability to manage effectively its exposure to foreign currency exchange rate
fluctuations.
The Company derives substantial portions of its quarterly and annual
revenues from the sales of its Products, and these revenues are subject to
historical seasonality. The Company's fourth quarter is typically its strongest
revenue quarter. By contrast, in the first and third quarters of each fiscal
year, the Company historically has experienced lower revenues as a result of
extended European holidays during Christmas and New Year's and the traditional
European month-long summer holiday, typically taken in August. In addition, the
timing of the recognition of revenue from an order for one or a small number of
systems can have a significant impact on the Company's total revenues and
operating results for a particular period. In addition, the Company's operating
results for a particular period could be adversely affected by the cancellation,
re-scheduling or delay of orders for a small number of systems, or even one
system. The Company's expense levels are based, in large part, on the Company's
expectations as to future revenues and are, therefore, relatively fixed in the
short term. If revenues fall below expectations, net income will be
disproportionately and adversely affected. The impact of these and other factors
on the Company's revenues and operating results in any future period cannot be
forecast with any degree of certainty. See "Business -- Backlog." Due to the
foregoing factors, as well as other unanticipated factors, it is likely that, in
some future quarter, the Company's operating results will be below the
expectations of public market analysts or investors. In such event, the price of
the Common Stock will be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
NEED TO MANAGE GROWTH. The Company intends to expand its operations
substantially following the completion of this Offering. This expansion may
place a significant strain on the Company's management, financial and other
resources. Managing the growth of the Company's business, if such growth occurs,
will require the Company to continue to improve and expand its management,
operational and financial systems, procedures and controls, including accounting
and other internal management systems, and its quality control, delivery and
field service and customer support capabilities. There can be no assurance that
the Company will be able to successfully expand its operations, effect timely
deliveries of its Products or maintain the product quality and reliability
required by its customers. The Company has experienced, and may continue to
experience, delays in deliveries to customers as a result of its inability to
increase its manufacturing capacity fast enough to meet demand. Any failure to
manage the Company's growth, if such growth occurs, would materially adversely
affect the Company's business, financial condition and results of operations.
NEED TO EXPAND FIELD SERVICE AND SUPPORT ORGANIZATION. The Company believes
that the need to provide fast and responsive service to the automotive industry
and automotive equipment suppliers is critical to the Company's success.
Therefore, the Company believes it is essential to establish, through its own
personnel or through third-party personnel, a rapid response capability to
service its Products throughout the world. There can be no assurance that the
Company will be able to attract qualified personnel to establish these
operations successfully or that the costs of such operations will not be
9
<PAGE>
excessive. A failure to implement this plan effectively could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Strategy."
AVAILABILITY OF FUTURE FINANCING. The Company requires substantial working
capital to fund its business, particularly to finance inventories, accounts
receivable and capital expenditures. The Company believes that the net proceeds
of this Offering, together with anticipated cash provided by operations and
available lines of credit, will be adequate to meet its cash needs for at least
the next 12 months. The Company's future capital requirements will depend on
many factors, including the rate of the Company's manufacturing expansion, the
timing and extent of spending to support product development efforts and
expansion of sales and marketing and field service and support, the timing of
introductions of new products and enhancements to existing Products, and market
acceptance of the Company's Products. The Company expects that it may need to
raise additional equity or debt financing in the future. There can be no
assurance that additional equity or debt financing, if required, will be
available on acceptable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
UNCERTAINTY REGARDING PROTECTION OF PROPRIETARY TECHNOLOGY AND PATENTS. The
Company relies upon patent and other intellectual property protection, including
trademark, copyright and, more recently, trade secret protection. The Company
owns 11 United States, European and Japanese patents covering certain aspects of
technology associated with laser cutting and welding. These patents expire on
dates beginning in November 2002 and ending in January 2014. The Company has
chosen to maintain patent protection primarily in its core lines of business.
There can be no assurance that any issued patents will provide the Company with
competitive advantages or that such patents will not be challenged by third
parties, or that the patents of others will not have an adverse effect on the
Company's ability to do business. Additionally, because foreign patents may
afford less protection under foreign law than is available under United States
patent law, there can be no assurance that any foreign patents issued to the
Company will adequately protect the Company's proprietary information.
Furthermore, there can be no assurance that others will not independently
develop similar products, duplicate the Company's products or, if patents are
issued to the Company, design products that duplicate the uses of the Company's
Products without violating its patents.
Others may have filed, and in the future may file, patent applications that
are similar or identical to those of the Company. No assurance can be given that
any such patent application will not have priority over patent applications
filed by the Company. Determining priority for such inventions could result in
substantial cost to the Company, and there can be no assurance as to the outcome
of any such proceeding.
Within the past few years, the Company also has begun to rely upon trade
secret protection, including employee and third-party confidentiality
agreements. Despite these efforts, there can be no assurance that others will
not independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets and
technology or that the Company can meaningfully protect its trade secrets.
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent on the
services of a number of key employees in various areas, including engineering,
research and development, sales and marketing and manufacturing. The Company has
in the past experienced difficulty in hiring personnel, including experts in
laser technology. The Company believes that, to a large extent, its future
success will depend upon the continued service of its engineering, research and
development, sales and marketing and manufacturing personnel and on its ability
to attract and retain highly skilled personnel in each of these areas as the
Company expands its operations. Prior to the effective date of this Offering,
the Company will purchase key-man life insurance policies, in the amount of
$1,000,000 on the life of James R. Currier, Sr., the Company's President and
Chief Executive Officer, and in the amount of $250,000 on the life of Gianfranco
Carbonato, the Company's Executive Vice President and Chief Operating Officer
and the Managing Director and Chief Executive Officer of Prima Industrie. The
Company intends to increase the life insurance coverage for Mr. Carbonato to
$1,000,000. The Company has entered into employment agreements with certain of
its key executives, but there is no assurance that the Company will be able to
retain other key employees. The failure of the Company to hire and retain such
personnel or recruit replacement personnel could have a material adverse effect
on the Company's business, financial condition and results of operation. See
"Business -- Employees," and "Management -- Employment Agreements."
RISK OF PRODUCT LIABILITY CLAIMS AND PRODUCT RECALLS. The Company faces a
significant risk of exposure to product liability claims in the event that the
use of its Products results in personal injury or death, and there can be no
assurance that the Company will not experience material product liability losses
in the future. The Company maintains insurance against product liability claims
in the amount of $1.0 million per occurrence and $1.5 million in the aggregate,
which it believes is sufficient in light of historical loss experience and
industry custom. There can be no assurance, however, that such coverage will
continue to be available on terms acceptable to the Company or that such
coverage will be adequate for liabilities actually incurred. In addition, in the
event that any of the Company's products prove to be defective, the Company may
be
10
<PAGE>
required to recall or redesign such products. A successful claim brought against
the Company in excess of available insurance coverage, or any claim or product
recall, especially one that results in significant adverse publicity against the
Company, could have a material adverse effect on the Company's business,
financial condition and results of operations.
YEAR 2000 AND EMU COMPLIANCE ISSUES. In 1998, the Company intends to
replace the information technology systems at Prima Industrie and Prima
Electronics. The Company has allocated $450,000 of the net proceeds of this
Offering for hardware, software, installation, and training expenditures for new
information technology systems. The Enterprise Resource Planning software
programs that the Company intends to purchase are designed to be Year 2000 and
EMU compliant. The failure by the Company to implement this software and to
convert its existing data for use with this software will adversely affect the
Company's business, financial condition and results of operations and may cause
the reported financial condition to not be indicative of future operating
results or financial condition.
RISKS OF HOLDING COMPANY STRUCTURE. The Company presently conducts all of
its operations through Prima Industrie and its subsidiaries, including Prima
Electronics. Accordingly, the primary internal source of the Company's cash is
dividends and other distributions from its subsidiaries, as well as
inter-company advances. The ability of Prima Industrie and its subsidiaries to
make distributions to the Company is subject to their having sufficient funds
legally available for payment thereof which are not needed to fund operations,
obligations or other business plans. The laws of the Republic of Italy provide
generally that dividends may be declared out of yearly profits, subject to
maintenance of registered capital and required reserves and after the recovery
of accumulated losses. As a stockholder of Prima Industrie, the Company's claims
as such will generally rank junior to all other creditors of and claimants
against Prima Industrie. However, in addition to capital investments to be made
in Prima Industrie, the Company has established an initial secured lending
facility of up to $3 million with Prima Industrie in order to collateralize
certain advances made to Prima Industrie. See "Use of Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares of
Common Stock in the public market following this Offering could adversely affect
the market price for the Company's Common Stock. Upon completion of this
Offering, the 2,000,000 Shares sold in this Offering will be freely tradeable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), by persons other than "affiliates" of the
Company. The remaining 2,700,300 shares of Common Stock to be outstanding
following the Offering will be "restricted securities" within the meaning of
Rule 144 promulgated under the Securities Act ("Rule 144") and may not be sold
in the absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption provided by Rule 144. In
addition, all of the holders of such shares have executed lock-up agreements
pursuant to which they have each agreed not to sell or otherwise dispose of any
of their shares for a period of two years after the date of this Prospectus
without the prior written consent of both the Underwriters and the Company;
provided, that the Underwriters will waive the restrictions contained in such
agreements, on a pro rata basis to all parties subject to such agreements, if
the Company undertakes a public offering or private placement of Common Stock
and the underwriter or placement agent for such public offering or private
placement agrees that the shares of Common Stock for which such restrictions are
waived will be sold as part of the orderly distribution of securities to be sold
in such public offering or private placement. Following the expiration of such
lock-up agreements, such shares will become available for resale in the public
market, subject to the volume limitations, holding periods and other
restrictions of Rule 144. See "Shares Eligible for Future Sale."
RISKS ASSOCIATED WITH FINANCING FUTURE ACQUISITIONS. The Company's strategy
for growth is based, in part, upon acquisitions of existing businesses. Those
acquisitions may involve additional issuances of shares of Common Stock or
preferred stock to the owners of the acquired businesses or may involve the
incurrence of substantial debt financing. While the Company has had discussions
with several potential acquisition candidates, it has no present plans for
acquisitions, the issuance of additional shares or the incurrence of debt
financing. The issuance of additional shares may adversely affect the market
price of the Common Stock. Debt financing may require the Company to pay
significant amounts as interest and principal payments, thus reducing the
resources available to expand its existing businesses. See
"Business -- Strategy."
NO PRIOR MARKET; POSSIBLE LOW VOLUME AND HIGH VOLATILITY OF STOCK PRICE.
Prior to this Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active public market will develop or be
sustained after this Offering. The Offering Price has been determined by
negotiations among the Company and the representatives of the Underwriters and
does not necessarily reflect the market price of the Common Stock after this
Offering. The trading price of the Common Stock could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the Company or its
competitors, as well as other events or factors, such as the issuance of shares
of Common Stock to consummate an acquisition. Moreover, certain Italian
financial institutions have expressed an interest in purchasing over fifty
percent of the Shares to be sold in the Offering. The concentration of ownership
resulting from such sales to Italian financial institutions may substantially
decrease the trading
11
<PAGE>
volume of the Common Stock and, therefore, increase the volatility of its
trading price. In addition, the equity markets have from time to time
experienced extreme price and volume fluctuations which have particularly
affected the market price of many high technology companies and which often have
been unrelated to the operating performance of these companies. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock. See "Underwriting."
DILUTION. Purchasers of the Shares offered by this Prospectus will suffer
immediate and substantial dilution of 52.4% of their investment in the Shares
from the Offering Price. See "Dilution."
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE. The Board of Directors is
authorized to issue, without stockholder approval, up to 1,000,000 shares of
preferred stock with voting, conversion and other rights and preferences that
may be superior to those of the Common Stock and that could adversely affect the
voting power or other rights of the holders of Common Stock. The issuance of
Preferred Stock or of rights to purchase the Company's preferred stock could be
used to discourage an unsolicited acquisition proposal. See "Description of
Capital Stock -- Preferred Stock."
RISKS ASSOCIATED WITH THE REPRESENTATIVE'S INFLUENCE ON THE MARKET. The
representative of the Underwriters (the "Representative") may from time to time
following the completion of this Offering act as a market-maker and otherwise
effect transactions in the Common Stock. The Representative is not legally
obligated by law or by contract to continue such trading, which may be
discontinued at any time. Any such cessation could have a material effect upon
the price and liquidity of the Common stock. The Representative is subject to
the supervision of various governmental and self regulatory organizations, as
well as certain capital requirements. Such regulatory authorities periodically
investigate and audit the activities of broker-dealers, such as the
Representative. In the event the Representative is required to curtail or cease
operations as a result of administrative actions instituted by the regulatory
authorities or because of lack of capital, the price and liquidity of the Common
stock may be materially adversely affected by the reduced participation or
complete absence of the Representative from the market.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 Shares
offered hereby are estimated to be $17,200,000 ($19,900,000 if the
Over-Allotment Option is exercised in full), assuming an Offering Price of
$10.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company. The Company
anticipates that the net proceeds will be used in the following manner.
<TABLE>
<CAPTION>
EXERCISE OF
OVER-ALLOTMENT OPTION
----------------------------
APPLICATION OF APPROXIMATE PERCENTAGE OF APPROXIMATE PERCENTAGE OF
NET PROCEEDS AMOUNT NET PROCEEDS AMOUNT NET PROCEEDS
--------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Equity Contribution to Subsidiary (1)............................. $ 4,800,000 27.9% $ 4,800,000 24.1%
Marketing and Sales Promotion (2)................................. 3,000,000 17.4% 3,000,000 15.1%
Research and Development (3)...................................... 3,000,000 17.4% 3,000,000 15.1%
Transactions with Certain Officers (4)............................ 1,650,000 9.6% 1,650,000 8.3%
Working Capital (5)............................................... 4,750,000 27.7% 7,450,000 37.4%
----------- ------------- ----------- -------------
TOTAL........................................................ $17,200,000 100.0% $19,900,000 100.0%
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
- ---------------
(1) The Company will make a capital contribution to Prima Industrie in order to
pay down outstanding indebtedness of Prima Industrie under lines of credit
with Italian financial institutions. Prima Industrie will retire a demand
bank line-of-credit with an interest rate of prime plus 0.5%. At December
31, 1997, this line-of-credit had an outstanding balance of $1.71 million.
The balance of these funds will be used to reduce an annually renewable bank
line-of-credit with an original principal amount of $10.163 million. This
second line-of-credit has an interest of prime plus 0.5% for advances on
accounts receivable and prime for advances on customer orders collateralized
by accounts receivable. At December 31, 1997, the outstanding balance of
this second line-of-credit was $5.952 million. As of December 31, 1997, the
prime interest rate for these loans was 9%.
(2) Expenditures will be made for marketing and sales promotion in the periods
from 1998 through the year 2000, including the presentation of exhibits at
major machine tool exhibitions throughout the world, extensive marketing and
promotional efforts to introduce new products and key account promotions.
(3) Expenditures will be made to fund research and development activities
through the year 2000 to introduce the "Laser-On-Line" product family of
precision cutting and welding products and systems. These product
developments are intended to transform existing 3-D Products from
"prototyping" equipment to a more robust production oriented family of
precision cutting and welding products and technology. See
"Business -- Strategy." The Company has entered into a joint development
agreement with Prima Industrie to complete these developments. Pursuant to
the joint development agreement, the Company will have exclusive rights to
these developments outside of Italy. The Company will provide funding for
these R&D projects in amounts of approximately $1,150,000 during the 1998
fiscal year, $1,040,000 during the 1999 fiscal year, and $810,000 during the
2000 fiscal year.
(4) An aggregate of $450,000 will be paid to Messrs. Currier and Ciamaroni under
their employment agreements as a noncompetition payment. See
"Management -- Employment Agreements." In addition, the Company will lend an
aggregate of $1,200,000 to Messrs. Currier and Ciamaroni that they will use
to retire an indebtedness to a shareholder of the Company incurred in
connection with their purchase of shares of Prima Industrie from that
shareholder. See "Certain Transactions."
(5) The balance of the net offering proceeds will be utilized for general
corporate requirements, including financing working capital needs of the
Company's subsidiary operations. Approximately $450,000 will be used in 1998
to fund the replacement of the information technology systems used by Prima
Industrie, Prima Electronics and their affiliates to prepare for the Year
2000 and the conversion to a single European currency under the EMU. The
Company will provide an initial line of credit in the amount of $3 million
to Prima Industrie. Prima Industrie will use the proceeds of this line of
credit to reduce its indebtedness under credit facilities with Italian
financial institutions. The line of credit will be secured by a lien on the
inventory of Prima Industrie and by a lien on the receivables of Prima US,
Prima Industrie's subsidiary based in the United States. The balance of
funds may be used to finance acquisitions.
Pending such uses, the net proceeds to the Company from this Offering will
be invested in short-term, investment grade, interest-bearing securities.
13
<PAGE>
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based upon the Company's currently
contemplated operations and business plans, as well as current economic and
industry conditions, and is subject to reapportionment among the categories
listed above in response to, among other things, changes in the Company's plans,
unanticipated future revenues and expenditures and unanticipated industry
conditions. The amount and timing of expenditures will vary depending on a
number of factors, including, without limitation, the results of operations and
changing industry conditions. To the extent deemed appropriate by management,
the Company may acquire fully developed products or businesses which, in the
opinion of management, facilitate the growth of the Company or enhance the
market penetration or reputation of its Products. To the extent that the Company
identifies any such opportunities, an acquisition may involve the expenditure of
significant cash or the issuance of capital stock of the Company. Any
expenditure of cash will reduce the amount of cash available for working capital
or marketing and promotional purposes. The Company currently has no commitments,
understandings or arrangements with respect to any such acquisition.
DIVIDEND POLICY
To date, Prima Industrie, Prima Electronics and the Company have not
declared or paid any cash dividends on their capital stock. The Company
currently intends to retain any future earnings to finance the growth and
development of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.
14
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1997, (i) the actual
short-term obligations and capitalization of the Company on a consolidated
basis, and (ii) the pro forma short-term obligations and capitalization of the
Company, after giving effect to the receipt by the Company of the estimated net
proceeds from the sale of the 2,000,000 shares of Common Stock offered hereby at
an assumed Offering Price of $10.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company and the application of the net proceeds thereof.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------
ACTUAL PRO FORMA
------- ---------
<S> <C> <C>
(IN THOUSANDS)
Short-term obligations(1).............................................................................. $ 8,472 $ 3,672
Long-term debt......................................................................................... 444 444
Stockholders' equity (deficit): Preferred Stock, $0.01 par value: actual and pro forma -- 1,000,000
shares authorized, no shares issued or outstanding................................................... -- --
Common Stock: actual $0.01 par value, 14,000,000 shares authorized, 2,700,300 shares issued and
outstanding; pro forma -- $0.01 par value, 14,000,000 shares authorized, 4,700,300 shares issued and
outstanding.......................................................................................... 27 47
Additional paid-in capital............................................................................. 13,736 30,916
Accumulated deficit.................................................................................... (7,708) (8,158)
Cumulative translation adjustment...................................................................... (726) (726)
Notes receivable from stockholders(2).................................................................. -- (1,200)
------- ---------
Total stockholders' equity............................................................................. 5,329 20,879
------- ---------
Total capitalization................................................................................... $14,245 $24,995
------- ---------
------- ---------
</TABLE>
- ---------------
(1) Short-term obligations consist of short-term indebtedness for borrowed money
and the current portion of capital lease obligations. See Note 7 of Notes to
Consolidated Financial Statements.
(2) The Company will lend an aggregate of $1,200,000 to Messrs. Currier and
Ciamaroni that they will use to retire indebtedness to a stockholder of the
Company incurred in connection with their purchase of shares of Prima
Industrie from that stockholder. See "Use of Proceeds" and "Certain
Transactions."
15
<PAGE>
DILUTION
The net tangible book value of the Company as of December 31, 1997 was
$4,662,000, or approximately $1.73 per share. After giving effect to the sale by
the Company of 2,000,000 Shares in this Offering at an assumed Offering Price of
$10.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company, the pro
forma net tangible book value of the Company at December 31, 1997 would be
$22,383,000, or $4.76 per share. This represents an immediate increase in pro
forma net tangible book value of $3.03 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $5.24 per share to
new investors purchasing Shares in this Offering. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed Offering Price per Share............................................................................ $10.00
Pro forma net tangible book value per Share before this Offering............................................ $1.73
Increase in pro forma net tangible book value per Share attributable to existing stockholders in this
Offering.................................................................................................. $3.03
Pro forma net tangible book value per share after this Offering............................................. $ 4.76
------
Dilution per share to new investors in this Offering........................................................ $ 5.24
------
------
</TABLE>
The following table summarizes on a pro forma basis, as of the date of this
Prospectus, the difference between the existing stockholders and the purchasers
of Shares in this Offering with respect to the number of shares purchased from
the Company, the total consideration paid and the average price per share paid,
and the sale of 2,000,000 Shares at an Offering Price of $10.00 per share
(before deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ----------------------
NUMBER PERCENT AMOUNT PERCENT
--------- ------- ----------- -------
<S> <C> <C> <C> <C>
Existing stockholders(1)....................................................... 2,700,300 57.4% $ 7,078,000 26.1%
New investors.................................................................. 2,000,000 42.6 20,000,000 73.9
--------- ------- ----------- -------
Total..................................................................... 4,700,300 100.0% $27,078,000 100.0%
--------- ------- ----------- -------
--------- ------- ----------- -------
</TABLE>
- ---------------
(1) The amount shown takes into account (a) the issuance of 300 shares for
$3,000 to James R. Currier, Sr. and Giovanni Ciamaroni; and (b) the exchange
by the Prima Industrie shareholders of substantially all of the outstanding
capital stock of Prima Industrie in return for 2,700,000 shares of Common
Stock.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with Prima Industrie's consolidated financial statements and notes
thereto and with Management's Discussion and Analysis of Financial Condition and
Results of Operations, which are included elsewhere in this Prospectus. On April
23, 1998, the Company acquired substantially all of the outstanding shares of
Prima Industrie. The acquisition of Prima Industrie will be accounted for as a
recapitalization of Prima Industrie, with no goodwill or other intangibles
recorded. The consolidated statement of operations data for the year ended
December 31, 1993 and the consolidated balance sheet data at December 31, 1993
are derived from consolidated financial statements of Prima Industrie not
included in this Prospectus, which have not been audited by Hein + Associates
LLP. The data for 1993 has been revised by the Company to reflect the
requirements of U.S. generally accepted accounting principles. These historical
results are not necessarily indicative of the results to be expected in the
future.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:(1)
Revenues:
Net sales............................................................ $43,560 $41,108 $37,356 $27,774 $27,814
Other operating revenue.............................................. 626 1,207 1,204 622 965
Total revenues....................................................... 44,186 42,315 38,560 28,396 28,779
Cost of goods sold..................................................... 35,157 34,357 32,565 27,373 24,302
Gross profit........................................................... 9,029 7,958 5,995 1,023 4,477
Research and development costs......................................... 1,335 1,329 670 656 705
Selling, general and administrative costs.............................. 5,513 5,218 5,250 4,165 5,076
Total costs and expenses............................................... 42,005 40,904 38,485 32,194 30,083
Operating income....................................................... 2,181 1,411 75 (3,798) (1,304)
Gain on sale of assets................................................. 441 1,059
Other income (expense)................................................. (623) (733) (2,302) (1,637) 524
Income (loss) before income taxes and minority interest................ 1,999 1,737 (2,227) (5,435) (780)
Current income taxes................................................... (444) (189) (43) (4)
Minority interest...................................................... (192) (213) (130) 169 15
Net income (loss) (2).................................................. 1,363 1,335 (2,400) (5,270) (765)
Pro forma earnings (loss) per share (2)(3)(4).......................... $ 0.50 $ 0.49 $ (1.39) $ (2.70) $ (0.38)
Pro forma weighted average common and common equivalent shares
outstanding (3)...................................................... 2,700 2,700 1,721 1,954 2,033
CONSOLIDATED BALANCE SHEET DATA: (1)
Cash and cash equivalents.............................................. 1,330 585 804 620 2,518
Working capital........................................................ 6,332 6,320 3,574 (687) 2,365
Total assets........................................................... 33,909 36,352 35,268 31,080 34,240
Total liabilities...................................................... 28,531 31,608 32,037 33,796 31,871
Stockholders' equity................................................... 5,378 4,744 3,231 (2,716) 2,369
</TABLE>
- ---------------
(1) This financial data reflects the financial condition and operations of Prima
Industrie prior to the acquisition by the Company of substantially all of
the issued and outstanding capital stock of Prima Industrie.
(2) Net income includes gain on sale of equipment of $427,000 (net of tax) in
1997 and net gain on sale of subsidiaries of $766,000 (net of tax) in 1996.
These items are considered by management to be nonrecurring. The effect on
earnings per share of these amounts (net of tax) is $.16 in 1997 and $.28 in
1996.
(3) The historical share and per share amounts have been retroactively restated
to reflect the exchange of substantially all of the outstanding shares of
Prima Industrie for 2,700,000 shares of Common Stock of the Company, which
occurred on April 23, 1998. See Note 15 to the financial statements at page
F-21.
(4) No cash dividends have been declared by the Company or Prima Industrie. An
aggregate of $450,000 will be paid to Messrs. Currier and Ciamaroni in 1998
under their employment agreements as non-competition payments. In addition,
the Company will lend an aggregate of $1,200,000 to Messrs. Currier and
Ciamaroni that they will use to retire indebtedness to a stockholder of the
Company incurred in connection with their purchase of shares of Prima
Industrie from that stockholder. See "Use of Proceeds" and "Certain
Transactions."
17
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
On April 23, 1998, the Prima Group International, Inc. (PRIMA) acquired
substantially all of the outstanding shares of Prima Industrie S.p.A. (Prima
Industrie) in exchange for 2,700,000 shares of PRIMA.
For accounting purposes, the acquisition of Prima Industrie will be
accounted for as a recapitalization of Prima Industrie, with no goodwill or
other intangibles recorded, as PRIMA has no operations and the shareholders of
Prima Industrie will have effective control of the combined entity.
The accompanying unaudited pro forma balance sheet combines the December
31, 1997 balance sheets of Prima Industrie and PRIMA as if the transaction had
occurred on that date.
The accompanying unaudited pro forma statements of operations combine the
operations of Prima Industrie and PRIMA for the year ended December 31, 1997 as
if the transaction had occurred as of January 1, 1997.
These statements are not necessarily indicative of future operations or the
actual results that would have occurred had the transaction been consummated at
the beginning of the periods indicated.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements and notes thereto, included
elsewhere in this document.
18
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRIMA PRO FORMA COMBINED
PRIMA INDUSTRIE ADJUSTMENTS (A)
----- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 26 $ 1,330 $ $ 1,356
Trade accounts receivable, net of allowance of $345..................... -- 19,107 19,107
Other accounts receivable............................................... -- 2,452 2,452
Inventories............................................................. -- 8,223 8,223
Other................................................................... -- 193 193
----- ---------- ----------- ----------
TOTAL CURRENT ASSETS................................................. 26 31,305 31,331
PROPERTY, PLANT AND EQUIPMENT, net........................................ -- 1,551 1,551
DEFERRED OFFERING COSTS................................................... 521 -- 521
PATENTS AND OTHER INTANGIBLE ASSETS, net.................................. -- 143 143
INVESTMENTS AND OTHER ASSETS.............................................. -- 467 467
ADVANCES TO AFFILIATE..................................................... -- 443 (443)(b) --
----- ---------- ----------- ----------
TOTAL ASSETS......................................................... $547 $ 33,909 $(443) $ 34,013
----- ---------- ----------- ----------
----- ---------- ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable and long-term debt..................... $ -- $ 8,472 $ $ 8,472
Accounts payable........................................................ 146 12,063 10(d) 12,219
Customer deposits....................................................... -- 343 343
Other accrued expenses and liabilities.................................. -- 3,692 3,692
Deferred income......................................................... -- 72 72
Income taxes payable.................................................... -- 331 331
Advances from affiliate................................................. 443 -- (443)(b) --
----- ---------- ----------- ----------
Total current liabilities............................................ 589 24,973 (433) 25,129
LONG-TERM DEBT............................................................ -- 444 444
EMPLOYEE TERMINATION ACCRUAL.............................................. -- 2,455 2,455
MINORITY INTEREST......................................................... -- 659 659
STOCKHOLDERS' EQUITY:
Common stock............................................................ -- 27 27
Additional paid-in capital.............................................. 3 13,775 (42)(a) 13,736
Foreign currency translation adjustments................................ -- (726) (726)
Common stock subscriptions receivable................................... (3 ) -- (3)
Accumulated deficit..................................................... (42 ) (7,698) 32(a)(d) (7,708)
----- ---------- ----------- ----------
Total stockholders' equity........................................... (42 ) 5,378 (10) 5,326
----- ---------- ----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................ $547 $ 33,909 $(443) $ 34,013
----- ---------- ----------- ----------
----- ---------- ----------- ----------
</TABLE>
See accompanying notes.
19
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRIMA PRO FORMA PRO FORMA
PRIMA INDUSTRIE ADJUSTMENTS COMBINED
-------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Net sales............................................................. $ -- $ 43,560 $ $ 43,560
Other operating revenue............................................... -- 626 626
-------- ---------- ----------- ----------
Total revenues..................................................... -- 44,186 44,186
COSTS AND EXPENSES:
Cost of goods sold.................................................... -- 35,157 35,157
Research and development costs........................................ -- 1,335 1,335
Selling, general and administrative costs............................. 42 5,513 775(c) 6,330
-------- ---------- ----------- ----------
Total costs and expenses........................................... 42 42,005 775 42,822
-------- ---------- ----------- ----------
OPERATING INCOME........................................................ (42) 2,181 (775) 1,364
OTHER INCOME (EXPENSE):
Interest and other income............................................. -- 393 393
Gain on sale of assets................................................ -- 441 441
Gain (loss) on foreign exchange....................................... -- 151 151
Interest expense...................................................... -- (1,167) (1,167)
-------- ---------- ----------- ----------
-- (182) (182)
-------- ---------- ----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST................. (42) 1,999 (775) 1,182
CURRENT INCOME TAXES.................................................... -- (444) (444)
MINORITY INTEREST....................................................... -- (192) (192)
-------- ---------- ----------- ----------
NET INCOME (LOSS)....................................................... $ (42) $ 1,363 $(775) $ 546
-------- ---------- ----------- ----------
-------- ---------- ----------- ----------
PRO FORMA NET INCOME (LOSS) PER SHARE................................... $(140.00) $ .50 $ .20
-------- ---------- ----------
-------- ---------- ----------
PRO FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................... 300 2,700,000 2,700,300
-------- ---------- ----------
-------- ---------- ----------
</TABLE>
See accompanying notes.
20
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(a) To reflect the exchange of 2,700,000 shares of PRIMA common stock for
substantially 100% of the outstanding shares of Prima Industrie. No
entry is required as this transaction will be accounted for as a
recapitalization of Prima Industrie, and the equity section of the
historical financial statements has been recast to reflect the
recapitalization.
(b) To eliminate intercompany balances.
(c) To reflect additional compensation expense pursuant to employment
agreements with the officers of PRIMA.
(d) To accrue costs of the acquisition of $10,000.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains trend analysis and other forward-looking
statements that involve risks and uncertainties. Immediately prior to the date
of this Prospectus, the Company acquired substantially all of the outstanding
capital stock of Prima Industrie by the exchange of shares of the Company's
Common Stock for shares of Prima Industrie. The following discussions of
historical results of operations, liquidity and capital resources reflect the
consolidated condition of Prima Industrie and Prima Electronics and not the
Company. The Company's actual results may differ materially from those described
in such forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed below and elsewhere in this
Prospectus, particularly under "Risk Factors."
OVERVIEW
Prima Industrie was established in 1977 as a design and engineering firm.
In 1978, Prima Electronics was established to manufacture industrial process
controls. Prima Industrie developed its first 3-D Products in 1979 and
introduced the Platino 2-D Product based upon the same technology in 1997. These
Products have evolved into the major focus of the Company's business.
Approximately 30% of the sales of Prima Industrie are within Italy, and the
majority of the remaining sales are to customers in other countries in Europe.
During 1998, Company management will concentrate on increasing the sales of
its 3-D Products, which have greater gross margins than its 2-D Products, and on
improving profit margins for sales of its new Platino 2-D Product. Further,
primarily because of the fixed nature of the Company's overhead costs, these
increases in sales will result in proportionately greater increases in net
income. Additionally, the Company expects margins to improve if assembly
operations are commenced outside of Italy, as a result of lower direct labor
costs. The Company has entered into a license agreement with Strippit, a
Delaware corporation and a subsidiary of Idex Corporation, for the manufacture
and sale of products using the technology for the Platino 2-D Product. The
Company has also executed a license agreement with Beijing Machinery and
Electricity Institute in China for the Company's 2-D Laserwork Product. The
implementation of this license agreement has been delayed, because it must be
approved by the government of the People's Republic of China. There can be no
assurance that the requisite approval will be forthcoming for consummation of
the China License and the payments required thereunder. Delays in the approval
of the China License, and in the payment of royalties required to be made
thereunder, could adversely affect the Company's financial performance in 1998.
Company management will focus on improving the cash flow from contracts
with European customers to the extent that competitive and European business
practices permit. Management expects that the cash provided by the capital
investment in Prima Industrie by the Company and improving cash flows will
decrease the Company's dependence on its Working Capital Facility ("WCF"),
thereby reducing interest expenses. See "Use of Proceeds." Furthermore, upon
completion of this Offering, significant portions of the subsidiary operations'
cash requirements (initially up to $3,000,000) will be financed by the Company
at more favorable interest rates on a consolidated basis.
The Company expects research and development ("R&D") and marketing expenses
to increase significantly during the 1998 Fiscal Year. Development of the
Company's "Laser On-Line" family of 3-D Products will involve substantial
development costs, and the introduction of that product family to the market in
late 1998 or early 1999 will have an impact on earnings for the year, although
Company management believes net income will increase in year-to-year comparisons
and as a percentage of sales. See "Business -- Research & Development" and "Use
of Proceeds."
During the 1998 fiscal year, the Company expects to update its management
and control systems by purchasing new hardware and software products. Several
Enterprise Resource Planning Software products are commercially available that
can closely approximate the Company's requirements without significant
customizing. These products will prepare the Company and its subsidiaries for
the Year 2000 and the conversion to a single European currency under the EMU.
This capital expenditure will occur during the middle part of the year, and
management does not expect this expenditure to exceed $450,000. No other
significant capital expenditures are currently anticipated.
During the fourth quarter of 1997, Prima Industrie consummated certain
transactions under an agreement pursuant to which it became a minority owner of
Macromeccanica of Turin, Italy. Macromeccanica has two primary lines of
business -- refurbishment of machine tool equipment for customers and
subcontracting of sophisticated machining services. Pursuant to the agreement,
Prima Industrie sold certain machine tools and equipment (the "Equipment")
previously used by Prima Industrie to create parts for its Products, to a
leasing company, which then leased the Equipment to Macromeccanica. Prima
Industrie will receive 1.05 billion Lit (approximately $600,000) for the
Equipment. Prima Industrie and Macromeccanica
22
<PAGE>
entered into a requirements supply agreement, whereby Macromeccanica provides
Prima Industrie machining services previously performed internally by Prima
Industrie or sub-contracted by other sources. As a result of this transaction,
Prima Industrie expects to reduce its cost of manufacturing parts for its
Products and increase the capacity of Prima Industrie's assembly operations by
up to 30% above current levels.
In addition, Prima Industrie purchased 25% of the existing equity of
Macromeccanica from an existing shareholder of Macromeccanica for 600 million
Lit (approximately $340,000) and will subscribe to an increase in capital of
Macromeccanica for 700 million Lit (approximately $400,000) (the "Follow-on
Investment"). At the conclusion of this Follow-on Investment, Prima Industrie
will hold approximately 37% of the outstanding capital stock of Macromeccanica.
The other owners of Macromeccanica are unrelated to Prima Industrie. It is
projected that Prima Industrie's business will account for approximately 10% of
the total revenues of Macromeccanica (which are projected to be 18 billion Lit
for 1998).
The Company has also identified several additional candidates for
acquisition or merger and is engaged in preliminary discussions regarding
possible business combinations. Management expects discussions with these
candidates to accelerate upon completion of this Offering, although no
assurances can be given about the outcome of these discussions. The Company will
focus on those candidates that will add to earnings and provide significant
critical mass to produce economies of scale in both sales and manufacturing
activities.
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this
Prospectus. For purposes of the following discussion, references to exchange
rates are between the Lit and the Dollar.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996
TABLE 1
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHANGE
-----------------
12/31/97 12/31/96 AMOUNT PERCENT
------- ------- ------ -------
<S> <C> <C> <C> <C>
TOTAL REVENUES..................................................................... $44,186 $42,315 $1,871 4.4%
Cost of goods sold................................................................. 35,157 34,357 800 2.3%
Research and development costs..................................................... 1,335 1,329 6 --%
Selling, general and administrative costs.......................................... 5,513 5,218 295 5.6%
Total costs and expenses........................................................... 42,005 40,904 1,101 2.7%
------- ------- ----- ------
Operating income................................................................... 2,181 1,411 770 54.6%
OTHER INCOME (EXPENSE)
Gain on sale of assets........................................................... 441 1,059 (618) (58.3)%
Interest and other income........................................................ 544 1,033 (489) (47.3)%
Interest and other expense....................................................... (1,167) (1,766) 599 33.9%
Total Other Income (Expense)....................................................... (182) 326 (508) --%
Income before income taxes and minority interest................................... 1,999 1,737 262 15.1%
Current income taxes............................................................... (444) (189) (255) (134.9)%
Minority interest.................................................................. (192) (213) 21 9.8%
------- ------- ----- ------
Net income (loss).................................................................. 1,363 1,335 28 2.1%
------- ------- ----- ------
------- ------- ----- ------
</TABLE>
Consolidated revenues for the year ended December 31, 1997 increased 4.4%
to $44.186 million from $42.315 million for the year ended December 31, 1996.
Stated without giving effect to fluctuations in the exchange rate between the
Dollar and the Lit for these periods, consolidated revenues increased 16.0% from
Lit 65.165 billion for the year ended December 31, 1996 to Lit 75.598 billion
for the year ended December 31, 1997. Backlog declined 6.2% from $10.53 million
on December 31, 1996 to $9.87 million on December 31, 1997. Stated without
giving effect to fluctuations in the exchange rate, backlog increased 7.1% from
Lit 16.215 billion on December 31, 1996 to Lit 17.363 billion on December 31,
1997.
The composition of revenues (unconsolidated) for the year ended December
31, 1997 was significantly different from the year ended December 31, 1996,
reflecting the influence of several factors. Sales of 3-D Products and Laserwork
2-D Products provided 43.9% and 17.6%, respectively of sales during the year
ended December 31, 1996. These contribution levels
23
<PAGE>
declined to 41.3% and 9.3% of total sales, respectively, for the year ended
December 31, 1997. While the number of 3-D Products sold in the year ended
December 31, 1997 increased by four units, sales of Laserwork 2-D Products
declined by nine units, supplanted by an increase in sales by twenty-one units
of the Platino line of 2-D Products. This transition in sales of the 2-D
Products toward the more efficient Platino line reflects the Company's strategy
of selling 2-D Products to a wider variety of users.
Sales of service and parts increased by $.708 million or 22.1% for the year
ended December 31, 1997, when compared to the year ended December 31, 1996, as
did sales to Atlas Copco, which increased $.369 million or 6.1%. Due to the
contribution to sales effected by the changing product mix, virtually all
components of sales, except for the Platino product line, were reduced as a
percentage of the total sales, as shown in Table 2.
TABLE 2
CONTRIBUTION TO REVENUES
(IN PERCENT)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------
1997 1996 DIFFERENCE
----- ----- ----------
<S> <C> <C> <C>
By Prima Industrie:
3-D Products................................................................................... 41.3% 43.9% (2.6)
Laserwork 2-D Products......................................................................... 9.3 17.6 (8.3)
Platino 2-D Products........................................................................... 18.4 4.2 14.2
Service and parts.............................................................................. 11.1 12.8 (1.7)
By Prima Electronics:
To Atlas Copco................................................................................. 12.3 12.4 (0.1)
To other customers............................................................................. 3.9 4.8 (0.9)
To Prima Industrie............................................................................. 3.7 4.3 (0.6)
----- ----- ----------
Total sales.................................................................................... 100.0% 100.0% -0-
----- ----- ----------
----- ----- ----------
</TABLE>
Cost of goods sold, as a percentage of consolidated revenues, improved
modestly from 81.2% during the year ended December 31, 1996 to 79.6% during the
year ended December 31, 1997. The year-to-year comparison showed an increase of
2.3% to $35.157 million for the year ended December 31, 1997 from $34.357
million for the year ended December 31, 1996. Without giving effect to the
fluctuations in exchange rates between the Dollar and Lit, cost of goods sold
increased 13.7% to Lit 60.151 billion in the year ended December 31, 1997 from
Lit 52.912 billion in the year ended Decmeber 31, 1996.
TABLE 3
COMPONENTS OF COST OF GOODS SOLD
(IN PERCENT)
<TABLE>
<CAPTION>
FOR THE
YEAR
ENDED
DECEMBER 31
--------------
1997 1996 DIFFERENCE
----- ----- ----------
<S> <C> <C> <C>
Materials........................................................................................ 61.7% 62.5% (.8)
Labor............................................................................................ 16.4 15.9 .5
Overhead......................................................................................... 20.3 19.8 .5
Depreciation..................................................................................... 1.6 1.8 (.2)
----- ----- ---
Total.......................................................................................... 100.0% 100.0% -0-
----- ----- ---
----- ----- ---
</TABLE>
The margin of profit between sales and cost of goods sold is expected to
improve further as the Company completes its transition to the Platino product
line and achieves operational efficiencies as its experience in manufacturing
these Products increases and economies of scale from production increase.
As a percentage of consolidated revenues, R&D remained substantially
unchanged between the years ended December 31, 1997 and 1996 at 3.0% and 3.1%,
respectively. However, without giving effect to exchange rate differences
between the periods, R&D expenses increased 11.6% from the year ended December
31, 1996 to the year ended December 31, 1997.
24
<PAGE>
This increase resulted from the Company's ongoing R&D projects aimed at
enhancing the technical capability of the Company's 2-D and 3-D Products.
Selling, general and administrative ("SG&A") expenses increased $0.295
million between the years ended December 31, 1996 and 1997. As a percentage of
consolidated revenues, SG&A remained substantially identical at 12.5% for the
years ended December 31, 1997 and 12.3% for the year ended December 31, 1996.
However, without giving effect to differences in the exchange rates, SG&A
expenses increased 17.4% from Lit 8.035 billion for the year ended December 31,
1996 to Lit 9.432 billion for the year ended December 31, 1997. This relative
change expressed in Lit occurred primarily as a result of increased sales
efforts.
Other operating revenues, which consist of governmental grants for research
and development and license revenues, declined by $0.581 million for the year
ended December 31, 1997 as compared to the year ended December 31, 1996. This
change was due primarily to research grants being provided to the Company in
1997 in the form of low interest loans rather than outright grants.
As a result of the above factors, operating income for the year ended
December 31, 1997 increased 54.6% to $2.181 million from $1.411 million for the
year ended December 31, 1996. Without giving effect to the fluctuations in the
exchange rate between the Dollar and Lit during these periods, operating income
increased 71.8% from Lit 2.172 billion for the year ended December 31, 1996 to
Lit 3.731 billion for the year ended December 31, 1997.
Interest income declined $.425 million from the year ended December 31,
1996 to the year ended December 31, 1997 due to reductions in interest rates.
Similarly, interest expense declined by $.208 million from the year ended
December 31, 1996 to the year ended December 31, 1997. The Company recognized a
gain of $.411 million in 1997 from the sale of equipment to Macromeccanica.
Income before income taxes increased from a profit of $1.737 million for
the year ended December 31, 1996 to $1.999 million for 1997.
Income taxes for the year ended December 31, 1997 increased 134.9% to $.444
million from $.189 million during the year ended December 31, 1996. This
increase occurred primarily as a result of taxes accrued on profits from the
operations of Prima Electronics, which is subject to significantly higher
taxation rates than Prima Industrie. Taxes were relatively higher in 1997 than
in 1996, because a significant part of income in 1996 before taxes was the gain
on the sale of Sapri S.p.A., which gain is not taxed under Italian law. As a
result of loss carry-forwards, Prima Industrie's effective tax rate was 16.2%,
instead of the normal Italian corporate tax rate of 53.2%, which applies to the
earnings of Prima Electronics. Allocation of profits for the minority interest
in the Prima Electronics subsidiary decreased 9.8% to $.192 million for the year
ended December 31, 1997 from $.213 million for the year ended December 31, 1996.
Net income increased by $.028 million, or 2.1%, for the year ended December
31, 1997 compared to the year ended December 31, 1996. Without giving effect to
exchange rate differences, net income increased by 13.3% from Lit 2.056 billion
for the year ended December 31, 1996 to Lit 2.331 billion for the year ended
December 31, 1997.
25
<PAGE>
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
TABLE 4
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHANGE
-----------------
12/31/96 12/31/95 AMOUNT PERCENT
------- ------- ------ -------
<S> <C> <C> <C> <C>
TOTAL REVENUES..................................................................... $42,315 $38,560 $3,755 9.7%
Cost of goods sold................................................................. 34,357 32,565 1,792 5.5%
Research and development costs..................................................... 1,329 670 659 98.3%
Selling, general and administrative costs.......................................... 5,218 5,250 (32) --
Total costs and expenses...................................................... $40,904 $38,485 $2,419 6.2%
------- ------- ------ -----
Operating income................................................................... $ 1,411 $ 75 $1,336 --
OTHER INCOME (EXPENSE)
Gain on sale of Sapri............................................................ 1,059 -- 1,059 --
Interest and other income........................................................ 1,033 776 257 33.1%
Interest and other expense....................................................... (1,766) (3,078) 1,312 42.6%
Total other income (expense)....................................................... $ 326 $(2,302) $2,628 --
Income before income taxes and minority interest................................... $ 1,737 $(2,227) $3,964 --
Current income taxes............................................................... (189) (43) (146) (339.5)%
Minority interest.................................................................. (213) (130) (83) (63.8)%
------- ------- ------ -----
Net income (loss).................................................................. $ 1,335 $(2,400) $3,735 --
------- ------- ------
------- ------- ------
</TABLE>
Consolidated revenues for the year ended December 31, 1996 increased 9.7%
to $42.315 million from $38.560 million for the year ended December 31, 1995.
This increase was largely attributable to a decline in the Dollar relative to
the Lit of 6% from approximately 1640 Lit during 1995 to approximately 1540 Lit
during 1996. Consolidated revenues increased only 3.1% expressed in Lit, or Lit
65.165 billion for 1996 from Lit 63.186 billion for 1995. The Company's
relatively flat sales between the yearly periods resulted from offsetting trends
in the increasing sales of the Products and the divestiture of other Company
products.
For the year ended December 31, 1996, Prima Electronics accounted for
approximately 21.5% of total revenues, up from 20.9% for the year ended December
31, 1995. The increase in Prima Electronics' revenues and percentage of revenues
was primarily the result of a 78.7% increase in the sales of regulators for
industrial compressors and generators manufactured by Atlas Copco from $3.118
million during the year ended December 31, 1995 to $5.489 million during the
year ended December 31, 1996. Additionally, and without giving effect to
intercompany eliminations in the consolidated financial statements, Prima
Electronics' sales to the Company increased 11.6% from $1.672 million for the
year ended December 31, 1995 to $1.867 million for the year ended December 31,
1996. The increase in sales from Prima Electronics to the Company was the result
of the Company's increasing sales of the Products.
As a percentage of revenues (unconsolidated), the Company's 3-D and 2-D
Laserwork Products accounted for 43.9% and 17.6%, respectively, of the Company's
total revenues for the year ended December 31, 1996, and 42.1% and 27.0%,
respectively, for the year ended December 31, 1995. Revenues derived from 2-D
and 3-D Products increased 26.2% and 22.8%, respectively, from the year ended
December 31, 1995 to the year ended December 31, 1996. Expressed in unit
revenues, 2-D Products increased 36.8% from 18 units for the year ended December
31, 1995 to 25 units for the year ended December 31, 1996; and 3-D Products
increased 40.0% from 19 units to 26 units, respectively. These increases in
sales of the Company's 2-D and 3-D Products resulted from: (i) the improvement
in the worldwide economy, and (ii) exclusive R&D, sales and marketing focus on
the Company's 2-D and 3-D Products.
26
<PAGE>
The year ended December 31, 1996 exhibited the early phases of the
transition in the 2-D Product line from the smaller of the two Laserwork
machines to the new Platino Product line. The percentage of contributions to
total revenues by the various revenue sources can be seen in the following
table:
TABLE 5
CONTRIBUTION TO REVENUES
(IN PERCENT)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------
1996 1995 DIFFERENCE
----- ----- ----------
<S> <C> <C> <C>
By Prima Industrie:
3-D Products................................................................................... 43.9% 42.1% 1.8
Laserwork 2-D Products......................................................................... 17.6 27.0 (9.4)
Platino 2-D Products........................................................................... 4.2 -- 4.2
Service and parts.............................................................................. 12.8 10.0 2.8
By Prima Electronics:
To Atlas Copco................................................................................. 12.4 9.0 3.4
To other customers............................................................................. 4.8 7.0 (2.2)
To Prima Industrie............................................................................. 4.3 4.9 (0.6)
----- ----- ----------
Total sales.................................................................................... 100.0% 100.0% 0
----- ----- ----------
----- ----- ----------
</TABLE>
See Table 6 below for a graphic presentation of the growth in revenues for
the Prima Electronics and 2-D/3-D Products compared to the discontinued
products. Please note that the Y Axis is represented in billion Lit.
TABLE 6
[graphic appears here]
Cost of goods sold as a percentage of consolidated revenues improved to
81.2% for the year ended December 31, 1996 from 84.5% for the year ended
December 31, 1995. This improvement was the result of economies of scale in the
purchase of raw materials occurring because of increased sales in the Company's
Products. The year-to-year comparison showed a 5.5% increase from $32.565
million for the year ended December 31, 1995 to $34.357 million for the year
ended December 31, 1996; however, this increase was attributable to the decline
in value of the Dollar to the Lit as explained above.
27
<PAGE>
During the year ended December 31, 1996 labor costs declined as a
percentage of total cost of goods sold, while a corresponding larger percentage
of total cost of goods sold was attributed to materials cost. This gradual
reduction in labor and related costs can be seen in the following Table 7:
TABLE 7
COMPONENTS OF COST OF GOODS SOLD
(IN PERCENT)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER
31
--------------
1996 1995 DIFFERENCE
----- ----- ----------
<S> <C> <C> <C>
Materials........................................................................................ 62.5% 59.5% 3.0
Labor............................................................................................ 15.9 18.7 (2.8)
Overhead......................................................................................... 19.8 19.3 .5
Depreciation..................................................................................... 1.8 2.5 (.7)
----- ----- ----------
Total.......................................................................................... 100.0% 100.0% -0-
----- ----- ----------
----- ----- ----------
</TABLE>
R&D expense, net of grants received, doubled from the year ended December
31, 1995 to the year ended December 31, 1996 from $.670 million to $1.329
million, respectively. As a percentage of consolidated revenues, R&D increased
from 1.7% to 3.1% for the same periods. This increase in R&D expense was
attributable to the completion of the Company's Platino 2-D equipment and
"Primach"numeric controller developed by Prima Electronics.
SG&A expenses were stable at $5.250 million for the year ended December 31,
1995 and $5.218 million for the year ended December 31, 1996, representing a
.06% decline. SG&A decreased to 12.3%, as a percentage of consolidated revenues,
for the year ended December 31, 1996 from 13.6% for the year ended December 31,
1995. This decline occurred as a result of: (i) favorable exchange rates, (ii)
the decrease in Company employees from 204 in 1995 to 193 in 1996, (iii) the
transfer of employees from overhead activities to manufacturing operations, and
(iv) the divestiture of underperforming product lines and associated overheads.
As a result of the above factors, operating income for the year ended
December 31, 1996 increased to $1.411 million from $.075 million in the prior
year. Net other income and expense changed from a net expense of $2.302 million
for the year ended December 31, 1995 to net income of $.326 million for the year
ended December 31, 1996. These effects on net other income and expense were
produced by: (i) the gain of approximately $1 million recognized on the sale of
Sapri S.p.A., (ii) larger down payments with orders, (iii) lower bank interest
rates during the period, and (iv) the addition of new capital from the year
ended December 31, 1995.
Income before income taxes improved from a loss of $2.227 million for the
year ended December 31, 1995 to a profit of $1.737 million for the year ended
December 31, 1996. This was attributable to the following factors: (i) the
Company's increase in operating income, (ii) interest and other income, without
the gain on the sale of Sapri S.p.A., increased 33.1% from $.776 million for the
year ended December 31, 1995 to $1.033 million for the year ended December 31,
1996, and (iii) interest and other expenses decreased 42.6% from $3.078 million
for the year ended December 31, 1995 to $1.766 million for the year ended
December 31, 1996.
Income taxes for the year ended December 31, 1996 increased 339.5% to $.189
million from $.043 million for the year ended December 31, 1995. Net income was
reduced by the 40% minority interest in the Company's Prima Electronics
subsidiary to produce a consolidated net income of $1.335 million for the year
ended December 31, 1996, compared with a loss of $2.4 million for the year ended
December 31, 1995, although the minority interest increased 63.8% to $.213
million for 1996 from $.13 million for 1995. The minority interest increased as
a result of the increased profitability of Prima Electronics' operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its cash requirements through cash flow
from operations and by borrowings from banks and government agencies. At
December 31, 1997, the Company had outstanding bank and government agency debt
of $8.916 million.
Net cash provided by (used in) operating activities was $2.724 million, and
($.265 million), for the year ended December 31, 1997 and for the year ended
December 31, 1996, respectively. Cash flow from operations for the year ended
December 31, 1997 increased by $2.989 million compared to the year ended
December 31, 1996, primarily due to net income for the year and a reduction in
receivables.
28
<PAGE>
Trade accounts receivable, net of allowances, decreased $2.137 million to
$19.107 million at December 31, 1997 from December 31, 1996 and increased $3.278
million to $21.244 million at December 31, 1996 from December 31, 1995.
Inventories increased $.274 million to $8.223 million at December 31, 1997 from
December 31, 1996. Inventories decreased $.463 million to $7.949 million at
December 31, 1996 from December 31, 1995 reflecting the draw down of stocks
resulting from the growth in sales for 1996.
Cash provided by (used in) investing activities was ($.644 million) for the
year ended December 31, 1997 and $.596 million for the year ended December 31,
1996. The increase in cash used for investing activities for the year ended
December 31, 1997 was primarily attributable to capital expenditures and the
investment in Macromeccanica. The increase in cash provided for the year ended
December 31, 1996 was generated primarily by the sale of Sapri S.p.A..
Capital expenditures were $.594 million and $.231 million for the years
ended December 31, 1997 and 1996, respectively. In general, these expenditures
reflect the acquisition of additional manufacturing and research and development
equipment.
Cash provided by (used in) financing activities primarily reflects
borrowings and payments related to bank and other debt. Cash used in financing
activities for the year ended December 31, 1997 included advances to an
affiliated company to fund costs related to the Company's initial public
offering. Cash provided by (used in) financing activities was ($1.397 million)
for the year ended December 31, 1997 as compared to ($.811 million) used for the
year ended December 31, 1996.
As of December 31, 1997, the Company had lines of credit with 12 different
Italian banks totaling $12.804 million, collateralized by the Company's accounts
receivable sales contracts. As of December 31, 1996, the Company had drawn down
$8.977 million, and as of December 31, 1997, the Company had drawn down $7.662
million. Wide fluctuations in the usage of the lines of credit are normal
throughout the year because the Company's revenues are highly seasonal. The
first and third quarters of each year are negatively affected by European
holidays during Christmas and New Year's and the month-long summer holiday.
The Company engages in policies designed to minimize the risk of loss (or
gain) resulting from fluctuations among foreign currencies. General practices
consist of activities such as (1) attempting to make purchases in volumes
equivalent to sales in the same foreign currency and (2) financing the sales of
products in the same currency in which the sales invoice is denominated. From
time to time, the Company engages in currency swaps to: (1) buy at a fixed
future date a certain currency needed to settle payments to a supplier at that
date, and (2) sell at a fixed future date a certain currency needed to cover the
full amount of the receivable.
Currency fluctuations are expected to remain volatile and unstable during
the forthcoming periods because of the continued strength of the U.S. economy
and the desirability of the Dollar as an international currency. Until the EMU
has reached more significant levels of consensus among its membership, European
currencies may continue to experience wide fluctuations against the Dollar, as
well as against intra-European currencies, as individual European nations
attempt reconciliations of their domestic economies to EMU requirements.
Historically, the Lit experiences greater fluctuations against the Dollar than
against its European counterparts. For so long as the Lit remains volatile
against the Dollar and other important trading currencies, the Company will
attempt to minimize exposure to exchange rate fluctuations by purchasing
non-Italian goods and services in currencies with more favorable exchange rates
(e.g., the DM) and to use forward currency purchases to stabilize currency
translation volatility.
During the forthcoming periods, the Company expects increasing revenues
from non-European sources, particularly the Far East, South America and North
America, where pricing can be established under Dollar denominations. This
practice will lead to more stable presentations of the Company's financial
position in Dollars and less impact from currency translations.
The Company intends to fund significant increases in R&D and marketing
expenditures with a portion of the net proceeds of this Offering. Similarly, the
expenditures for new hardware and software necessary to update management and
control systems will be funded by a portion of the net proceeds of this
Offering. See discussion under "Use of Proceeds."
The allowance for bad debts remained at approximately the same percentage
of accounts receivable at December 31, 1997, as at December 31, 1996.
The collection of trade accounts receivable by the Company has historically
been slow, conforming to a traditional pattern in the machine tool business in
Italy. Collection of accounts receivable, while extended, has remained
relatively constant for the past several fiscal years, at an average of 171
days.
29
<PAGE>
HISTORY OF THE COMPANY
The Company was incorporated in Delaware on July 29, 1997. As of the date
of this Prospectus, the Company has acquired 99.98% of the outstanding capital
stock of Prima Industrie. The Company has acquired, through the holdings of
Prima Industrie, approximately 60% of the outstanding capital stock of Prima
Electronics. The holding company structure, with the Company, a Delaware
corporation, as the parent and Prima Industrie, as its subsidiary, was
established to promote the internationalization of the Company's business.
Historically, Prima Industrie has focused its marketing and sales efforts in
Europe. In order to achieve the objectives set forth in "Business -- Strategy"
below, management believes that a presence in the United States is critical. In
addition, management believes that a public offering of the Company's securities
will be more readily received than one by Prima Industrie because a Delaware
corporation is a more familiar corporate entity than an Italian S.p.A. and the
Company's presence in the U.S. will facilitate better shareholder relations and
communications. There are certain risks associated with a holding company
structure (including certain risks peculiar to Italian law), see "Risks of
Holding Company Structure" and "Risks of Doing Business in Italy." Management
believes these risks are similar to those that a direct shareholder of Prima
Industrie would experience.
PRIMA INDUSTRIE
The predecessor of Prima Industrie was Prima Progetti S.p.A. ("Prima
Progetti"), an engineering company formed in 1977. Prima Industrie was formed in
1980 and merged with Prima Progetti in October of 1985. The business evolved
from assisting in engineering and design of its customers' products to
manufacturing its own or customer-designed products. In 1979, Prima Progetti
introduced its first 3-D Product for plastic cutting and, in 1982, its first 3-D
Product for metal cutting.
In 1985, Amada Co. Ltd. ("Amada"), a large Japanese holding company,
invested approximately Lit 8.561 billion in the share capital of Prima
Industrie, becoming its largest shareholder and subsequently arranged for term
loan financing for Prima Industrie. Prima Industrie began the development of new
products for Amada, including a robotic sheet-metal bending machine.
In 1992, Prima Industrie acquired the assets of Laser Work AG, a
Switzerland-based manufacturer of 2-D laser cutting machines. Prima Industrie
transferred the manufacturing assets of Laser Work AG from Zurich, Switzerland
to Turin, Italy.
In 1993, Prima Industrie transferred to Amada a division dedicated to the
development of products for third parties. This division had worked almost
exclusively for Amada. In that year, Prima Industrie experienced weak demand for
its products, and Europe was in an economic recession. Prima Industrie organized
a sales subsidiary in the United States in order to better penetrate the
American markets.
In 1994, the relationship with Amada ended, and Prima Industrie determined
to concentrate its efforts in a single business sector -- precision laser
cutting and welding systems. This determination was based upon its competitive
position, the research and development efforts that had produced a complete
range of products in this business sector and the potential for growth in this
business sector. The discontinuance of business with Amada and losses in its
other lines of business, Prima Electronics and Sapri S.p.A., led to a $5.27
million loss in 1994, despite a 50% increase in the sale of the Products. The
investment of Prima Industrie in Sapri S.p.A. was written off, as the losses
suffered by Sapri were greater than its net capital. Sapri was engaged in the
manufacture and sale of arc welding cells and robots, which business was
adversely affected by intense competition, industry consolidation, low margins
and economic conditions. The loss experienced by Prima Electronics was primarily
due to the discontinuance of its work for Amada and a change in products being
produced by Prima Electronics.
In 1995, Prima Industrie reached agreement to sell its interest in Sapri to
Asea Brown Boveri. The loss experienced in 1994 and the termination of the
relationship with Amada resulted in a recapitalization of Prima Industrie in
1995. Amada forgave a Lit 3 Billion loan to Prima Industrie. Amada's
participation in the share capital of Prima Electronics was sold to the
management of Prima Electronics in exchange for cash. As a condition to
cancellation of its loan to Prima Industrie and the renunciation of its share
capital, Amada required that the equity in Prima Industrie be reduced to zero or
less. It was, therefore, necessary under Italian law for Prima Industrie to
attract new equity investments. In March 1995, an agreement was reached among
Itainvest S.p.A., formerly known as GEPI--Gestion e Participazion Industrieli
S.p.A., a government-owned merchant bank ("Itainvest"), Gian Mario Rossignolo,
Gianfranco Carbonato, Hans Werthen, Cambria Ltd., on behalf of Miojusti
Invesments BV, and Prima Industrie to increase the share capital of Prima
Industrie to approximately Lit 10.9 billion. See "Management" and "Certain
Beneficial Owners" for further information on this entity and these individuals.
The parties to this agreement agreed to subscribe for a capital investment of
Lit 10.9 billion, of which Itainvest was to invest Lit 5.0 billion. There were
certain remaining shareholders holding approximately Lit .228 billion in equity
capital.
30
<PAGE>
Itainvest had entered into an agreement with the other subscribing
shareholders that permitted those shareholders to require Itainvest to sell its
shares in Prima Industrie to those shareholders. As a result of this Offering,
Itainvest and the other subscribing shareholders of Prima Industrie have
restructured their agreement. Itainvest will retain full ownership of 394,121 of
the 1,212,683 shares of Common Stock that it received prior to this Offering and
will grant purchase options to each of the subscribing shareholders for the
remaining 818,562 shares. Miojusti Investments BV has the right to purchase
424,440 of the remaining shares of Common Stock at any time during the period
commencing on the sixth month anniversary of the date of this Prospectus and
ending on the one year anniversary of the date of this Prospectus at a price
equivalent to a minimum of 4,945 Lit. ($2.91) per share. Messrs. Carbonato,
Rossignolo and Werthen have the right to purchase 118,234, 137,944, and 137,944,
respectively, of the remaining shares of Common Stock during a two-year period
beginning on the second anniversary of the date of this Prospectus. The purchase
price for Mr. Carbonato is equivalent to 4,125 Lit. ($2.43) per share. The
purchase price for Messrs. Rossignolo and Werthen is equivalent to a minimum of
4,945 Lit. ($2.91) per share.
In 1996, the sale of Sapri S.p.A. to Asea Brown Boveri was completed. Prima
Industrie also introduced a new 2-D precision cutting and welding system, the
Platino. In July 1997, Prima Industrie received ISO 9001 certification. Also in
July 1997, Prima Industrie licensed certain of its 2-D Product technology to
Strippit for the manufacture and sale of those Products in North America.
See "Business -- Licensing."
PRIMA ELECTRONICS
Prima Electronics was organized in 1978 as a controlled company of Prima
Progetti, manufacturing industrial process controls. In 1990, Prima Electronics
entered into an agreement with Atlas Copco to supply regulators and drives
pursuant to Atlas Copco's specifications. The agreement provides for pricing and
quantity requirements, which are adjusted periodically. The agreement was
extended in 1996 through December 31, 2001. In 1994, Prima Industrie's Products
were equipped with new numeric controls, under the trade name "PRIMACH," which
were developed by Prima Electronics. In December, 1997, Prima Electronics
received ISO 9001 certification.
31
<PAGE>
BUSINESS
GENERAL
The Company is an international provider of software-controlled, robotic,
precision laser cutting and welding systems. The Company designs, manufactures
and sells 2-D Products that cut and weld shapes on a flat surface, and 3-D
Products that trim, punch, slot and weld shaped or profiled materials. The
Company's Products are used in automotive prototype development and the
manufacture of consumer durable goods. The Company's customers include major
European and North American automotive manufacturers, such as BMW, Fiat, Ford,
Chrysler, Mercedes-Benz, Nissan, Peugeot, Renault and Volvo. The Products are
also used by Tier One suppliers for the manufacture of automotive components
that are incorporated into the vehicles sold by these manufacturers. Prima
Industrie and Prima Electronics are ISO 9001 certified.
The Company believes that it has a leading position in the market for the
manufacture and sale of 3-D precision laser cutting and welding systems. The
Company's advantages are based on proprietary processes and technologies for
automated robotic systems that integrate traditional machine tool equipment with
laser, laser optics and computer technology. These robotic systems utilize
electronic process control systems that interface with CAE/CAD/CAM software to
convert engineering designs into instructions for machinery operations.
The Company, through Prima Electronics, its majority-owned subsidiary,
designs and manufactures state-of-the-art software and hardware-based industrial
process controls for the Company's equipment and for other industrial equipment
manufacturers. Industrial process controls function as the "brains" of
machinery, directing all aspects of its operations. Prima Electronics' primary
outside customer is Atlas Copco, one of the world's leading suppliers of power
generation and pneumatic equipment.
The Company sells its Products to manufacturers of consumer durable goods
such as automobiles, trucks, appliances, farm implements and aircraft for use in
producing components that are incorporated into such manufacturer's finished
products. The Company believes that manufacturers in other industries tend to
follow the lead of the automotive industry in choosing manufacturing methods.
Accordingly, the Company has traditionally focused, and will continue to focus,
its marketing efforts on the automotive industry.
MARKET
The Company's primary market for its 3-D Products is the automotive
industry. Currently, there are 40 automotive manufacturers throughout the world,
of which 20 are widely recognized. Of the 20 primary automotive suppliers, 8
control approximately 50% of the worldwide market. The Company believes, based
upon its own analysis of industry projections, that, by 2015, an additional 160
assembly plants will be constructed outside Europe, the United States, and
Japan, representing an increase of 80% over the current 200 assembly facilities
worldwide. Moreover, these sources further indicate that, by the year 2015,
vehicle consumption in Europe, the United States and Japan, which currently
account for half of the world sales of automobiles, will slip to approximately
34% of worldwide consumption. As a result, major automotive manufacturers will
accelerate the construction of assembly operations outside of these territories.
These new plants will be equipped with advanced factory automation systems,
potentially including those provided by the Company, in place of traditional
manufacturing and assembly technologies. Therefore, the Company expects vigorous
demand for its Products in developing markets, as well as accelerating demand
within Europe and the United States as older assembly operations are
retrofitted, relocated or replaced.
The Company expects that decision making for the purchase of capital
equipment for use in worldwide assembly operations will remain highly
centralized. Furthermore, the primary automotive manufacturers have reduced
their Tier One suppliers to approximately 1,000 vendors each, down from
approximately 25,000 each ten years ago. Therefore, it is expected that the
Company's sales and marketing efforts will be focused on a limited number of
manufacturers' headquarter operations and Tier One suppliers, resulting in a
more efficient sales and marketing organization.
THE AUTOMOTIVE FABRICATION PROCESS
Automotive components have traditionally been produced through an assembly
line process utilizing tool and die equipment. Under the traditional method, raw
material is stamped or pressed into the basic shape through the use of a die
that is constructed to form the appropriate shape in the material. After the
basic shape has been formed, additional dies, along with various mechanical
machine tools, are used to stamp, cut, slot, punch and trim the appropriate
details into the component.
Although the purchase of a die for component production represents a large
capital expenditure, the duration of its use is limited because it must be
constructed to stamp particular shapes or details. When the style of a component
changes, a new
32
<PAGE>
die must be constructed to reflect the new shape and details of the component.
In response to this problem, manufacturers have begun to use, in limited volume
production runs, laser cutting systems, such as those produced by the Company,
to replace the mechanical tool and die technology traditionally used to punch,
cut, slot and trim appropriate details into automotive components after the
stamping or pressing of the initial shape. Because laser cutting systems may be
reprogrammed to cut different patterns, there is no need to purchase a new die
each time the style of a component changes. Thus, a manufacturer is not forced
to undertake large capital expenditures each time it wishes to make changes to
the details of a component.
While the ability to generate different patterns and shapes makes laser
cutting technology more cost-effective than traditional tool and die technology,
its use has been limited primarily to prototype development and limited
production runs, due to the inability of laser cutting systems to cut components
at the same speed as a mechanical die. In addition, the available laser cutting
systems products have not been designed to be installed within an assembly line
for full production runs.
PROTOTYPE DEVELOPMENT. The initial stage of manufacturing a component
involves the development of a prototype for testing and marketing purposes.
During this process, the automotive manufacturer and Tier One supplier may
produce several different versions of the prototype in succession, each version
containing refinements suggested by tests run on the earlier versions. It is
cost-prohibitive to use dies in producing these prototypes because a new die
would have to be constructed for each successive version of the prototype. Thus,
the prototype development process traditionally has involved metal-working by
hand or with small machine tools. The advent of laser technology, however, has
greatly increased the precision and efficiency with which prototypes can be
manufactured. The use of the laser avoids the natural imperfections that result
from metal working by hand or by conventional tool and die technology. Moreover,
because the laser can interface directly with CAE/CAD/CAM, there is no danger of
translation errors that may occur when the CAE/CAD/CAM design is converted into
cutting instructions. In addition, because the laser's cutting instructions are
stored in its computer operating system, it can be used to create duplicates of
the prototype without significantly increasing costs.
PRODUCTION. Following the manufacturer's approval of the prototype, full
scale production of the component begins. Traditionally, this process commences
with the casting of one die to stamp the basic shape of the component into the
sheet metal and additional dies to stamp the necessary details into the basic
shape. As discussed above, re-programmable laser cutting and welding systems may
be used to perform the precision cutting and finishing functions traditionally
performed by dies. However, the use of laser cutting systems as a replacement
for tool and die technology in the precision cutting and finishing stages of
manufacturing has been limited to relatively low volume production runs.
The Company believes that certain trends in the manufacturing industry are
causing an increasing emphasis on lower volume production runs and a decreasing
emphasis on the speed of precision cutting and finishing. These trends include:
(i) the decentralization of the production of components that make up a finished
product among a wider array of factories as a result of manufacturers' increased
reliance on the outsourcing of component production; (ii) the shift towards
just-in-time production methods and away from the stockpiling of partially
finished goods; (iii) the acceleration of the rate of change in a product's
internal components from one year's model to the next; and (iv) the use of a
larger number of small components in the design of a finished product. The
Company believes that this increasing emphasis on lower volume production runs
and decreasing emphasis on speed will result in continued increases in the
demand for laser cutting and welding systems, such as those produced by the
Company, as replacements for tool and die systems in the precision cutting and
finishing stages of manufacturing.
The advantages of laser cutting and welding technology over traditional
tool and die technology for production operations include the following:
(Bullet) laser systems produce more precise structural configurations
without the imperfections inherent in tool and die applications,
resulting in fewer rejects and more efficient assembly operations;
(Bullet) the automotive industry is producing lighter and more fuel
efficient vehicles because of cost considerations and government
mandates and, as a result, automotive manufacturers are utilizing
formed steel and composite profiles that cannot be processed by
conventional tool and die technology; and
(Bullet) because of the integration of CAE/CAD/CAM technologies within the
Company's Products, interruptions in the production process caused
by design errors are minimized, resulting in better assembly fits
of component parts and enhanced structural integrity of the
vehicle.
33
<PAGE>
PRODUCTS
The Company sells both 2-D and 3-D Products. 2-D Products cut and weld
shapes on a flat surface, while 3-D Products trim, punch, slot and weld objects
on a three-dimensional basis. The Company's Products are based upon high-power
carbon dioxide lasers.
The term "laser" is an acronym for "light amplification by the simulated
emission of radiation." A laser converts energy into an intense beam of light
comprised of a single or limited number of wavelengths. A laser beam may be
strong enough to cut sheet metal or may be sensitive enough to perform eye
surgery.
THREE-DIMENSIONAL LASERS. The Company produces two 3-D Products -- the
Rapido 5 model and the Optimo model. Both models utilize a flying optics system
pursuant to which the material to be cut remains stationary while the laser head
moves to the appropriate position for cutting. Both models are equipped with a
five-axis laser head, which permits profile cutting, i.e., cutting on
three-dimensional, rather than flat, materials. Both models have an industrial
process control system developed by Prima Electronics, which allows for the
machine to either interface with CAE/CAD/CAM software or be controlled by
off-line, manual instructions. In addition, both machines can store instructions
in memory for future repetitions. The laser head of the Rapido 5 is controlled
by a fully retracting arm, while the laser head of the Optimo is controlled by a
gantry structure which allows longer strokes than the fully retracting arm of
the Rapido. In the gantry structure, the laser head is suspended from a spanning
frame that is supported by four corner poles. The Optimo model is designed to
process large automobile body parts and to provide cutting and trimming to large
areas. The Optimo permits laser cutting and welding to five sides of the piece
(i.e., front, back, right, left, and top). The Optimo is the Company's highest
priced product because it requires more expensive installation and on-site
commissioning. The retracting arm of the Rapido 5 is a cantilever structure that
does not support as much weight as the Optimo does. The term "cantilever" refers
to the retracting arm which is supported at only one end. The cantilever
structure of the Rapido 5 permits laser cutting and welding to four sides of the
work piece (i.e., front, right, left, and top).
TWO DIMENSIONAL LASERS. The Company produces two 2-D Products -- the
Platino model and the Laserwork Gold model. Both models utilize a flying optics
system. Both models have an industrial process control system developed by Prima
Electronics, which allows the machine to either interface with CAE/CAD/CAM or be
controlled by off-line, manual instructions. In addition, both machines can
store instructions in memory for future repetitions. The laser head of the
Platino is controlled by a cantilevered arm that extends over the work area. The
laser head moves along this arm in accordance with instructions and the arm
itself moves over the work area, with the laser head remaining at all times
perpendicular to the cutting surface. The laser head of Laserwork Gold is
controlled by a gantry structure. The same distinctions between the cantilever
and gantry structures as discussed above apply to the Platino and the Laserwork
Gold models.
NEW PRODUCT DEVELOPMENTS. As described above under "Market," the Company
anticipates greater demand for its Products; however, its 3-D Products must
undergo certain design changes to meet the requirements of the production
environment. The Company will embark on its "Laser On-Line" development program
to produce a family of production-oriented 3-D Products. The 3-D product family,
tentatively named "Laser-Gate," will consist of a high speed cutting and welding
system of integrated units.
INDUSTRIAL CONTROLS
Prima Electronics manufactures industrial controls. Prima Industrie uses
these controls in its Products to instruct the laser head as to the specific
tasks to be completed as well as the laser settings.
Prima Electronics also produces regulators and drives for Atlas Copco
pursuant to a supply agreement extending through 2001. The specifications and
technology for these products were developed by Prima Electronics, but are owned
by Atlas Copco, and Prima Electronics manufactures these products solely for
Atlas Copco's use in its products. The supply agreement provides for the
maintenance of rigorous quality standards.
QUALITY
Prima Industrie and Prima Electronics have each obtained certification as
being in compliance with International Organization for Standardization ("ISO")
9001. The ISO is a worldwide federation of national standards bodies, one from
each of over one hundred countries. ISO 9000 standards, of which ISO 9001 is a
part, are basic rules for quality systems, that ensure that a supplier has the
capability to produce the required goods or services and to meet fully customer
expections. ISO 9000 standards were developed to establish a common set of
universally accepted quality standards, especially for international trade. The
procedure for attaining certification is for the applicant to evaluate and
revise its quality procedures against the
34
<PAGE>
requirements of the applicable standard, e.g., ISO 9001. The applicant presents
its revised quality procedures to the national standards body for its country.
Representatives of the national standards body assess the procedures and the
applicant's operations prior to certification. Certain countries or business
sectors may not accept products or services from businesses without such
certification. Series ISO 9001 provides certification for companies that design,
manufacture, install or service products. The certification means that the
production processes of Prima Industrie and Prima Electronics incorporate
quality practices, disciplines and checks and balances on a fully documented
basis.
BACKLOG
At December 31, 1997, Prima Industrie had orders for 17 Products with a
value of Lit 12.225 billion, or approximately $7.15 million. This compares to a
backlog of Lit 11.558 billion, or approximately $7.51 million, on December 31,
1996, consisting of 16 units. At December 31, 1997, Prima Electronics had orders
from customers other than Prima Industrie with a value of Lit 5.138 billion, or
approximately $2.72 million, compared to a backlog of Lit 4.657 billion, or
approximately $3.02 million, at December 31, 1996.
STRATEGY
The Company's goal is to exploit its technological superiority to become
the leading international provider of fully integrated robotic systems for the
precision cutting and finishing stages of the manufacturing process. The Company
also intends to become a recognized supplier of industrial process controls for
the machine tool industry. The following discussion summarizes the major aspects
of the Company's corporate strategy:
(Bullet) ENHANCE THE COMPANY'S PRODUCTS FOR USE IN HIGHER VOLUME PRODUCTION
ENVIRONMENTS. The Company believes that there is a trend in the
manufacturing industry towards lower volume production runs. This
trend favors the use of laser cutting and welding systems over
tool and die technology for the precision cutting and finishing
stages of the manufacturing process as a method of reducing
production costs per unit. The Company expects to take advantage
of this trend by enhancing its Products for use in a production
environment as part of its "Laser-On-Line" development program.
Through this program, the Company will modify its Products to make
them better able to withstand the rigors of a full production run
and will add automated loading and unloading systems to allow the
Products to be integrated into an assembly line.
(Bullet) MAINTAIN AND EXPAND ITS CURRENT MARKET SHARE IN 2-D AND 3-D
PRODUCTS THROUGH AGGRESSIVE GLOBAL MARKETING. The Company intends
to maintain its current share of the market for both 2-D and 3-D
Products through aggressive global marketing and sales promotion.
Marketing initiatives will include exhibits at major machine tool
exhibitions throughout the world, extensive marketing and
promotional efforts to introduce new products and key account
promotions.
(Bullet) MARKET PRIMA ELECTRONICS' INDUSTRIAL PROCESS CONTROLS THROUGH
WORLDWIDE DISTRIBUTION CHANNELS. The Company intends to leverage
the experience of Prima Electronics in providing industrial
controls to Prima Industrie and Atlas Copco by independently
marketing its state-of-the-art industrial process control products
through electronic and electrical distribution channels worldwide.
While initial marketing efforts will focus on machine tool
companies, management believes that its industrial control
products, both hardware and software, can be utilized by virtually
all flexible manufacturing, automated production and assembly,
automated material handling, welding, and process control system
suppliers.
(Bullet) DEVELOP, AS A DISCRETE PROFIT CENTER, COMPREHENSIVE WARRANTY AND
SERVICE, TRAINING AND SUPPORT, PREVENTIVE MAINTENANCE PROGRAMS AND
UPGRADES FOR THE COMPANY'S PRODUCTS. The Company expects these
programs to increase its competitive position in both the 2-D and
3-D markets by establishing a corporate reputation for quality and
service. Accordingly, the Company intends to expand its direct
support infrastructure worldwide and expand its field service and
support. The establishment of these activities will entail
recruiting and training qualified personnel, identifying qualified
independent service organizations and building effective and
highly trained organizations that can provide service to customers
in various countries in their assigned regions.
(Bullet) EXPAND THE LICENSING OF ITS TECHNOLOGY FOR THE MANUFACTURE AND
SALE OF THE COMPANY'S 2-D PRODUCTS OUTSIDE EUROPE. The Company
will seek more licensing partners for its 2-D equipment. The
Company has entered into a license agreement with Strippit for the
manufacture and sale of products using the technology for the
Platino product. Moreover, the Company has executed a license
agreement with a licensee in China for the Company's 2-D Products,
subject to the approval of the government of the People's Republic
of China. See "Business -- Licensing." Assuming the requisite
approvals are obtained, the revenues generated from this licensing
program will significantly increase
35
<PAGE>
total revenues. Moreover, this program will allow the Company to
take advantage of purchasing economies of scale because
subassemblies purchased by licensees from the Company's outside
suppliers will be included in the calculation of the Company's
volume discounts. Finally, the Company expects this program to
increase its sales of 3-D Products by requiring licensees to refer
customers interested in such products to the Company.
(Bullet) ACHIEVE VERTICAL AND HORIZONTAL INTEGRATION THROUGH STRATEGIC
ACQUISITIONS AND JOINT VENTURES. Following this Offering, the
Company will seek to expand its operations through strategic
acquisitions throughout the world. In pursuing strategic
acquisitions, the Company will attempt to achieve both vertical
integration, through the acquisition of critical material
suppliers (e.g., laser and auxiliary equipment suppliers), and
horizontal integration, through the acquisition of complementary
businesses and products. In addition, the Company may enter into
joint ventures pursuant to which a local manufacturer will join
with the Company to provide products to the automotive industry in
the region.
RESEARCH AND DEVELOPMENT
The Company believes it has achieved a technology leadership position in
the 3-D Products market by investing heavily in research and development and by
developing higher performance products and satisfying the needs of its
customers. The Company intends to continue to invest heavily in research and
development; however, the Company's development programs do not involve the
authorship of any new technology. The Company already utilizes Intel PentiumT
based hardware and Microsoft WindowsT and Windows NTT based software;
accordingly, off-line interfaces are easily specified and developed. Prima
Electronics has developed automatic loading and unloading sequences and
conveying equipment, and these devices and technology are also readily available
from third party suppliers. For the Company, adapting automotive "prototyping"
equipment to the production environment involves only the refinement of existing
bodies of technology to a different manufacturing environment. In 1995, 1996 and
1997, the Company spent, net of grants received for current projects, $.670
million, $1.329 million, and $1.335 million, respectively. The Company received
R&D grants for current projects of $.231 million in 1995, $.199 million in 1996
and $.114 million in 1997.
COMPETITION
The Company currently has four significant competitors in the market for
3-D laser-cutting and welding systems, including Trumpf of Germany; Mazak and
NTC, both located in Japan; and Lumonics, Inc., a U.S. supplier of YAG based
laser cutting and welding products. All of these companies are larger than the
Company and have access to greater financial, technical and other resources than
the Company. Although the Company believes that these competitors are not yet
supplying technically equivalent laser cutting products, the Company believes
that these companies will aggressively seek larger positions in the 3-D market.
To remain competitive, the Company believes that it will be required to
manufacture and deliver products to customers on a timely basis and without
significant defects and that it will also be required to maintain a high level
of investment in research and development and in sales and marketing. In
addition, the market for 3-D laser cutting and welding equipment is still small
and developing, and there can be no assurance that larger competitors with
substantially greater financial resources, including manufacturers of 2-D laser
products and other manufacturers of industrial lasers will not attempt to enter
the market.
Competition in the 2-D laser cutting and welding industry is intense,
characterized by large, multi-national corporations with significantly more
resources than the Company. The competition has achieved their successes
primarily as a result of their participation in the conventional machine tool
stamping and cutting industry. The Company enjoys no significant technological
advantage over the competitors in the 2-D marketplace; however, the Company
maintains competitive, state-of-the-art products, and has achieved, maintained
and extended its participation in the 2-D market place without the benefit of
complementary product lines or sales resources.
LICENSING
The Company has begun licensing the technology for manufacture of 2-D
Products in territories outside Europe. The first licensing agreement was
reached in July 1997, with Strippit for the manufacture and sale of products
using the technology for the Company's Platino Product. The agreement provides
for an exclusive sales territory limited to North America with a non-exclusive
license for the rest of the world, excluding Europe and certain markets in Asia.
The license agreement provides for an up-front royalty payment with additional
payments per machine sold, subject to a minimum royalty payment during the
period ending on December 31, 1999. Strippit is also required to furnish to the
Company information regarding potential purchases of 3-D Products. Strippit is
the wholly owned subsidiary of Idex Corporation. Idex Corporation has announced
that it is offering to sell Strippit and has commenced a process to solicit bids
for the acquisition of Strippit. The purchase of Strippit by an entity with
interests adverse to those of the Company could have a material adverse effect
on the Company's licensing activities in North America. Accordingly, the
Company is monitoring the auction process.
36
<PAGE>
The Company has executed the China License with Beijing Machinery and
Electricity Institute for the manufacture and sale in China of the Company's 2-D
Laserwork Product, subject to the approval of the government of the People's
Republic of China. The China License has a term of five years, commencing with
the approval by the government, and grants a non-exclusive license for the
manufacture and sale of the Laserwork Product in China. The China License
requires an initial payment for the License and royalty payments based upon net
sales of the Products. The approval of the China License by the government of
the People's Republic of China has been significantly delayed. The Company
cannot predict when such approval will be forthcoming, if at all.
EMPLOYEES
As of December 31, 1997, the Company employed 207 people on a full-time
basis, including 20 in sales and services offices outside Italy. The Company
believes that its relations with its employees are good. None of the employees
is covered by a collective bargaining agreement. See "Risk Factors -- Dependence
on Key Personnel."
MANUFACTURING
Prima Industrie's manufacturing activities consist of assembly, integration
and testing. These activities are performed in a 72,000 square foot facility in
Turin, Italy. In order to focus on its core technology, leverage the expertise
of its key suppliers and respond more efficiently to customer demand, the
Company has outsourced some of its machining operations on certain structural
subassemblies. During the fourth quarter of 1997, the Company completed a
transaction with Macromeccanica pursuant to which it sold certain machine tools
and equipment previously used by Prima Industrie to manufacture parts for its
Products to a leasing company, which then leased such equipment to
Macromeccanica. The Company entered into a requirements contract pursuant to
which Macromeccanica will supply such parts to the Company. The Company will no
longer machine the frame and structure components of its Products. With the
exception of smaller machining on the laser head and other small parts, Prima
Industrie will focus its manufacturing activities primarily on assembly
operations. In the event Macromeccanica is unable to satisfy quality standards
or production quantities, Prima Industrie will experience temporary delivery
problems until other machining subcontractors can be retained, which
subcontractors are readily available to Prima Industrie.
At present, the production capacity of Prima Industrie is approximately 100
machines per year, and it is operating at 80% of capacity. In the event that
sales increases as a result of the Company's strategic initiatives, the Company
intends to commence assembly operations in North American and Asia at the
appropriate time.
FACILITIES
Prima Industrie's headquarters and manufacturing facilities are housed in a
72,000 square foot building located in Collegno, Turin, which Prima Industrie
leases under a lease expiring in 2002. Prima Electronics' headquarters and
manufacturing facilities are housed in a 33,850 square foot building located in
Moncalieri, Turin, which Prima Electronics leases under a lease expiring in
1998. Upon expiration of the lease in 1998, Prima Electronics will acquire the
facility with the final payment under the lease. The Company maintains its U.S.
headquarters at 447 S. Sharon Amity Road, Suite 250, Charlotte, North Carolina.
Prima Industrie also leases various office spaces in France, The United Kingdom,
Spain, Switzerland, and the United States either directly or through wholly
owned subsidiaries.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, who have served in
such capacities since the Company was incorporated on July 29, 1997 unless
otherwise indicated, and their ages, as of February 28, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- --- --------------------------------------------------
<S> <C> <C> <C>
Gian Mario Rossignolo....................... 67 Chairman of the Board of Directors
James R. Currier, Sr........................ 51 President, Chief Executive Officer and Director
Gianfranco Carbonato........................ 52 Executive Vice President, Chief Operating Officer
and Director
Giovanni Ciamaroni.......................... 52 Vice President Business Development and Director
Michael H. Gilbert.......................... 56 Vice President Finance and Administration, Chief
Financial Officer, Secretary and Treasurer(1)
Mario Mauri................................. 47 Director
Hans Lennart Oscar Werthen.................. 82 Director
Pio Pellegrini.............................. 52 Director(2)
</TABLE>
- ---------------
(1) Mr. Gilbert was elected to serve in the positions shown above effective
October 1, 1997.
(2) Mr. Pellegrini was elected to serve as a member of the Board of Directors of
the Company on October 15, 1997.
The number of members of the Board of Directors is set at nine and there
are seven directors currently serving. After the closing of this Offering, the
Board of Directors intends to elect Mr. W. Edwin McMahan and Mr. Michael A.
Almond to fill these vacancies. Mr. McMahan, age 53, and Mr. Almond, age 49,
have agreed to accept the election and to serve on the Board, provided that
acceptable directors' and officers' liability insurance is in place and
appropriate indemnification agreements with the Company are obtained. It is
anticipated that Messrs. McMahan and Almond will serve as independent directors
of the Company and on the Compensation and Audit Committees of the Board of
Directors, but they have not participated in the affairs of the Company or, in
any way, in the preparation of this Prospectus.
The executive officers and directors of Prima Industrie and their ages, as
of February 28, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- ----------------------------------------------
<S> <C> <C> <C>
Gianfranco Carbonato........................... 52 Managing Director and Chief Executive Officer
Gian Mario Rossignolo.......................... 67 Chairman of Board of Directors
Mario Mauri.................................... 47 Director
Hans Lennart Oscar Werthen..................... 82 Vice Chairman of Board of Directors
Alberto Delle Piane............................ 50 Deputy General Manager
</TABLE>
The executive officers and directors of Prima Electronics and their ages,
as of February 28, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- ----------------------------------------------
<S> <C> <C> <C>
Domenico Peiretti.............................. 47 Managing Director and Chief Executive Officer
Gianfranco Carbonato........................... 52 Chairman of Board of Directors
</TABLE>
GIAN MARIO ROSSIGNOLO, a founder of Prima Industrie, has served as Chairman
of Prima Industrie since July 1995. Prior to that, he served as its Vice
President from July 1, 1985, to February 9, 1995. Mr. Rossignolo serves as a
member or chairman of the Board of Directors of seventeen European companies,
including Telecom Italia S.p.A. Group, Electrolux Zanussi S.p.A., Atlas Copco
Italia S.p.A., Perstop S.p.A., Sanitari Pozzi and Consortium, Ericsson S.p.A.,
SKF Industrie S.p.A., and SKF, Incorporated. The shares of Telecom Italia S.p.A.
Group are traded on the Milan, Italy stock exchange and on the New York Stock
Exchange through American Depositary Receipts. SKF Incorporated is traded on the
National Market System of the NASDAQ Stock Market, Inc.
38
<PAGE>
JAMES R. CURRIER, SR., served as President of Apogee Robotics, Inc.
("Apogee"), from October 1994 to June 1997. Apogee filed in December 1994, a
petition under Chapter 11 in the United States Bankruptcy Court for the District
of Colorado. On June 17, 1997, the proceeding was converted to a Chapter 7 case.
From August 1994 to present, Mr. Currier has also served as Secretary and
Treasurer of Currier Properties, Inc., a commercial real estate company. From
February 1987 to November 1992, Mr. Currier served as Executive Vice President
of NDC Automation, Inc., a publicly held factory automation company.
GIANFRANCO CARBONATO has served as Chief Executive Officer and Managing
Director of Prima Industrie since June 7, 1985. Mr. Carbonato was General
Manager of Prima Progetti from July 1977 until its merger with Prima Industrie
in May 1984. Mr. Carbonato has also served as President of Prima Electronics
since April 1995.
GIOVANNI CIAMARONI has served as Managing Partner of Rimex GmbH, a
technology broker, since 1993, and as a business consultant since 1991. Mr.
Ciamaroni was a founder and served as Chairman of the Board of Directors and
Chief Executive Officer from 1974 to July 1991 of Logosystem S.p.A., a company
involved in computer integrated manufacturing.
MICHAEL H. GILBERT is a certified public accountant and from May 1986 to
September 1997, was a shareholder, officer and director of Hitchner, Whitt &
Co., P.A., a firm of certified public accountants in Charlotte, North Carolina.
MARIO MAURI has served as a Director of Prima Industrie since 1995. He has
also served as Chairman of the Board of Directors and Chief Executive Officer of
Cambria Ltd. since 1990. Cambria Ltd. is a private merchant bank regulated by
IMRO headquartered in London.
HANS LENNART OSCAR WERTHEN has served as Vice Chairman of the Board of
Directors of Prima Industries since October 1995. Mr. Werthen is retired and
serves as Honorary Chairman of the Board of Directors of AB Electrolux. Prior to
retirement, Mr. Werthen served as Chairman of the Board of Directors of
Electrolux from 1991 to 1993.
PIO PELLEGRINI has served as Manager of Itainvest, a government owned
investment firm, from May 1982 to present.
DOMENICO PEIRETTI has served in various management capacities with Prima
Electronics since November 1987. In the period from 1986 to 1996, he served as
Vice-President of Prima Electronics. Since October 1987, he has served as
General Manager of Prima Electronics. Since April 1995, he has also served as
Managing Director of Prima Electronics.
ALBERTO DELLE PIANE has served as Deputy General Manager and Director of
Sales for Prima Industrie since January 26, 1994. From January 1989 to January
1994, he served as Director of the Laser Division of Prima Industrie.
W. EDWIN MCMAHAN is a nominee for election as a director after consummation
of this Offering. Mr. McMahan has served since 1974 as Chief Executive Officer
of Little & Associates Architects, an architectural firm based in Charlotte,
North Carolina, and as President of McMahan-Carver Properties, Inc., an
affiliated real estate development company.
MICHAEL A. ALMOND is a nominee for election as a director after
consummation of this Offering. Mr. Almond is an attorney and has been a member
of the law firm of Parker, Poe & Adams and Bernstein, LLP in Charlotte, North
Carolina, since March 1, 1984. Mr. Almond has specialized in the practice of
international law, representing U.S. businesses overseas and foreign businesses
in the U.S.
DIRECTOR COMPENSATION
Members of the Company's Board of Directors who are employed by the
Company, Prima Industrie, Prima Electronics or their affiliates do not receive
compensation for their services as directors. All other directors receive
$10,000 per year, plus expenses. As part of the Company's 1997 Stock Incentive
Plan, the directors of the Company who are not officers, employees or original
stockholders of the Company participate in a formula grant program. Original
stockholders are those stockholders of the Company prior to the Offering. As of
the date such individual becomes a director, he or she will receive an option to
purchase 500 shares of Common Stock at an exercise price of 105% of the fair
market value of the Common Stock on such date. Thereafter, each such director
will receive an option to purchase 500 shares of Common Stock on the anniversary
of the individual becoming a director at an exercise price equal to the fair
market value of the Common Stock on such date.
BOARD COMMITTEES
Upon completion of this Offering, the Board will have two standing
committees, the Compensation Committee and the Audit Committee. The Compensation
Committee will be responsible for reviewing the compensation of executives of
the
39
<PAGE>
Company and recommending changes to the Board. The Compensation Committee also
will administer The PRIMA International Group, Inc. 1997 Stock Incentive Plan.
The Compensation Committee will be composed of Messrs. Mauri, McMahan and
Almond.
The Audit Committee will be responsible for meeting periodically with
representatives of the Company's independent certified public accountants to
review the general scope of audit coverage, including consideration of the
Company's accounting practices and procedures and systems of internal controls,
and will report to the Board with respect thereto. The Audit Committee also will
recommend to the Board the appointment of the Company's independent auditors.
The Audit Committee will be composed of Messrs. Mauri, McMahan and Almond.
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation awarded to, earned by, or paid for services rendered to Prima
Industrie or Prima Electronics in all capacities during the year ended December
31, 1997, by (i) the Chief Executive Officer of each entity and (ii) the most
highly compensated executive officers of either entity whose salary and bonus
for such year exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1)(2)
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)
- -------------------------------- ---- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gianfranco Carbonato............ 1997 221,500(3) -- 11,100(4)(6)
CEO Prima Industrie 1996 244,400(3) -- 11,700(4)(6)
1995 181,100(3) -- 12,300(4)(6)
Alberto Delle Piane............. 1997 118,600 19,900(5) 11,700(4)(6)
Deputy General Manager 1996 129,600 25,300(5) 13,600(4)(6)
Prima Industrie 1995 104,400 24,600(5) 12,900(4)(6)
Domenico Peiretti............... 1997 128,500(3) -- 10,000(4)(6)
CEO Prima Electronics 1996 140,600(3) -- 11,000(4)(6)
1995 96,400 12,300 11,000(4)(6)
</TABLE>
- ---------------
(1) All compensation paid in this table was denominated in Italian lire, but has
been converted to U.S. dollars at the following exchange rates: 1,629 Lira
to the dollar for 1995, 1,543 Lira to the dollar for 1996 and 1,711 Lira to
the dollar for 1997. On March 13, 1998, the exchange rate among banks
selling in amounts of $1 million or more as published by the WALL STREET
JOURNAL was 1792 Lira to the dollar.
(2) Prima Industrie and Prima Electronics do not have incentive compensation
plans or make any form of payouts or awards under long term compensation
plans.
(3) Included in salary are amounts paid to Messrs. Carbonato and Peiretti as
managing director or director fees for Prima Industrie and Prima
Electronics.
(4) The Chief Executive Officer and each Named Executive Officer receive
perquisites and other personal benefits, however, the aggregate amount is
less than ten percent (10%) of the total salary and bonus shown in the
table.
(5) Mr. Delle Piane receives a discretionary bonus based upon performance as
determined by the Managing Director of Prima Industrie, Mr. Carbonato.
(6) The compensation shown is paid by the employer pursuant to the requirements
of a government program. The employee is entitled to receive the amounts
paid on behalf of the employee when the employee is no longer employed by
the employer.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Currier,
Ciamaroni, Carbonato and Gilbert. Each employment agreement has an initial term
of three years and contains certain covenants regarding the employee's right to
compete with the Company following the termination of his employment (the
"Non-Compete Covenants"). Messrs. Currier and Carbonato will each receive a base
salary of $250,000 per year, while Messrs. Ciamaroni and Gilbert will each
receive a base salary of $150,000 per year. A portion of Mr. Carbonato's salary
will be paid by Prima Industrie. Under each of these
40
<PAGE>
agreements, non-qualified stock options have been granted as described below.
Messrs. Currier and Ciamaroni will also receive payments of $300,000 and
$150,000, respectively, for entering into the Non-Compete Covenants. Messrs.
Carbonato and Gilbert will not receive any additional compensation for entering
into the Non-Compete Covenants.
Messrs. Currier and Ciamaroni will also receive an annual bonus in an
amount not less than the amount owed under certain loans from the Company plus
applicable taxes. See "Certain Transactions."
1997 STOCK INCENTIVE PLAN
The stockholders of the Company have adopted an incentive compensation plan
entitled "The PRIMA Group International, Inc. 1997 Stock Incentive Plan" (the
"Plan"). The purpose of the Plan is to reward and provide incentives for
executive officers, key employees, non-employee directors and consultants by
providing them with an opportunity to acquire equity interests in the Company,
thereby increasing their personal interest in the success of the Company. The
purpose of the Plan is also to retain the services of executive officers and key
employees as well as to assist in attracting new executive officers and key
employees. The maximum number of shares authorized to be issued under the Plan
is 1,000,000 shares of Common Stock and the maximum number of shares underlying
awards that can be granted to an individual employee in a calendar year is
200,000 shares of Common Stock.
41
<PAGE>
As of the date of this Prospectus, an aggregate of 550,000 shares of Common
Stock had been reserved under the Plan through the exercise of non-qualified
stock options. The following table sets forth information regarding the
outstanding options under the Plan:
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
UNDERLYING WHEN EXERCISE
PARTICIPANT OPTION EXERCISABLE (1) PRICE (2)
- ----------------------------- ------------ --------------- ---------
<S> <C> <C> <C> <C> <C>
James R. Currier, Sr......... 100,000 1st anniversary(3) 115%
30,000 1st anniversary(3) 120%
30,000 2nd anniversary(3) 130%
40,000 3rd anniversary(3) 140%
Gianfranco Carbonato......... 30,000 1st anniversary(3) 120%
30,000 2nd anniversary(3) 130%
40,000 3rd anniversary(3) 140%
Giovanni Ciamaroni........... 100,000 1st anniversary(3) 115%
30,000 1st anniversary(3) 120%
30,000 2nd anniversary(3) 130%
40,000 3rd anniversary(3) 140%
Michael H. Gilbert........... 20,000 1st anniversary(3) 110%
15,000 2nd anniversary(3) 120%
15,000 3rd anniversary(3) 130%
</TABLE>
- ---------------
(1) The stock options vest and become exercisable on the indicated anniversary
dates of this Offering.
(2) The exercise price on date of grant will be the indicated percentage of the
Offering Price.
(3) These grants have been made in aggregate totals of 200,000 to Messrs.
Currier and Ciamaroni, 100,000 to Mr. Carbonato and 50,000 to Mr. Gilbert.
The table sets forth the installments as they became exercisable.
The Plan permits the granting of stock options, including incentive stock
options ("ISOs") as defined under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-qualified stock options ("NQSOs") which
do not qualify as ISOs.
The Plan is administered by the Compensation Committee, which has the sole
and complete authority to select the employees (including executive officers),
directors and consultants who will receive options under the Plan. The
Compensation Committee has the authority to determine the number of stock
options to be granted to eligible individuals, whether the options will be ISOs
or NQSOs and the terms and conditions of the options (which may vary from
grantee to grantee). The Compensation Committee determines the period for which
each stock option may be exercisable, but in no event may a stock option be
exercisable more than ten years from the date the option becomes vested. The
number of shares available under the Plan and the exercise price of the options
granted thereunder are subject to adjustment by the Compensation Committee to
reflect stock splits, stock dividends, recapitalization, mergers, or other major
corporate actions.
The Compensation Committee also has the authority under the Plan to grant
Stock Appreciation Rights ("SARs") to participants. SARs confer on the holder a
right to receive, upon exercise, the excess of the fair market value of one
share on the date of exercise over the grant price of the SAR as specified by
the Committee, which price may not be less than 100% of the fair market value of
one share on the date of grant of the SAR. The grant price, term, methods of
exercise, dates of exercise, methods of settlement and any other terms and
conditions of any SAR are determined by the Committee.
The Board of Directors may discontinue, amend, or suspend the Plan in a
manner consistent with the Plan's provisions or existing agreements, provided
such changes do not violate the federal or state securities laws.
42
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND RELATED MATTERS
The Company's Certificate of Incorporation limit the personal liability of
directors and officers for monetary damages for breach of their fiduciary duties
as directors and officers (other than liabilities arising from acts or omissions
which involve intentional misconduct, fraud or knowing violations of law or the
payment of distributions in violation of the General Corporation Law of
Delaware). The Company's Bylaws provide that the Company shall indemnify
directors and officers for all costs reasonably incurred in connection with any
action, suit or proceeding in which such director or officer is made a party by
virtue of his being an officer or director of the Company, except where such
director or officer is finally adjudged to have been derelict in the performance
of his duties in such capacity. The Company has entered into indemnification
agreements with its officers and directors containing provisions which may
require the Company, among other things, to indemnify the officers and directors
against certain liabilities that may arise by reason of their status or service
as directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified. At the present
time, there is no pending material litigation or proceeding involving a
director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened material litigation or proceeding which may result in a claim for
such indemnification.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements or employment
agreements with each of its directors and executive officers pursuant to which
the Company is obligated to indemnify such individuals to the fullest extent
permitted by law including certain liabilities and claims arising under the
Securities Act.
CERTAIN TRANSACTIONS
Prior to this Offering, Messrs. Currier and Ciamaroni each entered into an
agreement with Miojusti Investment BV ("Miojusti") to purchase 247,385 shares of
Prima Industrie for $600,000. Each of them delivered to Miojusti a non-recourse
promissory note in the amount of $600,000 in payment of the purchase price.
These promissory notes do not bear interest and are due thirty days after
consummation of the Offering. If the promissory note is not paid when due,
Miojusti's sole recourse is to obtain a return of the Prima Industrie shares or
the shares of Common stock received in exchange for the Prima Industrie shares.
In the exchange of shares by the shareholders of Prima Industrie for shares of
the Company, Messrs. Currier and Ciamaroni each received 60,000 shares of Common
Stock.
The Company has agreed to make a loan to Messrs. Currier and Ciamaroni,
separately, in the amount of $600,000 each (for an aggregate of $1,200,000) from
the proceeds of this Offering to retire the indebtedness to Miojusti so that
their shares of Common Stock can be used as collateral for their loans from the
Company. The loans from the Company will bear interest at the annual rate of six
percent (6%) and will require annual payments of interest for the seven years
prior to maturity and a balloon payment of all principal and unpaid interest
upon maturity, which is at the end of eight years. The indebtedness will be
cancelled if any of the following events occur:
(1) The employment of the employee is terminated without cause or his
employment agreement is not renewed by the Company;
(2) Substantially all of the assets or stock of the Company are sold
(including a merger where the Company is not the surviving entity) for
a per share consideration greater than or equal to 130% of the Offering
Price;
(3) The Company receives gross proceeds of $30 million or more from a
follow-on public offering of equity or debt securities;
(4) There is a 100% increase as of the end of any fiscal year in the
Company's stockholders' equity or market capitalization, based upon
public float, as compared to those results at the end of the month in
which this offering is consummated; or
(5) There is a 100% increase as of the end of any fiscal year in the
Company's total revenues or net income, as compared to those results
for the year ended December 31, 1997.
43
<PAGE>
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of December 18, 1997, and as
adjusted reflect the sale of the Shares offered hereby, by (i) each person with
address who is not an executive officer or director of the Company and who is
known by the Company to own beneficially more than 5% of the Company's
outstanding stock, (ii) each Named Executive Officer, (iii) each of the
Company's directors and (iv) all current directors and executive officers as a
group.
<TABLE>
<CAPTION>
DIRECTORS, EXECUTIVE OFFICERS SHARES BENEFICIALLY
& 5% SHAREHOLDERS OWNED (1) PERCENTAGE (2)
------------------------------- ------------------- --------------
<S> <C> <C> <C>
Itainvest (3)
Via Del Serafico
Rome, Italy.......................................................... 1,212,683 25.8%
Miojusti Invesments BV (3)(4)
3105 Stravinsky Laan
Amsterdam The Netherlands............................................ 285,036 6.1%
Gian Mario Rossignolo (3).............................................. 422,657 9.0%
James R. Currier, Sr................................................... 60,150 1.3%
Gianfranco Carbonato (3)............................................... 199,643 4.2%
Giovanni Ciamaroni..................................................... 60,150 1.3%
Michael H. Gilbert..................................................... 0 0%
Mario Mauri (3)(4)..................................................... 285,036 6.1%
Hans Werthen (3)....................................................... 405,036 8.6%
Pio Pellegrini......................................................... 0 0%
All directors and executive
officers as a group
(eight persons)...................................................... 1,432,672 30.5%
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment powers with
respect to all the shares of common stock shown as beneficially owned by
them.
(2) For purposes of this table, the number of outstanding of the Company's
Common Stock is 4,700,300.
(3) Not including the right to acquire a portion or all of the 818,562 shares of
Common Stock held by Itainvest S.p.A. See discussion under "History of the
Company -- Prima Industrie."
(4) Cambria 1990 Ltd. Partnership and Demercroft Holding N.V. hold 97.75% and
2.25%, respectively, of the outstanding capital stock of Miojusti. The
general partner of Cambria 1990 Ltd. Partnership is Cambria Ltd. Cambria
1990 Ltd. Partnership's limited partners are Cambria 1990 Exempt Trust (an
entity owned 50% by Candover Investments p.l.c. and 50% by West Midland
Authorities Pension Fund), Candover Investments p.l.c. and Kleinwort Benson
Investment Trust Ltd. In addition, Demercroft Investments Ltd. is a special
limited partner of Cambria. Mario Mauri, a director of the Company, is the
Chairman of Cambria Ltd. and, accordingly, may be deemed to beneficially own
the shares of Common Stock held by Miojusti.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 14,000,000 shares
of Common Stock, $.01 par value, and 1,000,000 shares of Preferred Stock, $.01
par value.
The following summary of certain rights and preferences of the Common Stock
and Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Certificate of
Incorporation, which are included as an exhibit to the Registration Statement of
which this Prospectus is a part and by the provisions of applicable law.
44
<PAGE>
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior rights of
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions available to the Common Stock. All outstanding shares of
Common Stock are fully paid and non-assessable, and the shares of Common Stock
to be issued upon completion of this Offering will be fully paid and
non-assessable.
At April 27, 1998, 2,700,300 shares of Common Stock were outstanding and
held of record by 12 stockholders.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors has the authority, without further action by the stockholders, to
issue up to 1,000,000 shares of Preferred Stock in one or more series and to fix
the designations, powers, preferences, privileges, and relative participation,
optional or special rights and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the Common Stock. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting, conversion or other rights that
could adversely affect the voting power and other rights of the holders of
Common Stock. Preferred Stock could thus be issued quickly, with terms
calculated to delay or prevent a change in control of the Company or make
removal of management more difficult. Additionally, the issuance of Preferred
Stock may have the effect of decreasing the market price of the Common Stock.
Upon the completion of this Offering, there will be no shares of Preferred Stock
outstanding. The Company has no present plans to issue any of the Preferred
Stock. See "Risk Factors -- Charter and Bylaw Provisions; Availability of
Preferred Stock for Issuance."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock are American
Securities Transfer & Trust, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Stock of the Company and no predictions can be made of the effect, if any, that
the sale or availability for sale of shares of additional Common Stock will have
on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of such shares in the public market, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
Upon completion of this Offering, the Company will have 4,700,300 shares of
Common Stock outstanding, assuming no exercise of the Over-Allotment Option. Of
these shares, the 2,000,000 shares sold in this Offering will be freely tradable
without restriction or registration under the Securities Act, except that any
shares purchased by "affiliates" of the Company, as that term is defined under
the Securities Act ("Affiliates"), may generally only be sold in compliance with
the limitations of Rule 144 described below.
The remaining 2,700,300 shares of outstanding Common Stock are deemed
"Restricted Shares" under Rule 144. The number of shares of Common Stock
available for sale in the public market is limited by restrictions under the
Securities Act and lock-up agreements under which the holders of such shares
have agreed not to sell or otherwise dispose of any of their shares for a period
of two years after the date of this Prospectus without the prior written consent
of the Underwriters and the Company; provided, that the Underwriters will waive
the restrictions contained in such agreements, on a pro rata basis to all
parties subject to such agreements, if the Company undertakes a public offering
or private placement of Common Stock and the underwriter or placement agent for
such public offering or private placement agrees that the shares of Common Stock
for which such restrictions are waived will be sold as part of the orderly
distribution of securities to be sold in such public offering or private
placement. Restricted Shares may be sold in the public market only if registered
or if they qualify for an exemption from Registration under Rules 144, 144(k) or
701 promulgated under the Securities Act.
45
<PAGE>
As a result of contractual restrictions described below and the provisions
of Rules 144, 144(k) and 701, those 2,700,300 Restricted Shares will be
available for sale in the public market in the Public market without the consent
of the Company or Chatfield Dean & Co. upon expiration of their respective
two-year holding periods.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this Offering, a person (or persons whose shares are
aggregated) who has beneficially owned "restricted" shares for at least one
year, including a person who may be deemed an Affiliate, is entitled to sell
within any three-month period a number of shares of Common Stock that does not
exceed the greater of 1% of the then outstanding shares of Common Stock of the
Company (approximately 47,000 shares after giving effect to this Offering) or
the average weekly trading volume of the Common Stock on the National Market
System of the NASDAQ Stock Market, Inc. during the four calendar weeks preceding
such sale. Sales under Rule 144 of the Securities Act are subject to certain
restrictions relating to manner of sale, notice, and the availability of current
public information about the Company. A person who is not an Affiliate at any
time during the 90 days preceding a sale, and who has beneficially owned shares
for at least one year, would be entitled to sell such shares immediately
following this Offering without regard to the volume limitations, manner of sale
provisions, or notice or other requirements of Rule 144 of the Securities Act.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the
prevailing market price for the Common Stock. Sales of substantial amounts of
Common Stock, or the perception that such sales might occur, could adversely
affect prevailing market prices for the Common Stock and could impair the
Company's future ability to obtain capital through an offering of equity
securities.
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement, the Underwriters named below, for whom Chatfield Dean & Co. are
serving as Representatives, have severally agreed to purchase, and the Company
has agreed to sell to the Underwriters, the respective number of shares of
Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---------------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Chatfield Dean & Co.............................................................................................
TOTAL........................................................................................................... 2,000,000
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all of the Shares of Common Stock offered hereby (other than the shares
covered by the Over-Allotment Option) if any are taken.
The Underwriters initially propose to offer part of the Shares of Common
Stock offered hereby directly to the public at the Offering Price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the Offering Price. The
Underwriters intend to offer Shares to the public and to certain dealers and
institutions in the United States and in Europe, principally Italy, Switzerland,
France and the United Kingdom. One or more Italian investment banks may
participate as Underwriters or dealers in the Offering. Any such Underwriter or
dealer will distribute Shares only to investors in Italy. Any Underwriter may
allow, and such dealers may reallow, a concession not in excess of $ per
share to other Underwriters or to certain other dealers.
The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an additional 300,000 Shares from
the Company to cover over-allotments, if any, at the same price per Share as the
initial 2,000,000 Shares to be purchased by the Underwriters. To the extent that
the Underwriters exercise the Over-Allotment Option, each of the Underwriters
will be committed, subject to certain conditions, to purchase such additional
Shares in approximately the same proportion as set forth in the above table. The
Underwriters may purchase such Shares only to cover over-allotments made in
connection with the Offering.
The Company and the Underwriters have each agreed to indemnify the other
parties against certain liabilities, including liabilities under the Securities
Act.
Subject to certain limited exceptions, the Company has agreed not to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock, or any securities convertible into or exercisable or
exchangeable for Common Stock, or enter into any swap or similar agreement that
transfers in whole or in part, the economic
46
<PAGE>
risk of ownership of the Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Chatfield Dean & Co.
In connection with this Offering, the Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in such case, may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 300,000 shares of Common Stock, by
exercising the Over-Allotment Option. In addition, the Underwriters may impose
"penalty bids" whereby they may reclaim from each other (or any dealer
participating in the Offering) for their account, the selling concession with
respect to Common Stock that is distributed in the Offering but subsequently
purchased for their account in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
The Company has agreed to sell to the Representative, for a purchase price
of $100.00, a warrant to purchase shares of Common Stock at a price equal to
150% of the Offering Price. The total number of shares of Common Stock that may
be purchased on the exercise of the Underwriters' Warrant will be equal to 10%
of the number of shares sold in this Offering, excluding shares sold as part of
the Over-Allotment Option. Pursuant to the Underwriters' Warrant, the
Underwriters have been granted certain "piggyback" registration rights with
respect to the shares of Common Stock underlying such warrant. Such registration
rights expire seven (7) years after the effective date of this Offering. The
Underwriters' Warrant will be nonexercisable for a period of 12 months following
the date of this Prospectus and will thereafter be exercisable during the next
succeeding four-year period. During the term of the Underwriters' Warrant, the
Underwriters may transfer a portion or all of the Underwriters' Warrant to such
Underwriters' officers or partners. The Underwriters' Warrant may not be sold,
transferred, assigned or hypothecated at any time, other than to officers or
partners of the Underwriters or members of the selling group.
The Company has a financial consulting agreement with the Representative
pursuant to which the Representative will provide the Company with services,
including advising the Company in connection with possible acquisitions,
stockholder relations (including the preparation of the annual report),
long-term financial planning, corporate reorganization, expansion and capital
structure and other financial assistance. The consulting agreement has a term of
one year commencing at the completion of this Offering. The agreement states
that the Representative will be paid a consulting fee of $40,000, which will be
paid upon the consummation of this Offering.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the Offering Price will be determined through negotiations
among the Company and the Representative. Among the factors considered in such
negotiations will be the history of, and prospects for, the Company and the
industry in which it competes, an assessment of the Company's management, the
Company's past and present operations and financial performance, its past and
present earnings and the trend of such earnings, the prospects for future
earnings of the Company, the present state of the Company's development, the
general condition of the securities markets at the time of this Offering and the
market prices of publicly traded common stocks of comparable companies in recent
periods.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Rayburn, Moon & Smith, P.A., Charlotte, North Carolina. Certain legal
matters relating to this Offering will be passed upon for the Underwriters by
Dorsey & Whitney LLP, Denver, Colorado.
EXPERTS
The financial statements of the Company as of December 31, 1997 and for the
period from inception to December 31, 1997 and the consolidated financial
statements of Prima Industrie as of December 31, 1996 and 1997 and for each of
the three years in the period ended December 31, 1997 included in this
Prospectus have been audited by Hein + Associates
47
<PAGE>
LLP, independent auditors, as stated in their report appearing herein, and have
been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1, including amendments
thereto, under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus omits certain information contained in the
Registration Statement, and reference is made to the Registration Statement and
the exhibits and schedules thereto for further information with respect to the
Company and the Common Stock offered hereby. Statements contained herein
concerning the provisions of any documents are not necessarily complete, and in
each instance reference is made to the copy of such document filed as an exhibit
to the Registration Statement. Each such statement is qualified in its entirety
by such reference. The Registration Statement, including exhibits and schedules
filed therewith, may be inspected without charge at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of all or any part thereof may
be obtained from such office upon payment of the prescribed fees. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the site is http://www.sec.gov.
The Company intends to furnish its stockholders annual reports containing
consolidated financial statements audited by its independent auditors.
48
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE PRIMA GROUP INTERNATIONAL, INC.
Independent Auditor's Report........................................................................................... F-1
Balance Sheet -- December 31, 1997..................................................................................... F-2
Statement of Operations -- For the Period from Inception (July 29, 1997) to December 31, 1997.......................... F-3
Statement of Stockholders' Equity -- For the Period from Inception (July 29, 1997) to December 31, 1997................ F-4
Statement of Cash Flows -- For the Period from Inception (July 29, 1997) to December 31, 1997.......................... F-5
Notes to Financial Statements.......................................................................................... F-6
PRIMA INDUSTRIE S.P.A.
Independent Auditor's Report........................................................................................... F-9
Consolidated Balance Sheets -- As of December 31, 1997 and 1996........................................................ F-10
Consolidated Statements of Operations -- For the Years Ended December 31, 1997, 1996, and 1995......................... F-11
Consolidated Statements of Stockholders' Equity -- For the Period from January 1, 1995 to December 31, 1997............ F-12
Consolidated Statements of Cash Flows -- For the Years Ended December 31, 1997, 1996, and 1995......................... F-13
Notes to Consolidated Financial Statements............................................................................. F-14
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
BOARD OF DIRECTORS
THE PRIMA GROUP INTERNATIONAL, INC.
Charlotte, North Carolina
We have audited the accompanying balance sheet of The PRIMA Group
International, Inc. (a development stage enterprise) as of December 31, 1997,
and the related statements of operations, stockholders' equity and cash flows
for the period from inception (July 29, 1997) through December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The PRIMA Group
International, Inc. as of December 31, 1997, and the results of its operations
and its cash flows for the period from inception (July 29, 1997) through
December 31, 1997, in conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
March 25, 1998, except for Note 4 as to which the date is April 23, 1998
F-2
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
($ IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
1997 UNAUDITED
------------ ---------
<S> <C> <C>
(NOTE 4)
ASSETS
CURRENT ASSETS:
Cash............................................................................................. $ 26
DEFERRED OFFERING COSTS............................................................................ 521
------------
TOTAL ASSETS....................................................................................... $547
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Offering costs payable........................................................................... $146
Advances from affiliate.......................................................................... 443
------------
TOTAL CURRENT LIABILITIES.......................................................................... 589
COMMITMENTS (Notes 3 and 4)
STOCKHOLDERS' EQUITY:
Preferred stock, .01 par value, 1,000,000 shares authorized, no shares issued.................... -- $ --
Common stock, .01 par value, 14,000,000 shares authorized, 300 shares issued and outstanding,
2,700,300 shares pro forma.................................................................... -- 27
Additional paid-in capital....................................................................... 3 13,736
Common stock subscriptions receivable............................................................ (3) (3)
Foreign currency translation adjustments......................................................... -- (726)
Accumulated deficit.............................................................................. (42) (7,708)
------------ ---------
Total stockholders' equity.................................................................... (42) 5,326
------------ ---------
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................................................... $547
------------
------------
</TABLE>
See accompanying notes to these financial statements.
F-3
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JULY 29, 1997) TO DECEMBER 31, 1997
($ IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<S> <C>
REVENUES........................................................................................................... $ --
EXPENSES:
Salaries and payroll taxes....................................................................................... 40
Other............................................................................................................ 2
--------
Total expenses................................................................................................ 42
--------
NET LOSS........................................................................................................... $ (42)
--------
--------
NET LOSS PER SHARE................................................................................................. $(140.00)
--------
--------
SHARES OUTSTANDING................................................................................................. 300
--------
--------
</TABLE>
See accompanying notes to these financial statements.
F-4
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JULY 29, 1997) TO DECEMBER 31, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT
------ ------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES, July 29, 1997............................. -- $ -- $ -- $ -- $ --
Issuance of common stock.......................... 300 -- 3 (3) --
NET LOSS............................................ -- -- -- -- (42)
------ ------- ---------- ------------- -----------
BALANCES, December 31, 1997......................... 300 $ -- $ 3 $ (3) $ (42)
------ ------- ---------- ------------- -----------
------ ------- ---------- ------------- -----------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCES, July 29, 1997............................. $ --
Issuance of common stock.......................... --
NET LOSS............................................ (42)
-------------
BALANCES, December 31, 1997......................... $ (42)
-------------
-------------
</TABLE>
See accompanying notes to these financial statements.
F-5
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JULY 29, 1997) TO DECEMBER 31, 1997
($ IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................................................ $(42)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliate............................................................................................. 443
Increase in offering costs payable.................................................................................. 146
Increase in deferred offering costs................................................................................. (521)
----
Net cash provided by financing activities........................................................................ 68
----
NET CHANGE IN CASH.................................................................................................... 26
CASH, beginning of period............................................................................................. --
----
CASH, end of period................................................................................................... $ 26
----
----
</TABLE>
See accompanying notes to these financial statements.
F-6
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS -- The PRIMA Group International, Inc. ("PRIMA" or the
"Company") was formed on July 29, 1997 for the purpose of acquiring
substantially all of the outstanding common stock of Prima Industrie S.p.A.
("Prima Industrie"). The Company has had no operations through December 31,
1997.
USE OF ESTIMATES -- The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
the Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes. Actual
results could differ from those estimates.
INCOME TAXES -- The Company accounts for income taxes under the liability
method, which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statements and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
DEFERRED OFFERING COSTS -- Direct costs incurred by the Company in
connection with its proposed initial public offering have been deferred, and
will be charged against the proceeds of the offering when completed. Should the
offering not be completed, such costs will be charged to expense.
2. ADVANCES FROM AFFILIATE:
Advances from affiliate represents non-interest bearing advances from Prima
Industrie. These advances have been used to pay costs associated with the
Company's proposed initial public offering.
3. COMMITMENTS:
STOCK OPTION PLAN -- The Company has proposed a 1997 Stock Incentive Plan,
under which 1,000,000 shares will be authorized for future issuance. The Company
has agreed to grant a total of 550,000 options under the plan to three officers
of the Company and an officer of Prima Industrie. Following is a summary of
options to be granted under the plan:
WEIGHTED AVERAGE
WHEN EXERCISE
NUMBER OF SHARES EXERCISABLE(1) PRICE(2)
- ---------------- ---------------- ----------------
20,000 1st Anniversary 110%
200,000 1st Anniversary 115%
90,000 1st Anniversary 120%
15,000 2nd Anniversary 120%
90,000 2nd Anniversary 130%
15,000 3rd Anniversary 130%
120,000 3rd Anniversary 140%
- ---------------- ---
550,000 124%
- ---------------- ---
- ---------------- ---
- ---------------
(1) The stock options will vest and become exercisable upon anniversary dates of
the public offering.
(2) The exercise price will be a percentage of the public offering price.
EMPLOYMENT AGREEMENTS -- The Company has agreed to enter into employment
agreements with three officers, effective upon closing of the proposed public
offering. These agreements call for salaries of $250,000, $150,000, and
$150,000, respectively, per year for a period of three years. Two of the
officers will also receive payments of $300,000 and $150,000, respectively, in
1998 for entering into non-compete covenants under their employment agreements.
These payments are subject to a three-year vesting period. These officers have
agreed to extend the period of their non-compete agreements for an additional
five-year term in exchange for eight annual payments of $135,000 each.
F-7
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. COMMITMENTS: -- Continued
The Company has agreed to make loans to two officers aggregating
$1,200,000. The proceeds of these loans will be used to purchase existing shares
of Prima Industrie stock, which will be converted to 120,000 shares of the
Company's stock after the acquisition described in Note 4. The loans will have
an eight-year term, with interest at 6%, and will be collateralized by the stock
acquired.
OFFICE LEASE -- The Company has entered into an office sublease with an
entity owned by an officer and his spouse, for the period from January 1, 1998
to June 30, 1999. The lease provides for monthly payments of $1,805 commencing
December 1997 through June 1998 and $1,895 commencing July 1998 through June
1999. It also provides for additional rent of $800 per month for office
furniture and equipment.
4. INITIAL PUBLIC OFFERING:
The Company has entered into a letter of intent with an underwriter for an
initial public offering (IPO) of 2,000,000 shares of common stock. On April 23,
1998, the Company exchanged 2,700,000 shares of stock for substantially 100% of
the outstanding shares of Prima Industrie. The unaudited pro forma financial
information presented on the face of the accompanying balance sheet reflects the
issuance of these shares in exchange for the net equity of Prima Industrie as of
December 31, 1997. This transaction will be accounted for as a recapitalization
of Prima Industrie in a manner similar to a reverse acquisition, in which the
transaction is treated as the issuance of stock by Prima Industrie for the net
assets of PRIMA, and no goodwill or other intangibles will be recorded.
F-8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
BOARD OF DIRECTORS
PRIMA INDUSTRIE S.P.A.
Turin, Italy
We have audited the accompanying consolidated balance sheets of Prima
Industrie S.p.A. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Prima
Industrie S.p.A. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
March 16, 1998, except for Note 15 as to which the date is April 23, 1998
F-9
<PAGE>
PRIMA INDUSTRIE S.P.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
------------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................................... $ 1,330 $ 585
Trade accounts receivable, net of allowance of $345 and $426, respectively........................ 19,107 21,244
Other accounts receivable......................................................................... 2,452 3,127
Inventories....................................................................................... 8,223 7,949
Prepaid expenses and other current assets......................................................... 193 872
------------- -------
Total current assets........................................................................... 31,305 33,777
PROPERTY, PLANT AND EQUIPMENT....................................................................... 5,859 7,612
Less accumulated depreciation..................................................................... (4,308) (5,966)
------------- -------
Property, plant and equipment, net............................................................. 1,551 1,646
PATENTS AND OTHER INTANGIBLE ASSETS, net............................................................ 143 339
INVESTMENTS AND OTHER ASSETS........................................................................ 467 590
ADVANCES TO AFFILIATE............................................................................... 443 --
------------- -------
TOTAL ASSETS........................................................................................ $33,909 $36,352
------------- -------
------------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable and long-term debt............................................... $ 8,472 $10,276
Accounts payable.................................................................................. 12,063 12,721
Customer deposits................................................................................. 343 506
Other accrued expenses and liabilities............................................................ 3,692 3,210
Deferred income................................................................................... 72 559
Income taxes payable.............................................................................. 331 185
------------- -------
Total current liabilities.................................................................... 24,973 27,457
LONG-TERM DEBT...................................................................................... 444 948
EMPLOYEE TERMINATION ACCRUAL........................................................................ 2,455 2,655
MINORITY INTEREST................................................................................... 659 548
COMMITMENTS AND CONTINGENCIES (Notes 2 and 12)
STOCKHOLDERS' EQUITY:
Common stock, .01 par value, 14,000,000 shares authorized, 2,700,000 shares
issued and outstanding....................................................................... 27 27
Additional paid-in capital..................................................................... 13,775 13,775
Foreign currency translation adjustments....................................................... (726) 3
Accumulated deficit............................................................................ (7,698) (9,061)
------------- -------
Total stockholders' equity................................................................... 5,378 4,744
------------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................................................... $33,909 $36,352
------------- -------
------------- -------
</TABLE>
See accompanying notes to these consolidated financial statements.
F-10
<PAGE>
PRIMA INDUSTRIE S.P.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Net sales............................................................................ $ 43,560 $ 41,108 $ 37,356
Other operating revenue.............................................................. 626 1,207 1,204
--------- --------- ---------
Total revenues.................................................................... 44,186 42,315 38,560
COSTS AND EXPENSES:
Cost of goods sold................................................................... 35,157 34,357 32,565
Research and development costs....................................................... 1,335 1,329 670
Selling, general and administrative costs............................................ 5,513 5,218 5,250
--------- --------- ---------
Total costs and expenses........................................................ 42,005 40,904 38,485
--------- --------- ---------
OPERATING INCOME....................................................................... 2,181 1,411 75
OTHER INCOME (EXPENSE):
Interest and other income............................................................ 393 818 776
Gain on sale of equipment............................................................ 441 -- --
Gain on sale of Sapri................................................................ -- 1,059 --
Gain (loss) on foreign exchange...................................................... 151 215 (618)
Interest expense..................................................................... (1,167) (1,375) (2,460)
Other expenses....................................................................... -- (391) --
--------- --------- ---------
(182) 326 (2,302)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST................................ 1,999 1,737 (2,227)
CURRENT INCOME TAXES................................................................... (444) (189) (43)
MINORITY INTEREST...................................................................... (192) (213) (130)
--------- --------- ---------
NET INCOME (LOSS)...................................................................... $ 1,363 $ 1,335 $ (2,400)
--------- --------- ---------
--------- --------- ---------
PRO FORMA NET INCOME (LOSS) PER SHARE.................................................. $ .50 $ .49 $ (1.39)
--------- --------- ---------
--------- --------- ---------
PRO FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,700,000 2,700,000 1,721,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to these consolidated financial statements.
F-11
<PAGE>
PRIMA INDUSTRIE S.P.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1995 TO DECEMBER 31, 1997
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY TOTAL
------------------- PAID-IN TRANSLATION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT EQUITY
--------- ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1995....................... 129,494 $ 1 $ 5,205 $ 74 $ (7,996) $(2,716)
Forgiveness of debt from stockholder.......... -- -- 1,860 -- -- 1,860
Common shares issued.......................... 2,570,506 26 6,710 -- -- 6,736
Foreign currency translation
adjustments................................ -- -- -- (249) -- (249)
Net loss...................................... -- -- -- -- (2,400) (2,400)
--------- ------ ---------- ----------- ----------- -------------
BALANCES, December 31, 1995..................... 2,700,000 27 13,775 (175) (10,396) 3,231
Foreign currency translation adjustments...... -- -- -- 178 -- 178
Net income.................................... -- -- -- -- 1,335 1,335
--------- ------ ---------- ----------- ----------- -------------
BALANCES, December 31, 1996..................... 2,700,000 27 13,775 3 (9,061) 4,744
Foreign currency translation adjustments...... -- -- -- (729) -- (729)
Net income.................................... -- -- -- -- 1,363 1,363
--------- ------ ---------- ----------- ----------- -------------
BALANCES, December 31, 1997..................... 2,700,000 $ 27 $ 13,775 $(726) $ (7,698) $ 5,378
--------- ------ ---------- ----------- ----------- -------------
--------- ------ ---------- ----------- ----------- -------------
</TABLE>
See accompanying notes to these consolidated financial statements.
F-12
<PAGE>
PRIMA INDUSTRIE S.P.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................................... $ 1,363 $ 1,335 $(2,400)
Adjustments to reconcile to cash from operating activities:
Depreciation and amortization............................................................ 575 745 839
(Gain) loss on sale of assets, net....................................................... (441) (708) (40)
(Gain) loss on foreign exchange.......................................................... (151) (215) 618
Changes in:
Receivables............................................................................ 245 (1,214) (5,159)
Inventory.............................................................................. (1,287) 933 434
Other assets........................................................................... 587 (736) 168
Accounts payable, accrued liabilities, and customer deposits........................... 1,684 (929) 3,523
Deferred income........................................................................ (430) 317 228
Taxes payable.......................................................................... 174 151 32
Employee termination accrual........................................................... 149 (156) (80)
Minority interest...................................................................... 184 212 177
Other.................................................................................. 72 -- --
------- ------- -------
Net cash provided by (used in) operating activities................................. 2,724 (265) (1,660)
CASH FLOW FROM INVESTING ACTIVITIES:
Payments for property, plant and equipment.................................................. (594) (231) (1,452)
Additions to patent and other intangibles................................................... -- (288) (49)
Proceeds from sale of property, plant and equipment......................................... 68 52 647
Additions to investments and other assets................................................... (340) -- --
Proceeds from sale of investments........................................................... 222 1,063 325
------- ------- -------
Net cash provided by (used in) investing activities................................. (644) 596 (529)
CASH FLOW FROM FINANCING ACTIVITIES:
Net changes in short-term debt.............................................................. (216) (384) (2,398)
Additions to long-term debt................................................................. 406 565 620
Repayments of long-term debt................................................................ (1,144) (992) (1,683)
Advances to affiliate....................................................................... (443) -- --
Proceeds from issuance of common stock...................................................... -- -- 6,469
------- ------- -------
Net cash provided by (used in) financing activities.................................... (1,397) (811) 3,008
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.................................. 62 261 (635)
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS 745 (219) 184
CASH AND CASH EQUIVALENTS, beginning of period................................................ 585 804 620
------- ------- -------
CASH AND CASH EQUIVALENTS, end of period...................................................... $ 1,330 $ 585 $ 804
------- ------- -------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest...................................................................... $ 1,289 $ 1,421 $ 2,603
Cash paid for income taxes.................................................................. 113 325 11
Non-cash investing and financing activities --
Forgiveness of debt by stockholder....................................................... -- -- 1,860
</TABLE>
See accompanying notes to these consolidated financial statements.
F-13
<PAGE>
PRIMA INDUSTRIE S.P.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS -- Prima Industrie S.p.A. ("Prima Industrie" or "the
Company") manufactures software-controlled, robotic laser cutting and welding
systems. The Company, through Prima Electronics S.p.A. (Prima Electronics), a
60% owned subsidiary, also designs and manufactures electronic industrial
process controls for its own equipment and for other industrial equipment
manufacturers. The Company's manufacturing operations are located in Turin,
Italy, and its customers include major automotive manufacturers in Europe and
North America.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES -- The accompanying financial
statements have been prepared in accordance with generally accepted accounting
principles in the United States.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company and its majority-owned subsidiaries.
Investments in 20% to 50% owned affiliates are accounted for on the equity
method. All significant intercompany accounts and transactions have been
eliminated in consolidation.
USE OF ESTIMATES -- The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
the Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes. Actual
results could differ from those estimates.
EARNINGS PER SHARE -- Basic earnings per share is computed using the
weighted average number of shares outstanding. All share and per share data has
been restated to reflect the exchange of the existing shares for 2,700,000
shares of The PRIMA Group International, Inc. which occurred subsequent to
year-end, as described in Note 15. Diluted earnings per share is not presented
as the Company has no potential common stock.
CASH EQUIVALENTS -- The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
INVENTORIES -- Inventories are stated at the lower of cost or market,
determined by the average cost method.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation of property and equipment is calculated using the straight-line
method over the estimated useful lives (ranging from 4 to 10 years) of the
respective assets. The cost of normal maintenance and repairs is charged to
operating expenses as incurred. Material expenditures which increase the life of
an asset are capitalized and depreciated over the estimated remaining useful
life of the asset. The cost of properties sold, or otherwise disposed of, and
the related accumulated depreciation or amortization are removed from the
accounts, and any gains or losses are reflected in current operations.
IMPAIRMENT OF LONG-LIVED ASSETS -- Effective January 1, 1994, the Company
adopted Statement of Financial Accounting Standards No. 121 (SFAS 121). Pursuant
to SFAS 121, the Company evaluates the carrying value of property, plant and
equipment, intangibles, investments, and other long-lived assets when facts and
circumstances indicate that the carrying amount of an asset may not be
recoverable. In such an instance, if the estimated future undiscounted cash
flows are less than the carrying amount, impairment is recorded based on an
estimate of future discounted cash flows. The adoption of SFAS 121 had no effect
on the Company's financial statements.
PATENTS AND OTHER INTANGIBLE ASSETS -- Patents and other intangible assets
are amortized on the straight-line method over their estimated useful life of 5
years.
INVESTMENTS IN DEBT AND EQUITY SECURITIES -- Debt securities are generally
classified as held to maturity due to their short-term nature and the fact that
they are pledged as collateral for a loan. Held to maturity securities are
carried at cost, which approximates fair value. Equity securities are classified
as available for sale, and are carried at estimated fair value. Any unrealized
gains or losses will be included in retained earnings. Realized gains or losses
are included in other income.
ADVANCES TO AFFILIATE -- Advances to affiliate represent non-interest
bearing advances to The PRIMA Group International, Inc. primarily to fund
deferred offering costs. Should the offering not be completed, such costs will
be charged to expense.
INCOME RECOGNITION -- Income related to sales of equipment and parts is
recognized upon shipment.
F-14
<PAGE>
PRIMA INDUSTRIE S.P.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: -- Continued
OTHER OPERATING REVENUE -- Other operating revenue consists primarily of
Italian government grants received for completed research and development
projects and in 1997, license fees of approximately $280,000.
INCOME TAXES -- The Company accounts for income taxes under the liability
method, which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statements and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
EMPLOYEE TERMINATION ACCRUAL -- The Company's employees are eligible,
immediately upon termination, for severance pay pursuant to Italian law. This
entitlement is approximately 1 month's pay for each year of service, adjusted
for inflation. The Company accrues a liability for such employee termination
obligations, net of applicable advances, as provided by law. The amount accrued
at each balance sheet date reflects the aggregate liability for all employees,
if terminated. The expense related to this plan was $446,000, $531,000, and
$654,000 for 1997, 1996, and 1995, respectively.
RESEARCH AND DEVELOPMENT COSTS -- Research and development costs, net of
grants received from Italian government agencies as reimbursement for current
project costs, are charged to operations in the period incurred.
FOREIGN CURRENCY TRANSLATION -- The Company's functional currency is the
Italian lire. Gains and losses from the effects of exchange rate fluctuations on
transactions denominated in foreign currencies are included in results of
operations. Assets and liabilities of the Company's foreign subsidiaries are
translated into Italian lire at period-end exchange rates, and their revenues
and expenses are translated at average exchange rates for the period.
Translation adjustments are accumulated in a separate component of stockholders'
equity until a foreign business is sold or substantially liquidated.
For United States reporting purposes, the financial statements have been
translated from Italian lire into U.S. dollars. Assets and liabilities were
translated at the exchange rate at the applicable balance sheet date. Revenues
and expenses were translated at average exchange rates for the period. All
translation effects of exchange rate changes are included as a separate
component of stockholders' equity.
RECLASSIFICATIONS -- Certain reclassifications have been made to conform
the 1996 and 1995 financial statements to the 1997 presentation. Such
reclassifications had no effect on net income.
IMPACT OF RECENTLY ISSUED STANDARDS -- Statement of Financial Accounting
Standards 130, "Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, Statement 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income shall be classified based on their nature and shall be
reported in the financial statements. A total amount for comprehensive income
shall be displayed in the financial statements.
Statement of Financial Accounting Standards 131, "Disclosures About
Segments of an Enterprise and Related Information" supersedes Statement of
Financial Accounting Standards 14, "Financial Reporting for Segments of a
Business Enterprise." Statement 131 establishes standards on the way that public
companies report financial information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas, and major customers. Statement 131 defines segments as
components of a company about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
Statements 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, the standards
may have on the future financial statement disclosures. Management believes that
the operations of Prima Electronics would presently comprise a separate segment
as defined by Statement 131. Results of operations and financial position will
be unaffected by implementation of these standards.
F-15
<PAGE>
PRIMA INDUSTRIE S.P.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. LIQUIDITY:
The Company's working capital needs have been funded primarily through bank
lines-of-credit. In order to fund the Company's plans for growth and related
research and development expenditures, additional equity or debt funding will be
necessary. Management believes that the proceeds of the planned public offering
will be adequate for this purpose. If the public offering is not successful,
management's plans include pursuing long-term debt financing or changes in the
planned rate of growth.
3. OTHER RECEIVABLES:
Other receivables consist of the following:
DECEMBER 31,
----------------
1997 1996
------ ------
($ IN 000'S)
Tax refunds................................................ $1,641 $2,774
Other, primarily research and development grants........... 811 353
------ ------
Total.................................................... $2,452 $3,127
------ ------
------ ------
4. INVENTORIES:
Inventories consist of the following:
DECEMBER 31,
----------------
1997 1996
------ ------
($ IN 000'S)
Raw materials.............................................. $5,426 $5,604
Work-in-progress........................................... 1,950 1,366
Finished goods............................................. 847 979
------ ------
Total.................................................... $8,223 $7,949
------ ------
------ ------
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
DECEMBER 31,
----------------
1997 1996
------ ------
($ IN 000'S)
Land and leasehold improvements............................ $1,149 $1,084
Machinery and equipment.................................... 3,277 4,819
Office furniture and fixtures.............................. 1,433 1,709
------ ------
Total.................................................... $5,859 $7,612
------ ------
------ ------
6. INVESTMENTS AND OTHER ASSETS:
Investments and other assets consist of the following:
DECEMBER 31,
--------------
1997 1996
---- ------
($ IN 000'S)
Treasury bonds and certificates of deposit................... $261 $ 590
Investments in and receivables from unconsolidated
subsidiaries............................................... 206 --
---- ------
Total...................................................... $467 $ 590
---- ------
---- ------
F-16
<PAGE>
PRIMA INDUSTRIE S.P.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVESTMENTS AND OTHER ASSETS: -- Continued
In December 1997, the Company acquired a 25% interest in Macromeccanica
S.p.A. (Macromeccanica) from an existing shareholder of Macromeccanica for
approximately $340,000. Macromeccanica performs metal machining services and
refurbishing of machine tools. The excess of cost over the Company's share of
net assets of Macromeccanica is primarily attributed to the fair value of
equipment, and is being amortized over 10 years.
Summarized financial data of Macromeccanica in Italian GAAP for the year
ended December 31, 1997 (unaudited) is as follows:
<TABLE>
<CAPTION>
($ IN 000'S)
------------
<S> <C>
Current assets.................................................................................................... $6,235
Other assets...................................................................................................... 672
Total assets...................................................................................................... 6,907
Current liabilities............................................................................................... 5,793
Non-current liabilities........................................................................................... 448
Net assets........................................................................................................ 666
Net sales......................................................................................................... 6,966
Operating income.................................................................................................. 236
Net income........................................................................................................ 65
</TABLE>
Also in December 1997, the Company sold its machining equipment to
Macromeccanica for approximately $600,000, which was its appraised value as
financed by a third party. Macromeccanica will provide machining services to the
Company with this equipment. The total gain on this transaction was
approximately $576,000, of which $441,000 is included in the accompanying
statement of operations and the remainder was eliminated due to the Company's
25% ownership.
7. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
------- --------
<S> <C> <C>
($ IN 000'S)
Borrowings under $2,641,000 bank line-of-credit, with interest at prime plus .5%*, without collateral... $ 1,710 $ 2,864
Borrowings under $10,163,000 bank line-of-credit, with interest at prime plus .5% for advances on
accounts receivable and prime* for advances on customer orders collateralized by accounts receivable.
Borrowing base is limited to 80% of accounts receivable and 50% of outstanding customer orders........ 5,952 6,113
Loan from an Italian government agency for research funding, payable in annual installments of
approximately $216,000 through 1999, plus interest at 4.5% collateralized by investments of
$590,000.............................................................................................. 301 559
Borrowings under factoring agreements with a financial institution, with interest at prime*,
collateralized by accounts receivable................................................................. 328 935
Loan from Italian government agency, payable in annual installments of $33,000 from February 1998
through 2007, with interest at 2.1% through February 1998 and 8.37% from February 1998 through 2007,
without collateral.................................................................................... 294 335
Obligation under capital lease (Note 12)................................................................ 189 333
Other................................................................................................... 142 85
------- --------
8,916 11,224
Less current portion.................................................................................... (8,472) (10,276)
------- --------
Total................................................................................................... $ 444 $ 948
------- --------
------- --------
</TABLE>
- ---------------
*Prime was 9% at December 31, 1997.
F-17
<PAGE>
PRIMA INDUSTRIE S.P.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. NOTES PAYABLE AND LONG-TERM DEBT: -- Continued
Aggregate maturities of long-term debt are due as follows:
YEARS ENDING
DECEMBER 31, ($ IN 000'S)
------------- ------------
1998............................................................ $ 8,472
1999............................................................ 197
2000............................................................ 23
2001............................................................ 25
2002............................................................ 27
Thereafter...................................................... 172
------------
$ 8,916
------------
------------
8. DISPOSITION OF SAPRI, S.P.A.:
During 1996, the Company sold its interest in Sapri, S.p.A., a 100% owned
subsidiary engaged in the manufacture and sale of robotic systems, for
approximately $570,000. The sale resulted in a gain of approximately $1,059,000.
Sapri had net revenues of approximately $7,200,000 in 1995.
9. RESEARCH AND DEVELOPMENT GRANTS:
Government grants for research and development projects are recorded when
their realizability is assured. Grants received for current projects are
credited to research and development expense. Grants received for completed
projects are recorded as other operating revenue. Following is a summary of
grants recorded for the periods indicated:
DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
($ IN 000'S)
Other operating revenue.......................... $ 346 $1,207 $1,204
Offset to research and development expense....... 114 199 231
------ ------ ------
Total............................................ $ 460 $1,406 $1,435
------ ------ ------
------ ------ ------
10. INCOME TAXES:
The components of the net deferred tax asset at December 31, 1997 are as
follows:
($ IN 000'S)
------------
Inventory allowances.............................................. $ 190
Accounts receivable allowances.................................... 184
Warranty accrual.................................................. 641
Loss carryforwards................................................ 1,108
Other............................................................. 51
Depreciation...................................................... (67)
Grants............................................................ (29)
------------
Net deferred tax asset............................................ 2,078
Valuation allowance............................................... (2,078)
------------
------------
$ --
------------
------------
Total income tax expense (benefit) differed from the amounts computed by
applying the Italian statutory tax rate of 53.2% to pre-tax income primarily due
to the fact that Prima Industrie and Prima Electronics file separate tax
returns. Therefore, losses incurred by one company are not available to offset
taxable income of the other. In addition, an equity tax is
F-18
<PAGE>
PRIMA INDUSTRIE S.P.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES: -- Continued
assessed each year on the net equity of the Company without regard to taxable
income, and losses carried forward result in a reduced tax rate.
As of December 31, 1997, the Company has net operating losses for Italian
tax purposes of approximately $2,367,000 which, if not utilized, will expire in
the years 1998 through 2000. These loss carryforwards are not offset dollar for
dollar against future taxable income, but rather result in a reduced tax rate.
11. STOCKHOLDERS' EQUITY:
In December 1994, due to significant losses incurred, the Company and its
largest stockholder agreed to a recapitalization of the Company. 1,903,000
shares of the Company's common stock were canceled. The stockholder agreed to
forgive outstanding loans of 3,000 million lire ($1,860,000), contingent upon
the Company raising additional equity.
In February 1995, an Italian government agency agreed to purchase 1,200,000
shares for a total of 5 billion lire ($3,100,000). In addition, 1,370,000 shares
of stock were sold to other stockholders for a total of 5.6 billion lire
($3,600,000). Upon the completion of these transactions, the $1,860,000 in debt
described above was forgiven. This amount was credited to stockholders' equity
in 1995 as part of the recapitalization.
12. COMMITMENTS AND CONTINGENCIES:
CAPITAL LEASE OBLIGATIONS -- The Company leases certain facilities under
agreements classified as capital leases. Property under these leases has a cost
of $824,000 and accumulated amortization of approximately $210,000 at December
31, 1997. The following is a schedule of future minimum lease payments under
capital leases at December 31, 1997.
($ IN 000'S)
------------
Future minimum lease payments..................................... $ 260
Less amount representing interest................................. (71)
------------
Present value of net minimum lease payments....................... 189
Less current portion.............................................. (189)
------------
$ --
------------
------------
OPERATING LEASES -- The Company also leases certain facilities under
operating leases. Future minimum payments on noncancellablle operating leases
are as follows:
YEARS ENDING
DECEMBER 31, $ IN 000'S
------------- -----------
1998.............................................................. $ 195
1999.............................................................. 206
2000.............................................................. 48
-----------
$ 449
-----------
-----------
Rent expense was approximately $321,000, $680,000, and $610,000 for the
years ended December 31, 1997, 1996, and 1995, respectively.
LITIGATION -- The Company has been named as defendant in litigation matters
arising from the ordinary course of business. In the opinion of the Company's
management and after consultation with outside legal counsel, the ultimate
resolution of these matters will not have a material adverse effect on the
Company's financial condition, results of operations or cash flows. Subsequent
to December 31, 1996, the Company discovered that the accrual for potential
losses from litigation matters was understated by approximately $190,000 due to
interest and inflation adjustments mandated by Italian law related to one matter
which had commenced in 1985. The 1996 financial statements have been restated to
reflect this accrual.
F-19
<PAGE>
PRIMA INDUSTRIE S.P.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES: -- Continued
COMMITMENTS -- In connection with customer financing under certain sales
contracts, the Company has agreed to repurchase machines in the amount of
$1,148,000 and $1,233,000 as of December 31, 1997 and 1996, respectively. The
repurchase price is based on a percentage of the sales price, and decreases
based on the amount of time elapsed since the sale. The Company believes that
the repurchase prices are less than the market value of the machines, and does
not consider any additional accrual for repurchase commitments to be necessary
based on its past experience.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values for financial instruments under SFAS No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, are determined at
discrete points in time based on relevant market information. These estimates
involve uncertainties and cannot be determined with precision. Management
estimates that the carrying amounts reported in the consolidated balance sheets
for cash and equivalents, accounts receivable, investments, and notes payable
approximate fair value because of the short-term maturity of these financial
instruments.
14. CONCENTRATIONS OF CREDIT RISK:
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or counterparties when they
have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly effected by changes in economic or other
conditions described below.
The Company operates in one industry segment, the manufacture of laser
cutting and welding systems. The Company's primary customers are in one
industry, automobile manufacturers and, thus, may be subject to similar economic
risks. Financial instruments that subject the Company to credit risk consist
principally of accounts receivable.
At December 31, 1997, accounts receivable totaled $19,452,000 and the
Company has provided an allowance for doubtful accounts of $345,000. The Company
performs periodic credit evaluations on its customers' financial condition and
believes that the allowance for doubtful accounts is adequate.
The Company had sales in excess of 10% of total revenues to the following
customers:
<TABLE>
<CAPTION>
RECEIVABLE
AT
DECEMBER 31,
1997 1996 1995 1997
------ ------ ------ ------------
<S> <C> <C> <C> <C>
($ IN 000'S)
Customer A................................................ $6,022 $5,671 * $2,030
Customer B................................................ $6,017 $5,526 * $ 558
</TABLE>
- ---------------
*Less than 10%.
Following is a summary of sales by geographic region:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Italy................................................................ $12,739 $13,153 $15,770
Other Western Europe................................................. 27,105 23,662 14,664
United States........................................................ 3,548 2,471 2,320
Other................................................................ 168 1,822 4,601
------- ------- -------
$43,560 $41,108 $37,355
------- ------- -------
------- ------- -------
</TABLE>
The Company may also be exposed to certain risks as a result of its
manufacturing operation being located in Italy which are not typically
associated with companies operating in the United States. These include risks
associated with the political, economic, social, and legal environment and
foreign currency exchange rates. Management believes that it has adequately
compensated for these risks. There can be no assurance, however, that changes in
the political, economical, social,
F-20
<PAGE>
PRIMA INDUSTRIE S.P.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. CONCENTRATIONS OF CREDIT RISK: -- Continued
and other conditions will not result in any material adverse impact on the
Company's business, financial condition or results of operations.
The Company maintains most of its cash balances with various banks and
financial institutions located in Italy. Consistent with local practice, such
amounts are not insured or otherwise protected should the financial institutions
be unable to meet their liabilities. There has been no history of such credit
losses.
15. MERGER:
On April 23, 1998, substantially all of the stockholders of the Company
exchanged their shares for 2,700,000 shares of The PRIMA Group International,
Inc. (PRIMA). This transaction will be accounted for as a recapitalization of
the Company in a manner similar to a reverse acquisition, in which the
transaction is treated as the issuance of stock by the Company for the net
assets of PRIMA, and no goodwill or other intangibles will be recorded.
The historical equity section and earnings per share of the Company have
been restated in the accompanying financial statements to reflect the share
exchange described above in a manner similar to a reverse stock split.
F-21
<PAGE>
[picture appears here]
The Company's Rapido 5 installed at Tier 1 supplier in Italy.
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
STOCKHOLDER OR ANY UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF. UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 6
Use of Proceeds...................................... 13
Dividend Policy...................................... 14
Capitalization....................................... 15
Dilution............................................. 16
Selected Consolidated Financial Data................. 17
Pro Forma Combined Financial Information............. 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 22
History of the Company............................... 31
Business............................................. 33
Management........................................... 39
Certain Transactions................................. 44
Certain Beneficial Owners............................ 45
Description of Capital Stock......................... 45
Transfer Agent and Registrar......................... 46
Shares Eligible for Future Sale...................... 46
Underwriting......................................... 47
Legal Matters........................................ 48
Experts.............................................. 48
Additional Information............................... 49
Index to Consolidated Financial Statements........... F-1
</TABLE>
2,000,000 SHARES
THE PRIMA GROUP
INTERNATIONAL, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
CHATFIELD DEAN & CO.
, 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
-----------
<S> <C>
Registration Fee....................................................................... $ 7,938.45
NASD Filing Fee........................................................................ 3,639.50
Nasdaq National Market Listing fee..................................................... 60,000.00
Printing............................................................................... 80,000.00
Legal Fees and Expenses................................................................ 225,000.00
Accounting Fees and Expenses........................................................... 225,000.00
Blue Sky Fees and Expenses............................................................. -0-
Transfer Agent Fees.................................................................... 5,500.00
Miscellaneous.......................................................................... 192,922.05
-----------
Total............................................................................. $800,000.00
-----------
-----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its Directors and Officers against liabilities
that they may incur in such capacities (plus reimbursement for expenses
incurred) including liabilities under the Securities Act of 1933, as amended
(the "Securities Act").
The Registrant's Certificate of Incorporation and Bylaws include provisions
to (i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the General Corporation Law of Delaware (the "Delaware
Law") and (ii) require the Registrant to indemnify its Directors and officers to
the fullest extent permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. Pursuant to
Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as Directors and officers.
These provisions do not eliminate the Directors' duty of care, and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each Director will continue to be subject to liability for breach of the
Director's duty of loyalty to the Registrant, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
acts or omissions that the Director believes to be contrary to the best
interests of the Registrant or its stockholders, for any transaction from which
the Director derived an improper personal benefit, for acts or omissions
involving a reckless disregard for the Director's duty to the Registrant or its
stockholders when the Director was aware or should have been aware of a risk of
serious injury to the Registrant or its stockholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the Director's duty to the Registrant or its stockholder, for improper
transactions between the Director and the Registrant and for improper
distributions to stockholders and loans to Directors and officers. The provision
also does not affect a Director's responsibilities under any other law, such as
the federal securities law or state or federal environmental laws.
The Registrant has entered into indemnity agreements with each of its
Directors and executive officers that require the Registrant to indemnify such
persons against expenses, judgments, fines, settlements and other amounts
incurred (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made a
party by reason of the fact that such person is or was a Director or an
executive officer of the Registrant or any of its affiliated enterprises,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful. The indemnification agreements also set
forth certain procedures that will apply in the event of a claim for
indemnification thereunder. The Registrant has entered into similar indemnity
agreements with certain of its key employees.
II-1
<PAGE>
At present, there is no pending litigation or proceeding involving a
Director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or Director.
The Registrant has an insurance policy covering the officers and Directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On July 29, 1997, the Registrant issued 150,000 shares to Mr. James R.
Currier, Sr. and 150,000 shares to Mr. Giovanni Ciamaroni for a total
consideration of $3,000. The sales of the above securities were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act, or Regulation D promulgated thereunder. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were attached to the share
certificates issued in such transactions. All recipients had adequate access to
information about the Registrant. Mr. James R. Currier, Sr. and Mr. Giovanni
Ciamaroni have each delivered to the Registrant 149,850 shares (an aggregate of
299,700 shares) for cancellation and they did not receive consideration for the
cancellation.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of Registrant+
3.2 Bylaws of Registrant+
5.1 Opinion of Rayburn, Moon & Smith, P.A.
10.1 Form of Indemnification Agreement with Directors and Officers+
10.2 Employment agreement with James R. Currier, Sr.
10.3 Employment agreement with Gianfranco Carbonato
10.4 Employment agreement with Giovanni Ciamaroni
10.5 Employment agreement with Michael H. Gilbert
10.6 1997 Stock Incentive Plan+
10.7 Cooperative Manufacturing and Selling Agreement dated July 15, 1997 between Strippit, Inc. and Prima
Industrie S.p.A.+
10.8 Supply Agreement dated April 29, 1996, between Atlas Copco Airpower NV and Prima Electronics S.p.A.+
10.9 Selling and Manufacturing License Agreement dated July 11, 1997 by and between Prima Industrie S.p.A. and
Beijing Machinery and Electricity Institute.+
10.10 Form of Revolving Credit and Security Agreement.
10.11 Amended Agreement for Co-Development of Laser-on-Line Products and Technology by and among The PRIMA Group
International, Inc., Prima Industrie S.p.A. and Prima Electronics S.p.A.
10.12 Form of Promissory Note and Security Agreement between the Registrant and James R. Currier, Sr.
A second agreement in substantially the same form will be made between the Registrant and Giovanni
Ciamaroni.
23.1 Independent Auditors' Consent
23.2 Consent of Counsel (included in Exhibit 5.1)
23.3 Rule 438 Consent -- Michael A. Almond
23.4 Rule 438 Consent -- W. Edwin McMahan
24.1 Powers of Attorney+
27 Financial Data Schedule
</TABLE>
- ---------------
+ Previously supplied
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(4) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, The PRIMA Group International, Inc., a corporation organized and
existing under the laws of the State of Delaware, has duly caused this
Pre-Effective Amendment No. 3 to the Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Charlotte, State of North Carolina, on this 27th day of April, 1998.
THE PRIMA GROUP INTERNATIONAL, INC.
By: /s/________________________________
JAMES R. CURRIER, SR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ----------------------------------------------- ---------------
<S> <C> <C>
/s/ President, Chief Executive, and Director April 27, 1998
________________________ (Principal Executive Officer)
JAMES R. CURRIER, SR.
/s/ Vice President Finance and Administration, April 27, 1998
________________________ Secretary and Treasurer (Principal Financial
MICHAEL H. GILBERT and Accounting Officer)
/s/ Executive Vice President, Chief Operating April 27, 1998
________________________ Officer and Director
GIANFRANCO CARBONATO
/s/ Vice President Sales and Marketing and Director April 27, 1998
________________________
GIOVANNI CIAMARONI
/s/ Chairman of the Board of Directors April 27, 1998
________________________
GIAN MARIO ROSIGNOLO
/s/ Director April 27, 1998
________________________
MARIO MAURI
/s/ Director April 27, 1998
________________________
HANS WERTHEN
/s/ Director April 27, 1998
________________________
PIO PELLEGRINI
</TABLE>
II-4
Exhibit 1.1
UNDERWRITING AGREEMENT
BY AND BETWEEN
CHATFIELD DEAN & CO., INC.
AND
THE PRIMA GROUP INTERNATIONAL, INC.
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 Description of Securities....................................1
1.1 Offering.....................................................1
1.2 Shares.......................................................1
1.3 Representative's Warrants....................................2
SECTION 2 Representations and Warranties of the Company................2
2.1 Registration Statement on Form S-1 and Related Prospectus....2
2.2 Accuracy of Registration Statement and Related Prospectus....3
2.3 Financial Statements.........................................3
2.4 Independent Public Accountants...............................4
2.5 No Material Adverse Change...................................4
2.6 No Defaults..................................................4
2.7 Incorporation and Standing...................................5
2.8 Legality of Outstanding Common Stock.........................5
2.9 Legality of Securities.......................................6
2.10 Prior Sales..................................................6
2.11 Litigation...................................................7
2.12 Representative's Warrants....................................7
2.13 Finder.......................................................7
2.14 Exhibits.....................................................7
2.15 Tax Returns..................................................8
2.16 Property.....................................................8
2.17 Use of Proceeds..............................................8
2.18 Authority....................................................8
2.19 Subsidiaries.................................................9
2.20 Availability of Information Concerning the Company...........9
2.21 Stop or Suspension Orders...................................10
2.22 Transfer Agent..............................................10
2.23 Employment Agreements; Employee Incentive Plans.............10
2.24 Intellectual Property Rights................................10
2.25 Prior Issuances.............................................11
2.26 Tax Consequences of Reorganization..........................11
2.27 Stock Incentive Plan........................................12
2.28 Florida Compliance..........................................12
2.29 Compliance with Business Advisory Letter....................12
SECTION 3 Issue, Sale and Delivery of the Shares......................12
3.1 Appointment of Representative...............................12
3.2 Default by a Member.........................................13
3.3 Offering Price..............................................14
3.4 Principal Terms of Representative's Warrants................14
3.5 Inspection of Certificates..................................15
i
<PAGE>
3.6 Closing.....................................................15
3.7 Representative's Expense Allowance..........................16
3.8 Mutual Warranty.............................................16
3.9 Sales Reports...............................................17
3.10 Re-offers By Selected Dealers...............................17
SECTION 4 Registration Statement and Prospectus.......................17
4.1 Representative's Copies.....................................17
4.2 Copies of Preliminary Prospectus and Prospectus.............17
4.3 Post-Effective Amendments...................................18
4.4 Use of Prospectus...........................................19
SECTION 5 Covenants of the Company....................................19
5.1 Filing of Amendments........................................19
5.2 Declaration of Effectiveness................................19
5.3 Amendments at the Request of the Representative.............20
5.4 Blue Sky....................................................20
5.5 Further Reports.............................................21
5.6 Reports to Representative...................................21
5.7 Expenses of Offering........................................23
5.8 Stockholder Reports.........................................23
5.9 1933 Act Reporting..........................................24
5.10 Use of Proceeds.............................................24
5.11 Transfer Sheets.............................................24
5.12 Information About the Company...............................24
5.13 Due Diligence Investigation for Offering and for Proceedings
involving the Representative................................24
5.14 Transfer Agent..............................................25
5.15 Conditions Precedent........................................25
5.16 1934 Act Registration and Reporting; Listing................25
5.17 No Material Change..........................................26
5.18 Bound Volumes...............................................26
5.19 Financial Consulting Agreement..............................26
5.20 Additional Financing........................................27
5.21 Restriction on Sale of Securities...........................28
5.22 Public Relations Firm.......................................28
5.23 Board of Directors Meetings.................................28
5.24 Fundamental Corporate Transactions..........................29
5.25 Potential Acquisition of Prima Electronics..................29
5.26 Stock Incentive Plan; Incentive Compensation................29
5.27 Composition of Board of Directors...........................30
5.28 Compliance with Business Advisory Letter....................30
5.29 Qualification of Shares in Italy............................30
SECTION 6 Indemnification.............................................30
ii
<PAGE>
SECTION 7 Effectiveness of Agreement..................................34
SECTION 8 Conditions to the Representative's Obligations..............34
8.1 Effective Date..............................................34
8.2 Accuracy of Registration Statement..........................35
8.3 Casualty....................................................35
8.4 Litigation..................................................35
8.5 No Material Change..........................................35
8.6 Review by Representative's Counsel..........................35
8.7 Opinion of Company Counsel..................................36
8.8 Opinion of Italian Counsel..................................40
8.9 Opinion of Intellectual Property Counsel....................42
8.10 Opinion of Counsel for Miojusti Investments BV..............44
8.11 Auditor's Letter............................................44
8.12 Officer's Certificate.......................................45
8.13 Secretary's Certificate.....................................48
8.14 Opinion of Representative's Counsel.........................48
8.15 Opinion of Underwriters' Italian Counsel....................48
8.16 Tender of Securities........................................48
8.17 Blue Sky Qualification......................................48
8.18 Approval of Representative's Counsel........................49
8.19 Officer's Certificate as a Company Representation...........49
8.20 Exchange Listing............................................49
8.21 Board Committees............................................49
SECTION 9 Termination.................................................49
9.1 Termination by Representative...............................49
9.2 Termination by Representative--"Market Out".................49
9.3 Survival of Obligations After Termination...................50
9.4 Suspension Proceedings......................................51
SECTION 10 Representative's Representations and Warranties.............51
10.1 Registration as Broker-Dealer...............................51
10.2 No Pending Proceedings......................................51
10.3 Compliance with NASD Rules..................................51
10.4 Finder......................................................51
SECTION 11 Notices.....................................................52
SECTION 12 Miscellaneous...............................................52
12.1 Sole Benefit................................................52
12.2 Survival....................................................53
12.3 Specific Performance........................................53
12.4 Governing Law...............................................53
12.5 Jurisdiction................................................53
12.6 Waiver......................................................54
12.7 Counterparts................................................54
iii
<PAGE>
iv
<PAGE>
UNDERWRITING AGREEMENT
Chatfield Dean & Co., Inc.
7935 East Prentice Avenue
Suite 200
Greenwood Village, Colorado 80111
Gentlemen:
The PRIMA Group International, Inc., a Delaware corporation (unless the
context requires otherwise, referred to herein, together with its subsidiaries,
as the "Company"), hereby confirms its agreement with Chatfield Dean & Co., Inc.
a Colorado corporation (the "Representative"), and with the other members of the
Underwriting Group named in Schedule I attached hereto (individually referred to
as "Member" and collectively referred to as "Members"), including the
Representative (collectively, the "Underwriting Group") as follows (if there is
no Schedule I attached, all references in this Agreement to the Underwriting
Group shall be deemed to refer only to the Representative):
SECTION 1
Description of Securities
1.1 Offering. The Company represents, covenants, warrants and agrees
that its authorized, issued and outstanding capitalization, when the offering
(the "Offering") of the Shares (as hereinafter defined) contemplated hereby is
permitted to commence and at the Closing Date (as hereinafter defined), will be
as set forth in the Registration Statement and related Prospectus (as such terms
are hereinafter defined or described). The Company proposes to issue, offer and
sell to the Underwriting Group an aggregate of 2,000,000 shares of the Company's
Common Stock, $.01 par value per share, at an offering price of $____ per share
(the "Offering Price") and on the other terms hereinafter set forth. The
Underwriting Group shall also have an over-allotment option to purchase from the
Company up to an additional 300,000 shares, as provided in Section 3.1 hereof.
1.2 Shares. As used herein, the shares of the Company's common stock,
$.01 par value may be referred to as the "Stock" or the "Common Stock", and the
shares of the Common Stock to be registered in the Registration Statement,
including those which comprise the over-allotment option described above, but
excluding the Representative's Warrant Stock (as hereinafter defined), may
1
<PAGE>
be referred to as the "Shares."
1.3 Representative's Warrants. As partial consideration for the
services of the Representative hereunder, the Company will authorize, issue,
sell and deliver to the Representative at the Closing (as hereinafter defined)
for a purchase price of $100.00, warrants (the "Representative's Warrants") to
purchase a certain number of shares of the Common Stock (the "Representative's
Warrant Stock"), as more fully set forth at Section 3.4 of this Agreement.
SECTION 2
Representations and Warranties of the Company
In order to induce the Representative to enter into this Agreement, the
Company hereby represents and warrants to, and agrees with, the Representative
as follows:
2.1 Registration Statement on Form S-1 and Related Prospectus. The
Registration Statement on Form S-1 (File No. 333-38059) and the Prospectus in
the form specified by Form S-1 with respect to the Shares, copies of which have
been delivered heretofore by the Company to the Representative, have been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "1933 Act"), and the rules and regulations
promulgated thereunder, including, but not limited to, Regulations C and S-K
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission"), and the Registration Statement and related Prospectus, together
with all exhibits and other documents required by the Rules and Regulations,
have been filed by the Company with the Commission under the 1933 Act; and the
Company will use its best efforts to cause the Commission to declare such
Registration Statement effective as promptly as possible. The Company may file
one or more additional amendments to the Registration Statement and related
Prospectus with the Commission on or prior to the Effective Date (as hereinafter
defined), and copies of each such amendment will be delivered to the
Representative for its approval prior to such filing.
As used in this Agreement, the terms "Registration Statement on Form
S-1" and "Registration Statement" refer to and mean the Registration Statement
on Form S-1 prepared by the Company in connection with the Offering and any and
all amendments thereto, including, but not limited to, exhibits and financial
statements and, in the event of any amendment after the Effective Date, the term
"Registration Statement on Form S-1" or "Registration Statement" is inclusive of
such amendments. The term
2
<PAGE>
"Prospectus" refers to and means the Prospectus, including each Preliminary
Prospectus (as hereinafter defined) prepared by the Company in the form
specified by Form S-1, and all amendments thereto, and, in the event of any
amendment or supplement to such Prospectus after the Effective Date, the term
"Prospectus" shall refer to and mean such Prospectus inclusive of such
amendments or supplements. For purposes of this Agreement, the term "Preliminary
Prospectus" means the amended prospectus included in the Registration Statement
immediately prior to the Effective Date.
2.2 Accuracy of Registration Statement and Related Prospectus. The
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus with respect to the Shares, and each Preliminary
Prospectus has conformed in all material respects with the requirements of the
1933 Act and the applicable Rules and Regulations and has not included any
untrue statement of a material fact (except to the extent that the Preliminary
Prospectus anticipates facts that will be true and correct as of the Effective
Date that are not true on the date of the Preliminary Prospectus) or omitted to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. On the Effective Date
and on the Closing Date: (a) the Registration Statement and the Prospectus will
comply in all respects with the requirements of the 1933 Act and the Rules and
Regulations for the purpose of the proposed Offering of the Shares; and (b) all
statements of material fact contained in the Registration Statement and the
Prospectus will be true and correct, and neither the Registration Statement nor
the Prospectus will include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
2.3 Financial Statements. The audited and other financial statements of
the Company, together with related schedules and notes as set forth in the
Registration Statement and the Prospectus, present fairly and reflect correctly
the financial position and results of operations of the Company as of the
respective dates, and for the respective periods, to which they apply. Such
financial statements have been prepared in accordance with generally accepted
accounting principles (applied on a consistent basis throughout the periods
covered thereby) and the applicable rules and regulations of the Commission
relating to financial statements and are correct, complete and consistent with
the books and records of the Company (which books and records are correct and
complete). All financial statements
3
<PAGE>
filed with the Registration Statement and the Prospectus reflect all liabilities
of the Company, contingent or otherwise, required to be set forth therein under
generally accepted accounting principles in effect as of the respective dates
thereof and include adequate reserves for all federal and state tax liabilities
incurred prior to their respective dates, and the Company has no material
liabilities, contingent or otherwise, obligations or claims against it except as
set forth therein.
2.4 Independent Public Accountants. Hein + Associates LLP, who have
certified or will certify certain of the financial statements filed or to be
filed with the Commission as part of the Registration Statement and the
Prospectus and, as experts, have reviewed certain other information of a
financial or accounting nature contained in the Registration Statement and the
Prospectus, are independent certified public accountants as required by the 1933
Act.
2.5 No Material Adverse Change. Except as may be reflected in or
contemplated by the Registration Statement and the Prospectus, subsequent to the
dates as of which information is given therein and through the Closing Date:
(a) there has not been, and will not be, any material adverse
change in the condition, financial or otherwise, or in the results of operations
of the Company or in its business taken as a whole;
(b) there has not been, and will not be, any material
transaction entered into by the Company other than transactions in the ordinary
course of the Company's business;
(c) the Company has not, and shall not have, incurred any
material obligations, contingent or otherwise, which are not disclosed in the
Registration Statement and the Prospectus;
(d) there has not been, and will not be, any change in the
capital stock or long-term debt (except current payments thereof) of the
Company; and
(e) the Company has not, and shall not have, paid or declared
any dividends or made any other distribution in respect of the capital stock of
the Company.
2.6 No Defaults. Other than as disclosed in the Registration Statement
and the Prospectus, the Company is not in default in the performance of any
obligation, agreement or condition contained in any debenture, note or other
evidence of
4
<PAGE>
indebtedness or any indenture or loan agreement of the Company. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated herein, and compliance with the terms of this Agreement, will not
conflict with or result in a breach of any of the terms, conditions or
provisions of, or constitute a default under, the Company's Certificate of
Incorporation or Bylaws (as each is currently in effect), any note, indenture,
mortgage, deed of trust or other contract, agreement or instrument to which the
Company is a party or by which it or any of its property is bound, or any
existing law, order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality, agency or body, arbitration tribunal
or court, domestic or foreign, having jurisdiction over the Company or its
property. No consent, approval, authorization or order of any court or
government instrumentality, agency or body is required for the consummation of
the transactions contemplated herein except such as may be required under the
1933 Act or under the Blue Sky, or securities laws, of any state or
jurisdiction.
2.7 Incorporation and Standing. The Company and each of its
subsidiaries: (a) is, and, at the Closing Date will be, duly incorporated and
validly existing in good standing as a corporation under the laws of its
jurisdiction of incorporation with full power and authority (corporate and
otherwise) to own its property and conduct its business, present and proposed,
as described in the Registration Statement and the Prospectus; (b) has full
power and authority to enter into this Agreement; (c) owns, free and clear of
any lien, charge or encumbrance, all of the unissued capital stock as set forth
in the Registration Statement and the Prospectus; and (d) is duly qualified and
in good standing as a foreign corporation in each jurisdiction in which it owns
or leases real property or transacts business requiring such qualification and
in which the failure to so qualify would have a material adverse effect on the
Company.
2.8 Legality of Outstanding Common Stock. The authorized, issued and
outstanding capital stock of the Company is as set forth in the Registration
Statement and the Prospectus under the heading "Capitalization." At the Closing
Date, the Company will have an authorized capitalization of (a) 14,000,000
shares of Common Stock, $.01 par value per share, of which no more than
4,700,300 shares (excluding shares issued pursuant to exercise of the
over-allotment option described in Section 3.1) will be issued and outstanding
and no shares of which will be held in the treasury of the Company; and (b)
1,000,000 shares of Preferred Stock, $.01 par value per share, of which no
shares will be issued and outstanding and no shares of which will be held in the
5
<PAGE>
treasury of the Company. At the Closing Date, the outstanding shares of Common
Stock will have been duly and validly authorized and issued and will be fully
paid and nonassessable. The outstanding shares of Common Stock conform to all
statements with regard thereto contained in the Registration Statement and the
Prospectus. No offers or sales of the Common Stock or other securities have been
made by the Company in violation of the 1933 Act. On the Effective Date, and
through and including the Closing Date, there will be no outstanding options,
warrants or other rights (however characterized or described) to purchase any
shares of the Common Stock or securities convertible into Common Stock, except
as described in the Registration Statement and the Prospectus.
2.9 Legality of Securities. The Shares, the Representative's Warrants,
and the Representative's Warrant Stock have each been duly and validly
authorized and, when issued and delivered against payment therefor as provided
in this Agreement, each of the Shares, the Representative's Warrants and the
Representative's Warrant Stock will be validly issued, fully paid and
nonassessable. Said securities, upon issuance, will not be subject to any
preemptive right of any stockholder of the Company, and no preemptive rights
will exist with respect to any securities of the Company through the Closing
Date or until the expiration of the Representative's Warrant Period (as
hereinafter defined). No stockholder of the Company is subject to personal
liability solely on the basis of his, her or its ownership of capital stock of
the Company. The Representative's Warrants, when sold and delivered, will
constitute the valid and binding obligation of the Company, enforceable against
the Company in accordance with their terms. A sufficient number of shares of the
Common Stock have been reserved for issuance as Representative's Warrant Stock
upon exercise of the Representative's Warrants. The Shares, the Representative's
Warrants and the Representative's Warrant Stock will conform to all statements
with regard thereto in the Registration Statement and the Prospectus.
2.10 Prior Sales. No shares of the Common Stock or other securities of
the Company have been sold by the Company or by or on behalf of, or for the
benefit of, any officer, director, predecessor, affiliate, promoter, associate,
principal security holder, Representative or other controlling person of the
Company during the period beginning three years (3) prior to the date hereof and
ending on the date hereof, except as set forth in the Registration Statement.
For purposes of this Agreement, an "affiliate" of a person or entity shall mean:
(a) any person or entity which directly or indirectly controls, or is controlled
6
<PAGE>
by, or is under common control with, such person or entity; (b) any person or
entity which owns, beneficially or of record, 10% or more of any class of
capital stock of such person or entity or of which 10% or more of any class of
capital stock (or in the case of a person or entity that is not a corporation,
10% or more of the equity interest) is owned, beneficially or of record, by such
person or entity; and (c) any person or entity directly or indirectly controlled
by any of the foregoing. For purposes of this Agreement, the term "control"
means the possession, directly or indirectly, of the power to direct the
management or policies of a person or entity, whether through the ownership of
voting securities, by contract or otherwise.
2.11 Litigation. Except as set forth in the Registration Statement and
the Prospectus, there is, and, at the Closing Date, there will be, no
litigation, cause of action, suit or proceeding before any court or governmental
agency, authority, or body pending or, to the knowledge of the Company,
threatened, which might result in a judgment or judgments against the Company
not adequately covered by insurance or which collectively might result in any
material adverse change in the condition (financial or otherwise), the business
or the prospects of the Company or would, individually or collectively, have a
material adverse effect on the properties or assets of the Company.
2.12 Representative's Warrants. Upon delivery and receipt of payment
for the Representative's Warrants to be sold by the Company as set forth in
Section 3.4 of this Agreement, the Representative and its assignees will receive
good and marketable title thereto, free and clear of all liens, encumbrances,
charges and claims whatsoever. The Company will have, on the Effective Date and
the Closing Date, full legal right, power and authority to issue, sell, transfer
and deliver the Representative's Warrants in the manner provided hereunder.
2.13 Finder. No finder's fee has been or will be paid in connection
with the transactions contemplated by this Agreement. It is understood that,
should a claim be made for any finder's fee in connection with such transactions
and based upon any agreement by the Company, the Company will indemnify the
Representative with respect to any such claim in accordance with the procedures
set forth in Section 6(c) hereof.
2.14 Exhibits. There are no contracts, instruments or other documents
which are required by the 1933 Act or by the Rules and Regulations to be filed
as exhibits to the Registration Statement which have not been so filed. Each
contract or other instrument (however characterized or described) to which the
Company is a
7
<PAGE>
party and to which reference is made in the Registration Statement and the
Prospectus has been duly and validly executed, is in full force and effect in
all material respects and is enforceable against the parties thereto in
accordance with its terms, and none of such contracts or instruments has been
assigned by the Company to any third party. The Company knows of no present
situation or condition or fact not disclosed in the Registration Statement and
the Prospectus which would prevent compliance by the parties with the terms of
such contracts or instruments as amended to date. Except for amendments or
modifications of such contracts or instruments in the ordinary course of
business, the Company has no intention of exercising any right which would cause
any other party to the contract to cancel any of their obligations under any of
such contracts or instruments, and the Company has no knowledge that any other
party to any of such contracts or instruments has any intention not to render
full performance thereunder.
2.15 Tax Returns. The Company has filed all federal, foreign, state and
local tax returns which are required to be filed and has paid all taxes shown on
such returns and on all assessments received by it to the extent such taxes have
become due. All taxes with respect to which the Company is obligated have been
paid, or adequate accruals have been established to cover any taxes which remain
unpaid.
2.16 Property. Except as otherwise set forth in, or contemplated by,
the Registration Statement and the Prospectus: (i) the Company has good title,
free and clear of all liens, encumbrances and defects, except liens for current
taxes not due and payable, to all real and personal property and assets
described in the Registration Statement and the Prospectus as being owned by the
Company, subject only to such exceptions as are not material and do not
individually or collectively affect adversely the present or prospective
business of the Company; and (ii) the properties, including equipment, referred
to in the Registration Statement and the Prospectus as being held under lease or
option by the Company, are held under valid, subsisting and enforceable leases
or options, with only such exceptions which collectively are not material and do
not affect adversely the present or prospective business of the Company.
2.17 Use of Proceeds. The Company plans to, and will, apply the
proceeds from the sale of the Shares solely and exclusively to the purposes
described in the Registration Statement and the Prospectus under the caption
"Use of Proceeds."
2.18 Authority. The execution and delivery by the Company
8
<PAGE>
of this Agreement has been duly authorized by all necessary corporate action,
and this Agreement is the valid and binding obligation of the Company,
enforceable against it in accordance with its terms.
2.19 Subsidiaries. The Company has no subsidiaries except for those
listed on Schedule 2.19 hereto (the "Subsidiaries"). The PRIMA Group
International, Inc. (the "U.S. Corporation"), directly or indirectly through one
or more Subsidiaries, owns 59.998% of the issued and outstanding capital stock
of Prima Electronics S.p.A., a societa per azioni incorporated with limited
liability under the laws of the Republic of Italy ("Prima Electronics"), and
99.98% of the issued and outstanding capital stock of each of the other
Subsidiaries. All of the Company's capital stock of Prima Industrie S.p.A., a
societa per azioni incorporated with limited liability under the laws of the
Republic of Italy ("Prima Industrie," and, together with Prima Electronics, the
"Italian Subsidiaries"), is held in the name of the U.S. Corporation. All of the
Company's capital stock of Prima Electronics is held in the name of Prima
Industrie.
2.20 Availability of Information Concerning the Company. All documents
and other information relating to the Company's affairs have been made available
upon request to the Representative and its counsel at the Representative's
office or at the office of its counsel, as the case may be, and copies of any
such documents have been furnished upon request to the Representative or its
counsel. Prior to the Effective Date, the substantive provisions of all such
documents shall be subject to the approval of the Representative and, if not so
approved, the Representative may elect not to proceed with the Offering. Notice
of disapproval of any document shall be given to the Company or counsel to the
Company within a reasonable time after the document is made available to the
Representative or its counsel. Included among the documents to be made available
to the Representative are the Company's Certificate of Incorporation, as
amended, and related charter documents, Bylaws and amendments thereto, minutes
of all meetings and other actions taken by the Company's incorporators,
directors and stockholders and committees of the Company's Board of Directors,
all financial statements, correct copies of any material contracts, licenses,
leases or agreements to which the Company is a party or by which it or any of
its assets is bound, including contracts for the sale of products or services in
the normal course of business and including any employee (including officers
and/or directors) incentive plans and any other type of fringe benefit plan, of
whatever nature, and copies of all patents, patent applications, trademarks and
trademark applications and assignments, licenses
9
<PAGE>
or concessions of any patent, patent application, trademark or trademark
application in which the Company may have an interest.
2.21 Stop or Suspension Orders. The Company is not aware of any threat
of, or the initiation of, any steps or proceedings which would impair or prevent
the right to offer the Shares or any other securities of the Company, or the
issuance by the Commission or other regulatory authority of any stop order or
suspension order or other prohibition preventing or impairing the transactions
contemplated by this Agreement. The Company will advise the Representative
immediately, and confirm in writing, the receipt of any such threat, the
initiation of any such steps or proceedings or the issuance of any such order or
prohibition.
2.22 Transfer Agent. The Company has appointed American Securities
Transfer & Trust, Incorporated, 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202, as its transfer agent (the Transfer Agent") for the Common
Stock.
2.23 Employment Agreements; Employee Incentive Plans. The Company has
entered into employment agreements with James R. Currier, Sr., Gianfranco
Carbonato, Michael H. Gilbert and Gianni Ciamaroni, and has no written
employment agreements with any other employee of the Company and no oral
employment agreements the termination of which would result in a material
liability for which accrual has not been made in the Company's financial
statements. The Company has previously delivered to the Representative complete
and correct copies of each of such employment agreements, and, in the case of
any oral employment agreements, written memoranda summarizing all material terms
thereof. The Company has obtained key man life insurance on the lives of
Gianfranco Carbonato and James R. Currier, Sr., in the amounts of $250,000 and
$1,000,000, respectively. The Company will use its best efforts to increase the
amount of key man life insurance coverage on the life of Mr. Carbonato to
$1,000,000 as soon as practicable. Except as set forth on Schedule 2.23, the
Company has no employee benefit plans. The Company has previously delivered to
the Representative complete and correct copies of each such employee benefit
plan.
2.24 Intellectual Property Rights.
(a) The Company owns or is licensed to use, in each case free
and clear of all liens or encumbrances and rights thereto or therein by third
parties, all United States or foreign patents (including rights under United
States or foreign patent applications), trade secrets, trademarks, service
marks, copyrights or other proprietary information or know-how (collectively,
"Intellectual Property Rights") necessary or advisable to conduct the business
now being, or proposed to be, conducted by the Company as described in the
Registration
10
<PAGE>
Statement and the Prospectus. All such Intellectual Property Rights are cross-
licensed to the U.S. Corporation from the Italian Subsidiaries without the
payment of any royalties to the extent such Intellectual Property Rights are
used in the development of new products or technology pursuant to the Company's
"Laser On-Line" program. The Joint Development Agreement among the U.S.
Corporation and each of the Italian Subsidiaries provides the U.S. Corporation
with the exclusive right to use outside of Italy any Intellectual Property
Rights developed pursuant to the Company's "Laser On-Line Program."
(b) The Company is not infringing, misappropriating or
otherwise violating any Intellectual Property Rights of any person and, except
as set forth with particularity on Schedule 2.24 to this Agreement, the Company
has not received any notice of, and is not otherwise aware of, any claim or the
basis of any claim that it is infringing, misappropriating or otherwise
violating any Intellectual Property Rights of any person. In each instance set
forth on Schedule 2.24 to this Agreement in which the Company has received
notice of a claim that it is infringing, misappropriating or otherwise violating
any Intellectual Property Rights of any person, the Company has formed a good
faith belief that it is not infringing, misappropriating or otherwise violating
such Intellectual Property Rights.
(c) To the best of the Company's knowledge, no person is
infringing, misappropriating or otherwise violating any of the Company's
Intellectual Property Rights. There are no pending legal proceedings relating to
any Intellectual Property Rights of the Company.
(d) The Company has entered into appropriate non-use and non-
disclosure and assignment of inventions agreements with all persons that have
access to the Company's Intellectual Property Rights and, to the Company's
knowledge after due inquiry, no such person has violated or breached any such
agreements.
2.25 Prior Issuances. All prior offers and sales of securities of the
Company were (a) exempt from registration under the 1933 Act, (b) registered
pursuant to, or exempt from registration under, all pertinent state securities,
or Blue Sky, laws, and (c) registered pursuant to, or exempt from registration
under, all pertinent foreign securities laws.
2.26 Tax Consequences of Reorganization. The purchase by the U.S.
Corporation of all of the issued and outstanding capital
11
<PAGE>
stock of PRIMA Industrie (a) was non-taxable to the U.S. Corporation and its
stockholders domiciled in the United States under the Internal Revenue Code of
1986, as amended; and (b) did not subject the U.S. Corporation, Prima Industrie
or any other Subsidiary to any tax under the laws of the Republic of Italy.
2.27 Stock Incentive Plan. The PRIMA Group International, Inc. 1997
Stock Incentive Plan (the "Stock Incentive Plan") permits the granting of
incentive stock options, as defined under Section 422 of the Internal Revenue
Code of 1986, as amended.
2.28 Florida Compliance. The Company has complied and will comply with
all provisions of Florida Statutes Section 517.075 (Chapter 92-198, Laws of
Florida). Neither the Company, nor any affiliate thereof, does business with the
government of Cuba or with any person or affiliate located in Cuba.
2.29 Compliance with Business Advisory Letter. The Company has provided
the Representative with a full and complete copy of the business advisory letter
received by it from Hein + Associates LLP, dated November 12, 1997 (the
"Business Advisory Letter"). Schedule 2.29 hereto sets forth which
recommendations contained in the Business Advisory Letter have and have not been
fully complied with as of the date hereof.
SECTION 3
Issue, Sale and Delivery of the Shares
3.1 Appointment of Representative. The Company hereby agrees to sell
2,000,000 Shares, and each Member, upon the basis of the representations and
warranties herein contained, but subject to the conditions hereinafter stated,
agrees, severally and not jointly, to purchase from the Company the number of
Shares set forth opposite its name in Schedule I attached hereto at a purchase
price of $____ per Share at the Closing of the Offering (the "Closing"). The
Company hereby grants to the Underwriting Group an over-allotment option for a
period of thirty (30) days after the Effective Date to purchase at a purchase
price of $____ per Share up to 300,000 additional Shares of Common Stock. Such
Shares shall be purchased for the account of each Member as nearly as
practicable in the proportion that the number of Shares set opposite the name of
each of the Members in Schedule I attached hereto bears to the 2,000,000 Shares
purchased hereunder prior to the exercise of the over-allotment option. The
obligations of the Members hereunder are subject to, among other things: (a)
notice from the Commission of effectiveness of the Registration Statement; (b)
receipt of
12
<PAGE>
written advice from the National Association of Securities Dealers, Inc. (the
"NASD"), pursuant to Rule 2710 of the NASD's Conduct Rules, approving the
fairness and reasonableness of the underwriting arrangements in connection with
the sale of the Shares; (c) qualification of the sale of the Shares under
applicable state laws and the absence of any action by any government body,
agency or official prohibiting the sale of the Shares; (d) the exemption from
registration of the Shares under the laws of the Republic of Italy and any other
applicable foreign jurisdiction; and (e) the terms and conditions contained in
this Agreement and in the Registration Statement and the Prospectus.
3.2 Default by a Member. If for any reason one or more Members shall
fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 9 hereof) to
purchase and pay for the number of Shares agreed to be purchased by such Member,
the Company shall immediately give notice thereof to the Representative, and the
non-defaulting Members shall have the right, within twenty-four (24) hours after
the receipt by the Representative of such notice, to purchase or procure one or
more other Members to purchase, in such proportions as may be agreed upon
between the Representative and such purchasing Member or Members, and upon the
terms herein set forth, the Shares which such defaulting Member or Members
agreed to, and subsequently failed, to purchase. If the non-defaulting Members
fail to make such arrangements with respect to all such Shares, the number of
Shares which each non-defaulting Member is otherwise obligated to purchase under
the Agreement shall be automatically increased PRO RATA to absorb the remaining
Shares which the defaulting Member or Members agreed to purchase; provided,
however, that the non-defaulting Members shall not be obligated to purchase the
Shares which the defaulting Member or Members agreed to purchase if the
aggregate number of such Shares exceeds ten percent (10%) of the total number of
Shares which all Members agreed to purchase hereunder. If the total number of
Shares which the defaulting Member or Members agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within twenty-four (24) hours next succeeding the
twenty-four (24) hour period above referred to, to make arrangements with other
underwriters or purchasers satisfactory to the Representative for the purchase
of such Shares on the terms herein set forth. In any such case, either the
Representative or the Company shall have the right to postpone the Closing
determined as provided in Section 3.6 hereof for not more than seven (7)
business days after the date originally fixed as the Closing pursuant to said
Section in order
13
<PAGE>
that any necessary changes in the Registration Statement, the Prospectus or any
other documents or arrangements may be made. If neither the non-defaulting
Members nor the Company shall make arrangements within the twenty-four (24) hour
periods stated above for the purchase of all the Shares which the defaulting
Member or Members agreed to purchase hereunder, this Agreement shall be
terminated without further act or deed and without any liability on the part of
the Company to any non-defaulting Member and without any liability on the part
of any non-defaulting Member to the Company.
Nothing contained in this Section 3.2 shall relieve any defaulting
Member of its liability, if any, to the Company or to the remaining Members for
damages occasioned by its default hereunder.
3.3 Offering Price. After the Commission notifies the Company that the
Registration Statement has become effective, the Members propose to offer the
Shares to the public at an Offering Price of $ per Share as set forth in the
Prospectus. The Members may allow such concessions and discounts upon sales to
selected dealers as may be determined from time to time by the Representative.
Payment for the Shares (including Shares included in the over-allotment option)
which the Representative agrees to purchase shall be made to the Company to its
order by certified or official bank check or checks in the amount of the
purchase price by or on behalf of the Representative at the offices of Dorsey &
Whitney LLP in Denver, Colorado, or by wire transfer of immediately available
funds in the amount of the purchase price pursuant to instructions delivered by
the Company, against delivery to the Representative of certificates for the
Shares in definitive form in such numbers and registered in such names as the
Representative shall request in writing at least two (2) full business days
prior to such delivery.
3.4 Principal Terms of Representative's Warrants. Upon payment for the
Shares, at the Closing, the Company shall sell and deliver to the Representative
and/or its designees, the Representative's Warrants to purchase a total of
200,000 shares of Common Stock, for a purchase price of $100.00, registered in
such names and in such denominations as the Representative shall have requested.
The Representative's Warrants shall be in the form attached as Exhibit A hereto
and shall be in form and content acceptable to counsel for the Representative.
The Representative's Warrants shall evidence the right of the Representative
and/or its designees to purchase a total of 200,000 shares of the Common Stock
and shall be exercisable commencing one (1) year after the Effective Date and
for a period
14
<PAGE>
of four (4) years thereafter (such four (4) year period shall be known as the
"Representative's Warrant Period") and shall contain anti-dilution and
adjustment provisions acceptable to the Representative. The Representative's
Warrants shall be exercisable at an exercise price of $ per share (150% of the
Offering Price). On the fifth anniversary of the Effective Date, the
Representative's Warrants shall expire. The Company will not be obligated to
sell and deliver the Representative's Warrants, and the Representative will not
be obligated to purchase and pay for the Representative's Warrants, except upon
payment for the Shares. The Representative's Warrants to be acquired by the
Representative and/or its designees shall be restricted from sale, transfer,
exercise, assignment or hypothecation for twelve (12) months after the Effective
Date, except that the Representative may elect that the Representative's
Warrants be issued in varying amounts directly to its officers, and not to the
Representative, or to other Members and their designees. Such designation will
only be made at the Closing if the Representative determines that such
designation would not violate the interpretation of the Board of Governors of
the NASD relating to the review of corporate financing arrangements. The
Representative has disclosed to the Company, and the Company has agreed, that
the Representative may transfer, after twelve (12) months from the date of the
Representative's Warrants, a portion or all of the Representative's Warrants to
certain persons, including, but not limited to, the Representative's officers,
directors, stockholders, employees or registered representatives. The
Representative and the Company agree that such transfers will only be made if
they do not violate the registration provisions of the 1933 Act.
3.5 Inspection of Certificates. For the purpose of expediting the
checking and packaging of the certificates for the securities comprising the
Shares and the Representative's Warrants, the Company agrees to make the
certificates available for inspection by the Representative at the main office
of the Representative in Denver, Colorado, at least one (1) full business day
prior to the proposed delivery date.
3.6 Closing. The delivery of the Shares and payment therefor is herein
called the "Closing." The date of the Closing is herein called the "Closing
Date." The Company will deliver the certificates for the Shares to the
Representative at the offices of the Representative in Denver, Colorado or at
such other location as may be specified by the Representative, at 10:00 a.m.,
New York time, against payment of the purchase price, on the third full business
day after commencement of the Offering or, if the Offering commences after 4:30
p.m., New York time, on
15
<PAGE>
the fourth full business day after commencement of the Offering, or such earlier
time as may be agreed upon by the Representative and the Company. In the event
that the Representative elects to exercise any part of the over-allotment option
pursuant to Section 3.1 hereof, the time and date of delivery and payment for
the Shares to be issued pursuant to said over-allotment option shall be as
mutually agreed, but not later than the thirtieth (30th) calendar day after the
Effective Date. Said date is hereinafter referred to as the "Over-allotment
Closing Date."
3.7 Representative's Expense Allowance. It is understood that the
Company will reimburse the Representative for its expenses on a non-accountable
basis in the amount of three percent (3%) of the gross proceeds from the sale of
the Shares, including proceeds from the sale of the Shares included in the
over-allotment option. In no event shall this expense allowance be refundable or
accountable, except as provided in the next paragraph.
The Company and the Representative mutually acknowledge that the
Company has heretofore paid to the Representative $50,000 towards the
Representative's nonaccountable expense allowance, and the Representative hereby
acknowledges receipt of such portion of the nonaccountable expense allowance. At
the Closing and, if applicable, on the Over- allotment Closing Date, the Company
shall pay to the Representative the unpaid balance of such expense allowance to
defray the expenses incurred by the Representative in connection with the
Offering. The Representative's expenses shall include, but are not to be limited
to, the fees of Representative's counsel, plus any additional expenses and fees,
travel expenses, postage expenses, duplication expenses, long distance telephone
expenses and other expenses incurred by the Representative in connection with
the proposed sale of the Shares. In the event that the Offering is not
consummated for any reason, the Company shall reimburse the Representative for
all of its accountable expenses; provided, however, that if such accountable
expenses are less than $50,000, any unaccounted for portion of the $50,000
advanced to the Representative for non-accountable expenses will be returned to
the Company.
3.8 Mutual Warranty. The parties represent and warrant that, as of the
date hereof and as of the Closing Date, the representations and warranties
herein contained and the statements contained in all certificates delivered by
any party to another pursuant to this Agreement shall in all respects be true
and correct.
16
<PAGE>
3.9 Sales Reports. The Representative covenants that, reasonably
promptly after the Closing Date, it will supply the Company with all information
requested in writing by the Company and required from the Representative in
connection with its periodic reporting requirements under the Securities
Exchange Act of 1934, as amended (the "1934 Act") and such additional
information as the Company may reasonably request to be supplied to the
securities commissions of the states in which the Shares have been qualified for
sale.
3.10 Re-offers By Selected Dealers. In connection with each sale by the
Representative of any of the Shares through such dealers and institutions
agreeing to purchase Shares under the Selected Dealers Agreement with the
Representative (each, a "Selected Dealer"), the Representative shall require the
Selected Dealer purchasing any such Shares to agree to re-offer the same on the
terms and conditions of the Offering set forth in the Registration Statement and
the Prospectus.
SECTION 4
Registration Statement and Prospectus
4.1 Representative's Copies. The Company shall deliver to the
Representative, without charge, two (2) signed copies of the Registration
Statement, including all financial statements and exhibits and amendments or
supplements thereto as filed with the Commission, and shall deliver, without
charge to the Representative, an additional seven (7) conformed copies of the
Registration Statement and any amendments or supplements thereto, including such
financial statements and exhibits. The signed copies of the Registration
Statement so furnished to the Representative shall include signed copies of any
and all consents and certificates of the independent public accountants
certifying to the financial statements included in the Registration Statement
and the Prospectus and signed copies of any and all consents and certificates of
any other person whose profession gives authority to statements made by him or
her and who is named in the Registration Statement or Prospectus as having
prepared, certified or reviewed any part thereof.
4.2 Copies of Preliminary Prospectus and Prospectus. Prior to the
Effective Date, the Company shall procure, at its sole expense, and shall
deliver to Members and to other broker/dealers, as many printed copies of each
Preliminary Prospectus filed with the Commission bearing the statement required
by Rule 481(b)(2) of Regulation C under the 1933 Act as may be required by the
Representative. The Company consents to
17
<PAGE>
the use of the same by Members and by dealers prior to the Effective Date;
provided, however, that with respect to any preliminary prospectus that will not
be distributed publicly to potential investors in the Offering (a "Quiet Filing
Preliminary Prospectus"), the Representative will be provided with no more than
500 copies of such preliminary prospectus (excluding copies provided to the
Representative or its counsel for filing purposes) and will distribute such
copies only to originating investment bankers, potential Members in the
Underwriting Group and institutional investors. In addition, on and after the
Effective Date, the Company shall procure, at its sole expense, as many printed
copies of the Prospectus and shall deliver such copies at such business
addresses as the Representative may direct for the purposes contemplated by this
Agreement and shall deliver such printed copies of the Prospectus within one (1)
business day after the Effective Date.
4.3 Post-Effective Amendments. If, during such period of time as in the
opinion of the Representative or its counsel a Prospectus relating to the sale
of the Shares contemplated hereby is required to be delivered under the 1933
Act, any event occurs or any event known to the Company relating to or affecting
the Company shall occur as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, if it is
necessary at any time after the Effective Date to amend or supplement the
Prospectus to comply with the 1933 Act, the Company shall forthwith notify the
Representative thereof and shall prepare and file with the Commission such
further amendment to the Registration Statement or supplemental or amended
Prospectus as may be required and shall furnish and deliver to the
Representative and to others whose names and addresses are designated by the
Representative, all at the sole expense of the Company, a reasonable number of
copies of the amended or supplemented Prospectus which, as so amended or
supplemented, will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the Prospectus not
misleading in the light of the circumstances existing when it is delivered to a
purchaser or prospective purchaser and which will comply in all respects with
the 1933 Act. In the event the Representative shall be required to deliver a
Prospectus ninety (90) days or more after the Effective Date, upon request of
the Representative, the Company shall prepare promptly such Prospectus as may be
necessary to permit compliance with the requirements of Section 10 of the 1933
Act.
18
<PAGE>
4.4 Use of Prospectus. The Company authorizes the Members, in
connection with the distribution of the Shares, and all dealers to whom any of
the Shares may be sold to or through the Members, to use the Prospectus, as from
time to time may be amended or supplemented, in connection with the Offering and
sale of the Shares and in accordance with the applicable provisions of the 1933
Act, the applicable Rules and Regulations and the applicable state securities or
Blue Sky laws; provided, however, that the Representative's use of any Quiet
Filing Preliminary Prospectus shall be made in accordance with the provisions of
Section 4.2 hereof. Each recipient shall be provided with a copy of the amended
Prospectus in the form as amended through the Effective Date.
SECTION 5
Covenants of the Company
The Company covenants and agrees with the Representative and other
Members that:
5.1 Filing of Amendments. After the date hereof, the Company will not
at any time, whether before or after the Effective Date, file with the
Commission any amendment or supplement to the Registration Statement or
Prospectus unless a copy of such amendment or supplement was previously
furnished to the Representative and its counsel a reasonable time prior to the
proposed filing thereof, and the Representative or its counsel did not
reasonably object to such proposed filing on the ground that it is not in
compliance with the 1933 Act or the Rules and Regulations. The Company agrees to
supply the Representative's counsel with the contents of any oral comments and
copies of all comments, correspondence and orders received from the Commission
or any state securities administrator in connection with the filing of any
Registration Statement or amendment or supplement thereto.
5.2 Declaration of Effectiveness. The Company shall use its best
efforts to cause the Registration Statement and any post-effective amendment
subsequently filed with the Commission to become effective as promptly as
practicable, but shall not obtain an Effective Date or allow the Registration
Statement to become effective without the approval of the Representative. The
Company will promptly advise the Representative, and will confirm such advice in
writing:
(a) of the effectiveness of the Registration Statement or any
amendment thereto and of the filing with the Commission of
19
<PAGE>
any amendment of or supplement to the Prospectus;
(b) of any request or suggestion made by the Commission for
any amendment to the Registration Statement or the Prospectus or for additional
information and the nature and substance thereof;
(c) of the issuance by the Commission of any order suspending
the effectiveness of the Registration Statement pursuant to Section 8 of the
1933 Act or of the initiation of any proceeding for that purpose;
(d) of the happening of any event which, in the judgment of
the Company, makes any material statement in the Registration Statement or
Prospectus untrue or which requires the making of any change in the Registration
Statement or Prospectus in order to make the statements therein not misleading;
and
(e) of the failure to qualify or the suspension of the
qualification of the Shares for offering or sale in any jurisdiction or of the
institution of any proceeding for any of such purposes.
The Company shall use every reasonable effort to prevent the issuance of any
such order or of any order preventing or suspending such use, to prevent any
such failure to qualify or any such suspension and to obtain as soon as possible
a lifting of any such order, the reversal of any such failure and the
termination of any such suspension.
5.3 Amendments at the Request of the Representative. The Company shall
prepare and file promptly with the Commission, upon the request of the
Representative, such amendments or supplements to the Registration Statement and
the Prospectus, in form satisfactory to counsel to the Company as, in the
opinion of counsel to the Representative, may be necessary or advisable in
connection with the sale of the Shares, and will use its best efforts to cause
the same to become effective as promptly as possible.
5.4 Blue Sky.
(a) The Company shall, at its sole expense and when and as
requested by the Representative, apply for and qualify the sale of the Shares in
all states in which the Representative reasonably requests in order to qualify
under such state's Blue Sky laws. The Company agrees that the Representative
will instruct counsel to the Representative to make all of the appropriate
filings, and the Company agrees to advance to the
20
<PAGE>
Representative the estimated attorneys' fees of the Representative incurred in
connection therewith and to pay any balance of such fees promptly upon the
Representative's request therefor. The maximum number of Shares to be offered in
the entire Offering shall be registered in each state (or if sales will be
permitted by exemption rather than registration, the exemption shall be obtained
for such maximum number of Shares), unless the Representative agrees otherwise
in writing. The Company will advance to the Representative all filing fees for
all state filings. The Company will continue such qualifications in effect so
long as required for the purposes of the sale of the Shares. Copies of the
applications for the registration of securities filed with the various states
shall be supplied to the Company's and Representative's counsel, and copies of
all comments and orders received from the various states will be supplied to
Company's and Representative's counsel.
(b) No less than one week prior to the expected Effective Date
of the Registration Statement, and immediately prior to the release of the
Preliminary Prospectus, Representative's counsel shall prepare and deliver to
both parties and other counsel, a preliminary Blue Sky Memorandum, including,
among other things, all states wherein the proposed Offering has been qualified
or registered for sale and the number of Shares registered in any such state,
and all states where an exemption from qualification or registration is
available and the basis therefor. Immediately prior to the Effective Date of the
Registration Statement, counsel who prepared the Blue Sky filings shall prepare
and deliver to both parties and other counsel a final Blue Sky Memorandum
(together with the preliminary Blue Sky Memorandum, the "Blue Sky Memoranda"),
including, among other things, all states wherein the Offering may be sold to
the public and all states where an exemption from qualification or registration
is available, the basis therefor, and the number of Shares which may be sold in
each such state.
5.5 Further Reports. The Company, at its sole expense, shall prepare
and give and shall continue to give such financial statements and other
information to the Commission and the proper public bodies of the states in
which the Shares may be qualified as may be required from time to time by the
Commission and such proper public bodies and will furnish the Representative
with copies thereof promptly upon the filing thereof with the Commission or such
proper public bodies.
5.6 Reports to Representative. During the period of five (5) years
after the Closing Date, the Company shall deliver to the Representative copies
of each annual report of the Company,
21
<PAGE>
and also shall deliver to the Representative:
(a) within ninety (90) days (or such later period for filing
of the Company's Annual Report on Form 10-K as may be permitted under Rule
12b-25 or any successor rule or regulation) after the close of each fiscal year
of the Company, a financial report of the Company on a consolidated basis (if
applicable) and a similar financial report of all unconsolidated subsidiaries,
if any, all such reports to include a balance sheet as of the end of the
preceding fiscal year, an income statement, a statement of cash flow, all to be
in reasonable detail and certified by independent public accountants who may,
however, be the regularly employed independent public accountant of the Company
to the extent included in the Company's Form 10-K for such fiscal year as filed
with the SEC;
(b) within forty-five (45) days (or such later period for
filing of the Company's Quarterly Report on Form 10-Q as may be permitted under
Rule 12b-25 or any successor rule or regulation) after the end of each quarterly
fiscal period of the Company, other than the last quarterly fiscal period in any
fiscal year, copies of the consolidated (if applicable) income statement and
statement of changes in financial condition for that period and the balance
sheet as of the end of that period of the Company and the income statement,
statement of changes in financial condition and the balance sheet of each
unconsolidated subsidiary, if any, of the Company for that period, all subject
to year-end adjustment, certified by the principal financial or accounting
officer of the Company to the extent included in the Company's Form 10-Q for
such quarter as filed with the SEC;
(c) copies of all other statements, documents or other
information which the Company shall mail or otherwise make available to any
class of its security holders or shall file with the Commission pursuant to the
1933 Act, the 1934 Act or otherwise; and
(d) copies of all news, press or public information releases
when made.
If the Company shall fail to furnish the Representative financial
statements as provided in subparagraphs (a) and (b) above within the times
specified, and the Company has not received an extension of such time for filing
or is not in the immediate process of preparing such filing, the Representative
shall have the right to have such financial statements prepared by independent
public accountants of its own choosing, and the Company shall furnish such
independent public accountants such
22
<PAGE>
data and assistance and access to such records as they may reasonably require to
enable them to prepare such statements and shall pay their reasonable fees and
expenses in preparing the same.
5.7 Expenses of Offering. The Company shall pay, whether or not the
transactions contemplated hereunder are consummated or this Agreement is
prevented from becoming effective or is terminated, all costs and expenses
incident to the performance of its obligations under this Agreement, including
all expenses incident to the authorization, issuance and delivery of the Shares
and the Representative's Warrants, any original issue taxes in connection
therewith, all transfer taxes, if any, incident to the initial sale of the
Shares, the Representative's Warrants and Representative's Warrant Stock, if
such sales are consummated, the fees and expenses of the Transfer Agent, if any,
the fees and expenses of the Company's counsel and accountants, the costs and
expenses incident to the preparation, printing and filing under the 1933 Act and
with the NASD of the Registration Statement and the Prospectus and any
amendments or supplements thereto, the cost of preparing and filing all exhibits
to the Registration Statement, this Agreement, and the Questionnaires to
officers, directors and certain stockholders of the Company for the obtaining of
information for the Registration Statement and Preliminary and final Prospectus,
the fees of the Representative's counsel incurred in connection with the
preparation of the Blue Sky Memoranda, the cost of printing and furnishing to
the Representative copies of the Registration Statements and copies of the
Preliminary and final Prospectus as herein provided and the cost of qualifying
the Shares under the state securities or Blue Sky laws as provided in Section
5.4 herein and the laws of the Republic of Italy and any other applicable
foreign jurisdiction, including filing fees. In addition to the above, the
Company shall also pay all expenses, up to a maximum of $15,000, incurred in
connection with the placement of a "tombstone" advertisement in the national
edition of THE WALL STREET JOURNAL, INVESTOR'S BUSINESS DAILY, INVESTMENT
DEALERS DIGEST and the ROCKY MOUNTAIN NEWS or any other periodical determined
appropriate by the Representative, after the Closing. The Company, at its sole
expense, shall also make a representative of its management available for the
Representative's corporate manager's meeting after the completion of the
Offering, and the Company shall be responsible for all reasonable expenses
related to such meeting.
5.8 Stockholder Reports. The Company shall, as promptly as possible
after each annual fiscal period, render and distribute reports to its
stockholders which will include audited statements
23
<PAGE>
of its operations and cash flow during such period and its balance sheet as of
the end of such period.
5.9 1933 Act Reporting. Within the time during which the Prospectus is
required to be delivered under the 1933 Act, the Company shall comply, at its
own expense, with all requirements imposed upon it by the 1933 Act, the Rules
and Regulations as from time to time in force and any order of the Commission,
so far as is necessary to permit the continuance of offers, sales and trading of
the Shares.
5.10 Use of Proceeds. The Company will apply the net proceeds from the
sale of the Shares solely and exclusively in the manner set forth in the
Registration Statement and the Prospectus under the caption "Use of Proceeds."
5.11 Transfer Sheets. The Company shall issue at the Closing
irrevocable instructions to the Transfer Agent to provide the Representative,
for its confidential use and at the Company's expense, reasonable access to its
daily transfer sheets for a period of three years after the Closing Date, to
forward such daily transfer sheets to the Representative bi-weekly for the 60
days following the Closing Date and monthly for the remainder of the first year
following the Closing Date, and, annually, for a period of five years after the
Closing Date, upon request of the Representative to the Transfer Agent therefor
(but more frequently in the event of an investigation requiring the same or
inquiry therefor by the Commission or other government body or agency or by the
NASD), to provide the Representative with lists of stockholders of the Company.
5.12 Information About the Company. The Company shall deliver to the
Representative the documents described in Section 2.20. In addition, at Closing,
the Company shall deliver to the Representative or its counsel, certificates of
good standing for each jurisdiction (whether foreign or domestic) where the
Company does business, certificates as to tax status, incumbency or any other
certificate or document which the Representative may reasonably require prior to
Closing.
5.13 Due Diligence Investigation for Offering and for Proceedings
involving the Representative. Prior to the Closing Date, the Company shall
cooperate with the Representative in such investigation as it may make or cause
to be made of all the properties, business and operations of the Company in
connection with the sale of the Shares, the Company shall make its officers and
directors available to the Representative for interrogation, without cost or
expense to the Representative, in connection
24
<PAGE>
therewith, and the Company shall make available such information in its
possession as the Representative may reasonably request. Subsequent to the
Closing Date, the Company shall cooperate with the Representative in such
investigation as it may make or cause to be made of all the properties, business
and operations of the Company in connection with any proceeding in which claims
are asserted against the Representative by virtue of its participation in the
Offering or in any activities as a broker-dealer in transactions involving the
Common Stock or as a market-maker for the Common Stock, the Company shall make
its officers and directors available to the Representative for interrogation,
without cost or expense to the Representative, in connection therewith, and the
Company shall make available such information in its possession as the
Representative may reasonably request.
5.14 Transfer Agent. During the period ending three (3) years after the
Closing Date, the Company shall not change or terminate the appointment of the
Transfer Agent named in Section 2.22 hereto, without first giving notice to the
Representative.
5.15 Conditions Precedent. The Company shall use due diligence to
comply or cause to be complied with all conditions precedent to the obligations
of the Representative specified in this Agreement.
5.16 1934 Act Registration and Reporting; Listing. Simultaneously with
a declaration of effectiveness of the Registration Statement, the Company, at
its sole cost and expense, shall register the Common Stock by filing with the
Commission, pursuant to Section 12(g) of the 1934 Act, a Registration Statement
on Form 10, or Form 8-A, or other appropriate filing, containing such
information and documents as the Commission may specify (the "1934 Act
Registration Statement"). Two (2) signed copies of the 1934 Act Registration
Statement, including the certified financial statements and other required
exhibits, shall be supplied to the Representative prior to the filing thereof.
In addition, any amendments or supplements that may be made by the Company or
required by the Commission to the 1934 Act Registration Statement will be
furnished to the Representative after the filing thereof with the Commission.
The Company shall thereafter comply with all periodic reporting and proxy
solicitation requirements imposed by the Commission pursuant to the 1934 Act, so
long as the Company is legally required to do so and shall furnish the
Representative promptly with copies of all materials filed with the Commission
pursuant to the 1934 Act or otherwise furnished to stockholders of the Company.
In addition, simultaneously with a declaration of effectiveness of the
Registration Statement, the Company
25
<PAGE>
agrees to qualify for the listing of its Common Stock on the Nasdaq National
Market and to maintain such qualification following the Closing.
5.17 No Material Change. The Company shall not, except as described in
the Prospectus or with approval of the Representative, until (a) the termination
of this Agreement prior to the Closing pursuant to Section 9.1 or Section 9.2,
or (b) the expiration of ninety (90) days after the Effective Date, whichever
occurs later:
(a) undertake or authorize any change in its capital structure
or authorize or issue or permit any public offering of any additional shares of
its capital stock, except as herein provided;
(b) authorize, create, issue or sell any funded obligations,
notes or other evidences of indebtedness, except in the ordinary course of
business and maturing not more than twelve (12) months from the date thereof
except for recorded loans between the Company and its Subsidiaries pursuant to
(i) arm's length transactions governed by credit terms consistent with typical
U.S. banking arrangements or (ii) the credit agreement between the U.S.
Corporation and its subsidiaries filed as an exhibit to the Registration
Statement; or
(c) consolidate, merge or form a joint venture with or into or
acquire any other enterprise (whether in the form of a corporation or otherwise)
or create any mortgage or lien upon any of its properties or assets other than
in the ordinary course of business.
5.18 Bound Volumes. The Company shall supply to the Representative and
the Representative's counsel, at the Company's cost, four (4) sets of bound
transcripts each containing all of the Closing materials within a reasonable
time after the Closing Date, not to exceed six (6) months.
5.19 Financial Consulting Agreement. At the time of the Closing, the
Company shall enter into a financial consulting agreement with the
Representative in the form attached hereto as Exhibit B, pursuant to which the
Representative shall receive a consulting fee of $40,000 per annum. The services
of the Representative pursuant to such agreement shall include, but shall not be
limited to, advising the Company in connection with possible acquisitions,
stockholder relations (including the preparation of the Company's annual report
to stockholders), long-term financial planning, advice relating to corporate
26
<PAGE>
reorganizations, expansion and capital structure, and other financial
assistance. The term of the consulting agreement shall be one (1) year,
commencing on the Closing Date. The entire consulting fee shall be paid to the
Representative on the Closing Date.
5.20 Additional Financing.
(a) If, at the request of the Company, the Representative
introduces, negotiates or arranges for a non-public equity or debt financing
(including any bridge financing) for the Company, and such financing is accepted
and consummated (other than as contemplated herein) on or prior to August 7,
2000, the Company will pay a fee to the Representative for such services equal
to ten percent of the equity raised in such transaction.
(b) If, at the request of the Company, the Representative (i)
arranges for bank debt financing, and such financing is accepted and consummated
on or prior to August 7, 2000, or (ii) arranges for the purchase or sale of
assets, or for a merger, acquisition or joint venture for the Company, and such
transaction is accepted and consummated on or prior to August 7, 2000, the
Company will pay a fee to the Representative for such services, calculated as
follows:
-four percent (4%) of the value of the financing or other
transaction to the Company up to and including five million
dollars ($5,000,000);
-three percent (3%) of the value of the financing or other
transaction to the Company greater than five million dollars
($5,000,000) and up to and including six million dollars
($6,000,000);
-two percent (2%) of the value of the financing or other
transaction to the Company greater than six million dollars
($6,000,000) and up to and including seven million dollars
($7,000,000); and
-one percent (1%) of the value of the financing or other
transaction to the Company in excess of seven million dollars
($7,000,000).
Notwithstanding the foregoing, nothing in this Agreement shall be construed to
require the Company to utilize the services of the Representative for any such
additional financing or other transaction, and the Company shall be free to
obtain additional financings, and to consummate other transactions, with the
27
<PAGE>
assistance of other investment banking firms.
5.21 Restriction on Sale of Securities. Prior to the declaration of
effectiveness of the Registration Statement, the Company will obtain from each
key officer, insider and director of the Company, and deliver to the
Representative, agreements from said persons concerning restrictions on future
sales of securities of the Company owned by them. All of said agreements shall
be in a form for which prior approval has been obtained from the Representative,
but shall include agreements that such securities and underlying securities may
not be publicly sold during the twenty-four (24) month period following the
Effective Date, without the prior written consent of the Representative and the
Company, which may be withheld in either of their sole discretion; provided,
however, that such securities may be sold during that time period, provided that
such sale or disposition is a privately negotiated transaction, that the
purchaser agrees in writing with the Representative and the Company to the
provisions of the transferor's written agreement with the Representative and the
Company and that the disposition is otherwise in accordance with applicable
securities laws; and further provided, that the Representative will waive the
restrictions contained in such agreements, on a pro rata basis to all parties
subject to such agreements, if the Company undertakes a public offering or
private placement of Common Stock and the underwriter or placement agent for
such public offering or private placement agrees that the shares of Common Stock
for which such restrictions are waived will be sold as part of the orderly
distribution of securities to be sold in such public offering or private
placement.
5.22 Public Relations Firm. The Company shall engage a public relations
firm acceptable to the Representative, for a period of one (1) year after the
Effective Date; provided, however, that the acceptance of the Representative to
such public relations firm shall not be unreasonably withheld.
5.23 Board of Directors Meetings. For the three (3) year period
commencing on the Effective Date, the Company shall give written notice to the
Representative of all Board of Directors' meetings at the time such meeting is
called and as such notice is given to the Company's directors and the
Representative shall be entitled to have an observer attend all such Board of
Directors' meetings; provided, however, that the Representative shall pay for
any travel costs associated with such observer's attendance at such meetings.
Such observer shall be an Affiliate of the Representative, shall have no right
to speak at the meetings, and will not be entitled to attend executive sessions
of the Board.
28
<PAGE>
In addition, the Company shall promptly forward to the Representative, as
completed, minutes of each meeting of the Board of Directors of the Company, or
any committee thereof.
5.24 Fundamental Corporate Transactions. For a period of three (3)
years following the Effective Date, the Company shall not make any transfer of a
material portion of the assets or capital stock of the Company or any current or
future subsidiary (each, a "Company Entity") to any other person or entity
(including, without limitation, a Company Entity) without the prior consultation
of the Representative, and will submit any proposal for the transfer of any
material portion of the assets of the Company to a vote of the stockholders of
the Company unless the Representative concurs with the Company that stockholder
approval is not necessary.
5.25 Potential Acquisition of Prima Electronics. In the event that the
Company determines to acquire the remaining issued and outstanding capital stock
of Prima Electronics not currently held by the Company, the Company will use its
best efforts to structure such acquisition as a non-taxable transaction under of
the Internal Revenue Code of 1986, as amended, and the laws of the Republic of
Italy. In addition, the consideration paid by the Company in exchange for any
capital stock of Prima Electronics shall be (a) cash, (b) debt or equity
securities of the U.S. Corporation, or (c) some combination thereof.
5.26 Stock Incentive Plan; Incentive Compensation.
(a) Prior to the Closing, the Company shall not issue any
award under the Stock Incentive Plan to the extent that such award would cause
the aggregate number of shares of Common Stock underlying awards issued under
the Stock Incentive Plan to equal or exceed fifty-five percent (55%) of the
number of shares of Common Stock authorized for issuance pursuant to awards
granted under the Stock Incentive Plan.
(b) For the three (3) year period commencing on the Effective
Date, the Company will not grant any bonus or incentive compensation (whether in
the form of cash, awards granted under the Stock Incentive Plan, or other
securities of the Company) to any person to the extent that the aggregate of
such compensation granted by the Company to all persons during the fiscal year
in which such grant is made would decrease the Company's earnings for such
fiscal year by an amount greater than or equal to five percent (5%) of the
Company's earnings in the prior fiscal year; provided, however, that such grants
may decrease the Company's earnings for such fiscal year by an amount greater
than five
29
<PAGE>
percent (5%), but not to exceed ten percent (10%), to the extent that, and only
to the extent that, such additional grants are made in connection with the
establishment of an employee stock ownership plan that will purchase shares of
the Company's Common Stock on the open market.
5.27 Composition of Board of Directors. For the three (3) year period
commencing on the Effective Date, the Company will use its best efforts to
insure that, at all times, at least three (3) members of the Board of the U.S.
Corporation are citizens of the United States.
5.28 Compliance with Business Advisory Letter. The Company will fully
implement all recommendations contained in the Business Advisory Letter which
have not been implemented as of the date hereof within the time frame set forth
on Schedule 5.28 hereto.
5.29 Qualification of Shares in Italy. Following the Closing, the
Company will use its best efforts to, as soon as practicable, qualify the Shares
with Italian regulatory authorities for sale to the general public in Italy.
SECTION 6
Indemnification
(a) The Company agrees to indemnify and hold harmless the
Representative and each person, if any, who controls the Representative, its
affiliated companies and each of the Representative's and such affiliated
companies' respective officers, directors, agents and controlling persons
(within the meaning of each of Section 20 of the 1934 Act and Section 15 of the
1933 Act) (each of the foregoing, including the Representative, is individually
referred to in this Section 6 as a "Representative" and collectively are
referred to as the "Representative") against any losses, claims, damages,
liabilities or expenses, joint or several, brought by a third party, to which
such Representative or each such controlling person may become subject, under
the 1933 Act, the 1934 Act, common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) arise
out of, or are based upon: (i) any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto or made
orally or in writing to the Representative or to any representative of a Member,
or the
30
<PAGE>
omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereof
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) any untrue statement or alleged untrue statement of a
material fact contained in any application or other statement executed by the
Company or based upon written information furnished by the Company and filed in
any jurisdiction in order to qualify the Shares under, or exempt the Shares or
the sale thereof from qualification under, the securities laws of such
jurisdiction, or the omission or alleged omission to state in such application
or statement a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; (iii) the breach or violation of any covenant of the
Company made in this Agreement; or (iv) the inaccuracy or failure of any
representation or warranty of the Company in this Agreement; provided, however,
that the Company will not be liable in any such case to the extent that, with
respect to clauses (i) and (ii) of this Section 6(a), any such loss, claim,
damage, liability or expense arises out of, or is based upon, an untrue
statement, or alleged untrue statement, omission or alleged omission, made in
reliance upon and in conformity with information furnished to the Company by, or
on behalf of, the Representative in writing specifically for use in the
preparation of the Registration Statement or any amendment or supplement
thereto, any such Preliminary Prospectus or the Prospectus or other application
or statement filed under any states' securities, or blue sky, law or any such
amendment thereof or supplement thereto. Subject to the provisions of this
Section 6, the Company will reimburse such Representative for any legal or other
expenses reasonably incurred by such Representative in connection with
investigating, defending or settling any such loss, claim, liability or action.
This indemnity agreement is in addition to any liability which the Company may
otherwise have at law or in equity. Any losses, claims, damages, liabilities or
expenses for which the Representative is entitled to indemnification under this
Section 6 shall be paid by the Company as such losses, claims, damages,
liabilities or expenses are incurred. At the election of the Representative, and
subject to subsection (c) below, the Representative may request, and is entitled
to receive, from the Company reimbursement for legal or other expenses
reasonably incurred on a monthly basis, with the effect that the Company will
pay in full each detailed invoice for legal or other expenses incurred by the
Representative within thirty (30) days after the date of presentation thereof by
the Representative.
31
<PAGE>
(b) The Representative agrees to indemnify and hold harmless
the Company, each of the Company's directors, each of the Company's officers who
has signed the Registration Statement, and each person who controls the Company
within the meaning of Section 15 of the 1933 Act against any losses, claims,
damages, liabilities or expenses, joint or several, to which the Company or any
such director, officer, or controlling person may become subject, under the 1933
Act, the 1934 Act, the common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) arise out of,
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any application or other statement executed by the
Company or by the Representative or based upon written information furnished by
the Company or the Representative and filed in any jurisdiction in order to
qualify the Shares under, or exempt the Shares or the sale thereof from
qualification under, the securities laws of such jurisdiction, or the omission
or alleged omission to state in such application or statement a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that the Representative shall only be obligated to indemnify such
person or persons in each of the above cases only to the extent that such untrue
statement, alleged untrue statement, omission or alleged omission, was made in
reliance upon and in conformity with information contained in the material set
forth under the section entitled "Underwriting" of the Registration Statement,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto. Any losses, claims, damages, liabilities or expenses for which the
Company is entitled to indemnification under this Section 6 shall be paid by the
Representative as such losses, claims, damages, liabilities or expenses are
incurred. This indemnity agreement is in addition to any liability which the
Representative may otherwise have at law or in equity.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to
32
<PAGE>
be made against any indemnifying party under this Section 6, notify in writing
the indemnifying party of the commencement thereof. The omission to so notify
the indemnifying party will not relieve it from any liability under this Section
6 as to the particular item for which indemnification is then being sought,
unless such omission so to notify prejudices the indemnifying party's ability to
defend such action. In case any such action is brought against any indemnified
party and the indemnified party notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof with counsel who shall
be reasonably satisfactory to such indemnified party. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if, in the reasonable
judgment of the indemnified party or parties, it is advisable for such party or
parties and any controlling persons to be represented by separate counsel by
reason of a conflict of interest of the counsel chosen by the indemnifying
party, any indemnified party shall have the right to employ separate counsel to
represent it and other parties and their controlling persons who may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by any party hereunder, in which event the reasonable fees and expenses
of such separate counsel shall be borne by the indemnifying party. In any such
event, the indemnifying party will not be obligated to pay the fees and expenses
of more than one counsel for the indemnified parties with respect to such claim,
unless either (i) the nature of the claim makes it reasonable to engage counsel
in more than one jurisdiction, or (ii) in the reasonable judgment of any
indemnified party, a conflict of interest may exist between such indemnified
party and any other indemnified parties with respect to such claim, in which
event the indemnifying party shall be obligated to pay the reasonable fees and
expense of additional counsel or counsels for the indemnified parties. Any such
indemnifying party shall not be liable to any such indemnified party on account
of any settlement of any claim or action effected without the written consent of
such indemnifying party, which consent shall not be unreasonably withheld. In
the event that an indemnifying party assumes the defense of a claim in
accordance with its obligation to indemnify under this Section 6, it is
understood and agreed that the indemnifying party will thereby assume a
fiduciary duty to the indemnified party to
33
<PAGE>
conduct the defense of such claim consistent with the interests of the
indemnified party.
SECTION 7
Effectiveness of Agreement
This Agreement shall become effective the later of (a) the
date and time that this Agreement is executed and delivered by the parties
hereto and (b) at 10:00 a.m., Eastern Daylight Time, on the first full business
day following the Effective Date, or at such earlier time after the Effective
Date as the Representative in its discretion shall first release the Shares for
offering to the public. For purposes of this Section 7, the Shares shall be
deemed to have been released to the public upon release by the Representative of
the publication of a newspaper advertisement relating to the Shares or upon
release of a telegram or a letter offering the Shares for sale to securities
dealers, whichever shall first occur.
SECTION 8
Conditions to the Representative's Obligations
The Representative's obligation to purchase the Shares and to make
payment to the Company hereunder on the Closing Date and on the Over-allotment
Closing Date shall be subject to the accuracy, as of the Closing Date and the
Over-allotment Closing Date, of the representations and warranties on the part
of the Company herein contained, to the performance by the Company of all its
agreements herein contained, to the fulfillment of or compliance by the Company
with all covenants and conditions hereof, and to the following additional
conditions specified in the subsections of this Section 8.
8.1 Effective Date. The effective date of the Registration Statement
(the "Effective Date") shall occur on or prior to 1:00 p.m., Denver, Colorado
time, on ____________ __, 1998, or such later date as the Representative may
agree to in writing. On or prior to the Closing Date, no order suspending the
effectiveness of the Registration Statement pursuant to Section 8 of the 1933
Act or otherwise shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission or any state securities
administrator; any request for additional information on the part of the
Commission, the NASD or any state securities administrator shall have been
complied with to the satisfaction of the Commission, the NASD or such state
securities administrator, as the case may be; and neither the
34
<PAGE>
Registration Statement, the Prospectus nor any amendment thereto shall have been
filed to which counsel to the Representative reasonably shall have objected in
writing.
8.2 Accuracy of Registration Statement. The Representative shall not
have disclosed in writing to the Company that the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto contains an untrue
statement of a fact which, in the opinion of counsel to the Representative, is
material or omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
8.3 Casualty. Between the date hereof and the Closing Date and
Over-allotment Closing Date, the Company shall not have sustained any loss on
account of fire, explosion, flood, accident, calamity, rebellion, civil
uprising, act of a foreign state, or any other cause of such character as
materially adversely affects its business or property considered as an entire
entity, whether or not such loss is covered by insurance.
8.4 Litigation. Except as set forth in the Registration Statement,
between the date hereof and the Closing Date and the Over-allotment Closing
Date, there shall be no litigation instituted or threatened against the Company,
and there shall be no proceeding instituted or threatened against the Company
before or by any federal or state commission, regulatory body or administrative
agency or other government body, domestic or foreign, wherein an unfavorable
ruling, decision or finding would materially adversely affect the business,
franchises, licenses, permits, operations or financial condition, income or
prospects of the Company.
8.5 No Material Change. Except as contemplated herein or as set forth
in the Registration Statement and the Prospectus, during the period subsequent
to the Effective Date, and prior to the Closing Date and the Over-allotment
Closing Date: (a) the Company shall have conducted its business in the usual and
ordinary manner as the same was being conducted on the Effective Date, and (b)
except in the ordinary course of its business, the Company shall not have
incurred any liabilities or obligations (direct or contingent) or disposed of
any of its assets or entered into any material transaction or suffered or
experienced any materially adverse change in its condition, financial or
otherwise. At the Closing Date and the Over-allotment Closing Date, the capital
stock and surplus accounts of the Company shall be substantially the same as at
the Effective Date, without
35
<PAGE>
considering the proceeds from the sale of Shares, other than as may be set forth
in the Registration Statement and the Prospectus.
8.6 Review by Representative's Counsel. The authorization of the Shares
and the Representative's Warrants, the Registration Statement, the Prospectus
and all corporate proceedings and other legal matters incident thereto and to
this Agreement shall be reasonably satisfactory in all respects to the
Representative and its counsel, and the Company shall have furnished the
Representative and such counsel such documents as they may have requested to
enable them to evaluate the matters referred to in this Section 8.6.
8.7 Opinion of Company Counsel. The Company shall have furnished to the
Representative the opinion, dated the Closing Date or the Over-allotment Closing
Date (as the case may be), addressed to the Representative, of Rayburn, Moon &
Smith, P.A. and/or such other counsel as may be acceptable to the
Representative, to the effect that, based upon a review by them of the
Registration Statement, the Prospectus, the Company's articles of incorporation,
bylaws and relevant corporate proceedings, an examination of such statutes and
such other investigation by such counsel as they deem necessary to express such
opinion:
(a) The Company and each of its Subsidiaries has been duly
incorporated and is a validly existing corporation in good standing under the
laws of its respective jurisdiction of incorporation (specifying the same and
attaching a certificate of good standing for each), with full corporate power
and authority to own and operate its properties and to carry on its business as
set forth in the Registration Statement and the Prospectus.
(b) The Company and each of its Subsidiaries is duly qualified
and registered to transact the business in which it is engaged and is qualified
and in good standing in each and every foreign or domestic jurisdiction in which
its ownership of property or its conduct of business requires such qualification
or registration and in which failure to so qualify would have a material adverse
effect upon the business of the Company.
(c) The Company has an authorized and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
The Shares and the Representative's Warrants conform to the statements
concerning them in the Registration Statement and the Prospectus. The
outstanding Common Stock of the Company has been duly and validly issued and is
fully paid and
36
<PAGE>
nonassessable and is not subject to any preemptive rights. Cumulative voting is
not permitted by the holders of any of the Company's securities. No stockholder
of the Company is subject to personal liability solely on the basis of his, her
or its ownership of capital stock of the Company. The Shares and the shares of
Representative's Warrant Stock issuable upon exercise of the Representative's
Warrants, have been duly and validly authorized and, upon issuance thereof and
payment therefor in accordance with this Agreement will be duly and validly
issued, fully paid and nonassessable, free and clear of all liens, encumbrances,
equities and claims whatsoever, and will not be subject to any preemptive
rights.
(d) The Representative's Warrants have been duly and validly
authorized and issued and are valid and binding instruments enforceable against
the Company in accordance with their terms.
(e) A sufficient number of shares of Common Stock have been
duly reserved for issuance as Representative's Warrant Stock upon exercise of
the Representative's Warrants.
(f) The holders of the issued and outstanding shares of Common
Stock are, and the holders of the Shares, Representative's Warrant Stock and
Representative's Warrants (when such securities have been issued and fully paid
for in accordance with the provisions of the Registration Statement and in the
Representative's Warrants, as applicable) will be, entitled to the rights and
preferences set forth in the certificates representing the same and in the
Representative's Warrants, as applicable.
(g) No consents, approvals, authorizations or orders of
agencies, officers or other regulatory authorities are necessary for the valid
authorization, issuance or sale of the Shares, the Representative's Warrant
Stock or the Representative's Warrants, or the other transactions contemplated
by this Agreement, except as required under the 1933 Act or state Blue Sky or
other securities laws.
(h) The issuance and sale of the Shares, the Representative's
Warrant Stock and the Representative's Warrants and the consummation of the
transactions contemplated herein, and compliance with the terms of this
Agreement, will not conflict with or result in a breach of any of the terms,
conditions, or provisions of, or constitute a default under, the Company's
Articles of Incorporation or its Bylaws (as each is currently in effect), or any
note, indenture, mortgage, lease, deed of trust,
37
<PAGE>
bank loan or credit agreement or other agreement, instrument or undertaking
(however characterized or described) known to such counsel to which the Company
is a party or by which the Company or any of its property is bound or any
existing laws, order, rule, regulation, writ, injunction or decree known to such
counsel of any government, governmental instrumentality, agency, body,
arbitration tribunal or court, domestic or foreign, having jurisdiction over the
Company or its property.
(i) The Registration Statement and the Prospectus have become
effective under the 1933 Act and, to the knowledge of such counsel, no order
suspending the effectiveness of the Registration Statement pursuant to Section 8
of the 1933 Act or otherwise has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated by the Commission under the
1933 Act or otherwise. The Registration Statement and the Prospectus, and each
amendment and supplement thereto, comply as to form in all material respects
with the requirements of the 1933 Act and the Rules and Regulations thereunder
(except that no opinion needs to be expressed as to financial statements and
financial data contained in the Registration Statement or Prospectus).
(j) The Company owns or holds by valid lease the real and
personal properties as shown in the Registration Statement and the Prospectus
and, to the extent such properties are owned by the Company, they are owned free
and clear of all liens, encumbrances and equities of record except for those
expressly referred to in the Registration Statement and the Prospectus and
except for those as do not in the opinion of counsel adversely affect materially
the value of such assets and except for the lien of current taxes not then due.
(k) This Agreement has been duly authorized and executed by
the Company and is a valid and binding agreement of the Company, enforceable in
accordance with its terms.
(l) The U.S. Corporation, directly or indirectly through one
or more Subsidiaries, owns 59.998% of the issued and outstanding capital stock
of Prima Electronics and 99.98% of the issued and outstanding capital stock of
each of the other Subsidiaries. All of the Company's capital stock of Prima
Industrie is held in the name of the U.S. Corporation. All of the Company's
capital stock of Prima Electronics is held in the name of Prima Industrie. The
Company does not, directly or indirectly, own capital stock, or hold an
ownership interest in, any entities other than the Subsidiaries.
38
<PAGE>
(m) The form of certificate for the Shares is in due and
proper form and complies with all applicable statutory requirements.
(n) All prior offers and sales of securities of the Company
were (i) exempt from registration under the 1933 Act, (ii) registered pursuant
to, or exempt from registration under, all pertinent state securities, or Blue
Sky, laws, and (iii) registered pursuant to, or exempt from registration under,
all pertinent foreign securities laws.
(o) The purchase by the U.S. Corporation of all of the issued
and outstanding capital stock of PRIMA Industrie constituted a non-taxable
transaction to the U.S. Corporation and to its stockholders domiciled in the
United States under the Internal Revenue Code of 1986, as amended.
(p) The Stock Incentive Plan permits the granting of incentive
stock options, as defined under Section 422 of the Internal Revenue Code of
1986, as amended.
(q) To such counsel's knowledge after due inquiry, there are
no pending legal proceedings relating to any Intellectual Property Rights of the
Company, and no such proceedings are threatened or contemplated.
Such opinion shall also cover such other matters incident to the
transactions contemplated by this Agreement in form satisfactory to the
Representative's counsel as the Representative shall reasonably request. As an
illustration of the foregoing, but not as a limitation thereof, it is expected
that such opinion will cover the ownership by the Company of all licenses
required to conduct their businesses and such matters concerning disclosure of
and compliance with applicable environmental laws or regulations as may be
deemed advisable by the Representative.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that, although such counsel is not passing
upon and does not assume any responsibility for, the accuracy, completeness or
fairness of any of the statements contained in the Registration Statement or the
Prospectus and such counsel makes no representation that it has independently
verified the accuracy, completeness or fairness of such statements, in
connection with such counsel's representation of the Company in the preparation
of the Registration Statement and the Prospectus, nothing came to the attention
of such counsel which caused it to conclude that, as of the Effective Date, the
39
<PAGE>
Closing Date or the Over-allotment Closing Date, as the case may be, and except
to the extent that the Preliminary Prospectus anticipates facts true as of the
Effective Date, the Registration Statement or any further amendment thereto
(other than the financial statements and notes thereto and other financial and
statistical data included therein, as to which such counsel need express no
opinion), contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading or that, as of its date, the Prospectus or any further amendment or
supplement thereto (other than the financial statements and notes thereto and
other financial and statistical data included therein, as to which such counsel
need express no opinion), contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
Any portion of such opinion as to the enforceability of any agreement
may be subject to the effect of (i) any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar law of general application affecting
creditors' rights, and (ii) general principles of equity, including (without
limitation) concepts of materiality, reasonableness, good faith and fair
dealing, and other similar doctrines affecting the enforceability of agreements
generally (regardless of whether considered in a proceeding in equity or at
law).
8.8 Opinion of Italian Counsel. The Company shall have furnished to the
Representative the opinion, dated the Closing Date or the Over-allotment Closing
Date (as the case may be), addressed to the Representative, of Chiomente Studio
Legale and/or such other counsel as may be reasonably acceptable to the
Representative, to the effect that, based upon a review by them of the
Registration Statement, the Prospectus and such other investigation by such
counsel as they deem necessary to express such opinion:
(a) Each of the Italian Subsidiaries has been duly
incorporated and is a validly existing corporation in good standing under the
laws of the Republic of Italy (attaching a certificate of good standing for
each), with full corporate power and authority to own and operate its properties
and to carry on its business as set forth in the Registration Statement and the
Prospectus.
(b) Each of the Italian Subsidiaries is duly qualified
40
<PAGE>
and registered to transact the business in which it is engaged and is qualified
and in good standing in each and every foreign or domestic jurisdiction in which
its ownership of property or its conduct of business requires such qualification
or registration and in which the failure to so qualify would have a material
adverse effect upon the business of the Company.
(c) The outstanding capital stock of each of the Italian
Subsidiaries has been duly and validly issued and is fully paid and
nonassessable and is not subject to any preemptive rights. Cumulative voting is
not permitted by the holders of such company's securities. No stockholder of
such company is subject to personal liability (including, without limitation,
any liability upon the insolvency of such Italian Subsidiary) solely on the
basis of his, her or its ownership of capital stock of such company.
(d) No consents, approvals, authorizations or orders of
agencies, officers or other regulatory authorities under the laws of the
Republic of Italy are necessary for the valid authorization, issuance or sale of
the Shares, the Representative's Warrant Stock, the Representative's Warrants,
or the other transactions contemplated by this Agreement.
(e) With respect to each Italian Subsidiary, the issuance and
sale of the Shares, the Representative's Warrant Stock and the Representative's
Warrants and the consummation of the transactions contemplated herein, and
compliance with the terms of this Agreement, will not conflict with or result in
a breach of any of the terms, conditions, or provisions of, or constitute a
default under, such company's Articles of Incorporation, its Bylaws or any
similar governing document or instrument (as each is currently in effect).
(f) The U.S. Corporation owns 59.998% of the issued and
outstanding capital stock of Prima Electronics and 99.98% of the issued and
outstanding capital stock of Prima Industrie.
(g) All prior offers and sales of securities of each of the
Italian Subsidiaries were registered pursuant to, or exempt from registration
under, Italian securities laws and were issued and sold in accordance with the
laws of the Republic of Italy.
(h) The purchase by the U.S. Corporation of all of the issued
and outstanding capital stock of Prima Industrie, and the granting to the U.S.
Corporation of security interests in the Intellectual Property Rights did not
subject the U.S.
41
<PAGE>
Corporation, Prima Industrie or any Subsidiary to any tax under the laws of the
Republic of Italy.
(i) The statements in the Registration Statement and the
Prospectus that purport to describe Italian law, the recapitalization of Prima
Industrie, the corporate structure of the Italian Subsidiaries and the legal
implications thereof, provide a fair and accurate description of such matters.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that, although such counsel is not passing
upon and does not assume any responsibility for, the accuracy, completeness or
fairness of any of the statements contained in the Registration Statement or the
Prospectus and such counsel makes no representation that it has independently
verified the accuracy, completeness or fairness of such statements, in
connection with such counsel's representation of the Company in the preparation
of the Registration Statement and the Prospectus, nothing came to the attention
of such counsel which caused it to conclude that, as of the Effective Date, the
Closing Date or the Over-allotment Closing Date, as the case may be, and except
to the extent that the Preliminary Prospectus anticipates facts true as of the
Effective Date, the Registration Statement or any further amendment thereto
(other than the financial statements and notes thereto and other financial and
statistical data included therein, as to which such counsel need express no
opinion), contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading or that, as of its date, the Prospectus or any further amendment or
supplement thereto (other than the financial statements and notes thereto and
other financial and statistical data included therein, as to which such counsel
need express no opinion), contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
8.9 Opinion of Intellectual Property Counsel. The Company shall have
furnished to the Representative the opinion, dated the Closing Date or the
Over-allotment Closing Date (as the case may be), addressed to the
Representative, of Buzzi Notaro & Antonielli d'Oulx and/or such other counsel as
may be reasonably acceptable to the Representative, to the effect that, based
upon a review by them of the Registration Statement, the Prospectus and such
other investigation by such counsel as they deem necessary to express such
opinion:
42
<PAGE>
(a) The Company owns or is licensed to use, in each case free
and clear of all liens or encumbrances and rights thereto or therein by third
parties, all Intellectual Property Rights necessary or advisable to conduct the
business now being, or proposed to be, conducted by the Company as described in
the Registration Statement and the Prospectus.
(b) All of the Intellectual Property Rights are cross-licensed
to the U.S. Corporation from the Italian Subsidiaries without the payment of any
royalties to the extent such Intellectual Property Rights are used in the
development of new products or technology pursuant to the Company's "Laser
On-Line" program. The Joint Development Agreement among the U.S. Corporation and
each of the Italian Subsidiaries provides the U.S. Corporation with the
exclusive right to use outside of Italy any Intellectual Property Rights
developed pursuant to the Company's "Laser On-Line Program."
(c) To such counsel's knowledge after due inquiry, the Company
is not infringing, misappropriating or otherwise violating any Intellectual
Property Rights of any person and, except as set forth with particularity on
Schedule 2.25 to this Agreement, the Company has not received any notice of, and
is not aware of, any claim that it is infringing, misappropriating or otherwise
violating any Intellectual Property Rights of any person. As to each instance
described in Schedule 2.25 to this Agreement in which the Company has received
notice of a claim that it is infringing, misappropriating or otherwise violating
any Intellectual Property Rights of any person, the Company has a good faith
basis to believe that, and to such counsel's knowledge after due inquiry, has
formed a belief that, it is not infringing, misappropriating or otherwise
violating such Intellectual Property Rights.
(d) To such counsel's knowledge after due inquiry, no person
is infringing, misappropriating or otherwise violating any of the Company's
Intellectual Property Rights.
(e) The statements in the Registration Statement and the
Prospectus under the heading, "Risk Factors -- Uncertainty Regarding Protection
of Proprietary Technology and Patents," insofar as such statements purport to
describe the Company's Intellectual Property Rights, provide a fair and accurate
description of such Intellectual Property Rights.
(f) To such counsel's knowledge after due inquiry, there are
no pending legal proceedings relating to any
43
<PAGE>
Intellectual Property Rights of the Company, and no such proceedings are
threatened or contemplated.
8.10 Opinion of Counsel for Miojusti Investments BV. The Representative
shall have received an opinion of counsel for Miojusti Investments BV
("Miojusti"), or other documentation that it deems satisfactory, in its sole
discretion, that there has been no violation of Section 16 of the 1934 Act as a
result of the transactions involving Miojusti described in the Registration
Statement and the Prospectus.
8.11 Auditor's Letter. On the Closing Date and the Over-allotment
Closing Date, the Representative shall have received from Hein + Associates LLP
an opinion letter dated the Closing Date or the Over-allotment Closing Date (as
the case may be) stating that:
(a) They are independent public accountants within the meaning
of the 1933 Act and the Rules and Regulations, and the response to Item 509 of
Regulation S-K as reflected by the Registration Statement is correct insofar as
it relates to them;
(b) In their opinion, the financial statements and supporting
schedules of the Company examined by them at all dates and for all periods
referred to in their opinion letter and included in the Registration Statement
and the Prospectus comply as to form in all material aspects with the applicable
requirements of the 1933 Act and the published Rules and Regulations with
respect to registration statements on Form S-1;
(c) On the basis of certain indicated procedures (but not
necessarily an examination in accordance with generally accepted accounting
principles), including an examination of the Company's underlying financial
books and records, debt instruments (if any) of the Company described in the
Prospectus, a reading of the latest available interim unaudited financial
statements of the Company, whether or not appearing in the Prospectus, inquiries
to the officers of the Company and other persons responsible for the Company's
financial and accounting matters, and a reading of the minute books of the
Company, nothing has come to their attention which would cause them to believe
that during the period from the date of the last audited financial statement, to
a specified date not more than five (5) days prior to the date of such opinion
letter:
(i) there has been any material change in the
financial position of the Company not contemplated by and disclosed in the
Prospectus;
44
<PAGE>
(ii) there has been any material change in the
capital stock and surplus accounts of the Company or any payment or declaration
of any dividend or other distribution in respect thereof or exchange therefor or
in the debt of the Company from that shown in its audited balance sheet, in the
Registration Statement and the Prospectus, other than as set forth or
contemplated by the Registration Statement and the Prospectus;
(iii) there have been any material decreases in
working capital or shareholders' equity (deficit) as compared with amounts shown
in the last audited balance sheet included in the Prospectus; or
(iv) there were any material decreases, as compared
with amounts shown in the last audited balance sheet, in the cash balance,
except in all instances for changes disclosed in or contemplated by the
Registration Statements and Prospectus; and
(d) On the basis of their examinations referred to in their
opinion letter, report and consent included in the Registration Statement and
the Prospectus and the indicated procedures and discussions referred to in
clause (c) above, nothing has come to their attention which, in their judgment,
would cause them to believe or indicate that (i) the financial statements set
forth in the Registration Statement and the Prospectus do not present fairly the
financial position and results of operations of the Company, for the period
indicated, in conformity with generally accepted accounting principles applied
on a consistent basis, and are not in all material respects a fair presentation
of the information purported to be shown, and (ii) the dollar amounts,
percentages and other financial information set forth in the Registration
Statement and the Prospectus under the captions "Prospectus Summary," "Summary
Consolidated Financial Data," "Risk Factors," "Capitalization," "Dilution,"
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are not in agreement with the Company's
general ledger, financial records or computations made by the Company therefrom.
8.12 Officer's Certificate. The Company shall have furnished to the
Representative certificates of the President and Chief Financial Officer (or the
executive officer that performs the duties typically performed by the President
or the Chief Financial Officer (as the case may be)) of each of the U.S.
Corporation, Prima Industrie and Prima Electronics, and attested
45
<PAGE>
by the Secretary (or the executive officer that performs the duties typically
performed by the Secretary) of each such company, dated the Closing Date and the
Over- allotment Closing Date, to the effect that:
(a) There is no litigation, arbitration, claim by any current
or former employee or any form of regulatory proceeding instituted or threatened
against the Company of a character required to be disclosed in the Registration
Statement and the Prospectus which is not disclosed. There is no material
contract required to be filed as an exhibit to the Registration Statement which
has not been so filed.
(b) The representations and warranties of the Company in this
Agreement are true and correct at and as of the date of the certificate. The
Company has complied with all of its covenants and agreements herein contained.
No stop order suspending the effectiveness of the Registration Statement
pursuant to Section 8 of the 1933 Act or otherwise has been issued at or before
the date of the certificate and no proceeding for that purpose have been
initiated at or before the date of the certificate and, to the best of their
knowledge, no such proceeding has been threatened by the Commission. Any request
for additional information on the part of the Commission or NASD (to be included
in the Registration Statement or the Prospectus or any amendment or supplement
thereto or otherwise) has been complied with to the reasonable satisfaction of
counsel for the Representative and no amendment or supplement to the
Registration Statement or Prospectus has been filed to which counsel for the
Representative has reasonably objected after adequate notice.
(c) There has been no material adverse change in the general
affairs of the Company, financial or otherwise, except as disclosed or indicated
in the Registration Statement and the Prospectus.
(d) Since the Effective Date, there has not been any material
transaction entered into by the Company other than in the ordinary course of
business.
(e) There are no material direct or indirect contingent
liabilities or obligations of the Company not disclosed in the Registration
Statement and the Prospectus.
(f) Since the Effective Date, the Company has not sustained
any loss on account of fire, flood, accident or other calamity of such character
as to interfere materially with the continuous operation of the Company's
business or which
46
<PAGE>
materially adversely affects the financial position or business of the Company
regardless of whether or not such loss shall have been insured.
(g) The Company is not delinquent in the filing of any
federal, state or municipal or other local, state or municipal taxes required to
be reported and paid; to the best of their knowledge (after diligent
investigation in connection therewith) there is no proposed redetermination or
reassessment of such taxes adverse to the Company; and the Company has paid or
provided for, by adequate reserves, all known tax liabilities.
(h) This Agreement, the consummation of the transactions
herein contemplated and the fulfillment of the terms hereof will not result in a
breach by the Company of any term of, or constitute a default under, any
indenture, mortgage, lease, deed of trust, bank loan or credit agreement or any
other agreement, instrument or undertaking (however characterized or described)
of the Company, including by way of specification but not by way of limitation,
any agreement or instrument to which the Company is now a party or pursuant to
which it has acquired any right or obligation by succession or otherwise, and
that any existing agreement materially affecting the Company has been delivered
to the Representative or its counsel.
(i) They have examined the Registration Statement and the
Prospectus and, in their opinion (i) as of the Effective Date, the statements
contained in the Registration Statement and the Prospectus are true and correct
and the Registration Statement and the Prospectus do not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading (such opinion need not be expressed, however, as to any material
contained in the Registration Statement and the Prospectus furnished by the
Representative), and (ii) since the Effective Date, no event has occurred which
should have been set forth in a supplement to or amendment of the Registration
Statement or Prospectus which has not been set forth in such supplement or
amendment.
(j) At and as of the Effective Date and the date of the
certificate, there are no agreements, understandings or negotiations in force
and effect, in process or contemplated by them or of which they are aware to the
best of their individual and collective knowledge which, if in force and effect
or in process or so contemplated would be required to be disclosed.
(k) The officers and directors of the Company have not
47
<PAGE>
taken and will not take, directly or indirectly, any action designed to, or
which might reasonably be expected to, cause or result in the stabilization or
manipulation of the price of the Company's Common Stock to facilitate the sale
and resale of the Shares.
8.13 Secretary's Certificate. The Representative shall have received
from the Secretary (or the executive officer that performs the duties typically
performed by the Secretary) of each of the U.S. Corporation, Prima Industrie and
Prima Electronics a certificate of incumbency, dated as of the Closing Date,
certifying the names, titles and signatures of the officers authorized to
execute, deliver and perform this Agreement. Attached to such certificate shall
be a copy of the Bylaws of the Company and, in the case of the U.S. Corporation,
the resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance of this Agreement. Such certificate shall
also certify that the Articles of Incorporation of the Company, the Bylaws of
the Company and, in the case of the U.S. Corporation, such resolutions have been
validly adopted and have not been amended or modified, except as described in
the Prospectus.
8.14 Opinion of Representative's Counsel. The Representative shall have
received from Dorsey & Whitney LLP, counsel for the Representative, a
satisfactory opinion dated the Closing Date or the Over-Allotment Closing Date
(as the case may be), with respect to the incorporation of the Company, the
validity of the Shares, the Registration Statement, the Prospectus, and other
related matters as the Representative may reasonably request, and such counsel
shall have received such papers and information as they may reasonably request
to enable them to pass upon such matters.
8.15 Opinion of Underwriters' Italian Counsel. The Representative shall
have received from such counsel as it may choose, a satisfactory opinion dated
the Closing Date or the Over-Allotment closing Date (as the case may be) to the
effect that the sale of the Shares to investors in Italy, as described in the
Registration Statement and the Prospectus, may be made pursuant to an exemption
from registration under the laws of the Republic of Italy.
8.16 Tender of Securities. All the Shares being offered by the Company
and the Representative's Warrants shall be tendered for delivery in accordance
with the terms and provisions of this Agreement.
48
<PAGE>
8.17 Blue Sky Qualification. The Shares shall be qualified in such
states as determined under Section 5.4 hereof, and each qualification shall be
in effect and not subject to any stop order or other proceeding on the Closing
Date.
8.18 Approval of Representative's Counsel. All opinions, letters,
certificates and documents mentioned above or elsewhere in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in
form and substance satisfactory to counsel to the Representative, whose approval
shall not be unreasonably withheld.
8.19 Officer's Certificate as a Company Representation. Any certificate
signed by an officer of the Company and delivered to the Representative or to
counsel for the Representative will be deemed a representation and warranty by
the Company to the Representative as to the statements made therein.
8.20 Exchange Listing. The Company's Shares must be qualified for
listing on the Nasdaq National Market (the "Exchange") on the Effective Date of
the Registration Statement.
8.21 Board Committees. A compensation committee, which shall consist of
at least two (2) independent outside board members, shall be in place to review
executive compensation and make recommendations to the Board of Directors on an
as needed basis. An audit committee of the Board of Directors shall be in place
consisting of at least two (2) independent outside directors. Such audit
committee shall be charged with reviewing all systems and making recommendations
for corrective actions to the Board of Directors on an as needed basis.
SECTION 9
Termination
9.1 Termination by Representative. This Agreement may be terminated by
the Representative by notice to the Company in the event the Company shall have
failed or been unable to comply with any of the terms, conditions,
representations, warranties, covenants or other provisions of this Agreement on
the part of the Company to be performed, complied with or fulfilled within the
respective times herein provided for, unless compliance therewith or performance
or satisfaction thereof shall have been expressly waived by Representative in
writing.
9.2 Termination by Representative--"Market Out". This
49
<PAGE>
Agreement may be terminated by Representative by notice to the Company at any
time if, in the sole judgment of the Representative, payment for and delivery of
the Shares is rendered impracticable or inadvisable because of: (a) material
adverse changes in the Company's business, business prospects, management,
earnings, properties or conditions, financial or otherwise; (b) any action, suit
or proceedings, threatened or pending, at law or equity against the Company, or
by any federal, state or other commission, board or agency wherein any
unfavorable result or decision could materially adversely affect the business,
business prospects, properties, financial condition, income or earnings of the
Company; (c) additional material governmental restrictions not in force and
effect on the date hereof shall have been imposed upon the trading in securities
generally, or minimum or maximum prices shall have been generally established on
a registered securities exchange, or trading in securities generally on any such
exchange shall have been suspended, or a general moratorium upon the trading in
securities shall have been established by federal or state authorities; (d)
substantial and material changes in the condition of the market beyond normal
fluctuations are such that it would be undesirable, impracticable or inadvisable
in the judgment of the Representative to proceed with this Agreement or with the
offering; (e) any outbreak or escalation of major hostilities in which the
United States is involved, any declaration of war by Congress or any other
substantial national or international calamity or emergency if, in the judgment
of the Representative, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the sale of and payment for the Shares; (f) the Company is
notified that the Shares will not be listed for trading on the Exchange as
required under this Agreement; or (g) any suspension of trading in the Common
Stock in the over-the-counter market or the interruption or termination of
quotations of the Shares on the Exchange.
9.3 Survival of Obligations After Termination. Any termination of this
Agreement under Section 9.1 or Section 9.2 hereof shall be without liability of
any nature whatsoever (including, but not limited to, loss of anticipated
profits or consequential damages) on the part of either party hereto, except
that the Company shall remain obligated to pay the costs and expenses provided
to be paid by it specified in Section 5.7 (subject to the limitation which
entitles the Representative to return or be paid only the accountable
out-of-pocket expenses described therein); and the Company and the
Representative shall be obligated to pay, respectively, all losses, claims,
demands, liabilities and expenses under Section 6.
50
<PAGE>
9.4 Suspension Proceedings. It is understood that the Company and the
Representative will each advise the other party immediately and confirm in
writing the receipt of any threat of or the initiation of any steps or
procedures which would impair or prevent the right to offer any of the Company's
Shares or the issuance of any "suspension orders," "stop orders" or other
prohibitions preventing or impairing the proposed offering by the Commission or
other regulatory authority.
SECTION 10
Representative's Representations and Warranties
The Representative represents, warrants and agrees with the Company
that:
10.1 Registration as Broker-Dealer. The Representative is registered as
a Broker/Dealer with the Commission and in the State of Colorado and are members
in good standing of the NASD.
10.2 No Pending Proceedings. Except as otherwise disclosed in the
Registration Statement, there is not now pending or threatened against the
Representative any material action or proceeding of which the Representative has
been advised, either in any court of competent jurisdiction, before the
Commission or before any state securities commission concerning the
Representative's activities as a broker or dealer that is material to this
offering, nor has the Representative been named as a "cause" in any such action
or proceeding.
10.3 Compliance with NASD Rules. Assuming that each of the
representations and warranties of the Company contained in Section 2 hereof is
true, complete and correct, all selling activities of the Representative with
respect to the Offering will be conducted in accordance with the rules of the
NASD and the SEC.
10.4 Finder. The Representative represents that no finder's fee has
been or will be paid in connection herewith. It is understood that should a
claim be made for any finder's fee in connection with the sale of the Shares and
based upon any agreement by the Representative, the Representative will
indemnify the Company with respect to any such claim in accordance with the
procedures set forth in Section 6(c) hereof.
SECTION 11
51
<PAGE>
Notices
All notices, demands or requests required or authorized hereunder shall
only be deemed given sufficiently if in writing and hand delivered by messenger
or courier service or sent by registered mail or certified mail, return receipt
requested and postage prepaid, in the case of the Representative:
Chatfield Dean & Co., Inc.
7935 East Prentice Avenue, Suite 200
Greenwood Village, Colorado 80111
Attention: Sanford D. Greenberg, President
with a copy to:
Dorsey & Whitney LLP
370 Seventeenth Street, Suite 4400
Denver, Colorado 80202
Attention: Kevin A. Cudney, Esq.
, and, in the case of the Company:
The PRIMA Group International, Inc.
447 South Sharon Amity, Suite 250
Charlotte, North Carolina 28226
Attention: James R. Currier, President
with a copy to:
Rayburn, Moon & Smith, P.A.
The Carillion
227 West Trade Street, Suite 1200
Charlotte, North Carolina 22802-1675
Attention: C. Richard Rayburn, Jr., Esq.
Any such notice shall be deemed effectively given on the earlier of the
date of actual receipt or the third (3rd) business day after delivered,
telecopied, or deposit of the notice with the United States Postal Service.
SECTION 12
Miscellaneous
12.1 Sole Benefit. This Agreement is made solely for the benefit of the
Company, the Representative, other Members, their respective officers and
directors and any controlling person
52
<PAGE>
thereof (within the meaning of Section 15 of the 1933 Act) and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The terms "successors" or "successors and
assigns" shall not under any circumstance include any purchaser, as such
purchaser, of the Shares from any person or of any of the Representative's
Warrants or shares of the Representative's Warrant Stock from any person unless
otherwise expressly provided herein. This Agreement constitutes the entire
agreement between the parties concerning the subject matter hereof, and
supersedes all prior agreements and understandings, including, but not limited
to, the Letter of Intent by and between the Company and the Representative dated
August 7, 1997.
12.2 Survival. The respective indemnities, agreements, representations,
warranties, covenants and other statements of the Company or its officers or
directors and the Representative as set forth in or made pursuant to this
Agreement, and the indemnity agreements of the Company and the Representative
contained in Section 6 hereof shall survive and remain in full force and effect
regardless of: (a) any investigation or inspection made by or on behalf of the
Company or the Representative or any such officer or director of either of them
or any controlling person (within the meaning of Section 15 of the 1933 Act) of
the Company or of the Representative; (b) delivery of or payment for the Shares;
and (c) the Closing Date.
12.3 Specific Performance. The Company hereby acknowledges that any
breach of the covenants contained in Sections 5.1, 5.2, 5.3, 5.4, 5.5, 5.6, 5.8,
5.9, 5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17, 5.19, 5.21, 5.22, 5.23,
5.24, 5.25, 5.26, 5.27, 5.28 and 5.29 of this Agreement by the Company would
cause the Representative irreparable harm and that a remedy at law for such
breach would be inadequate. The Company therefore hereby agrees that, in
addition to any other available remedy at law or in equity, injunctive relief
and specific performance may be granted in any proceeding commenced by the
Representative to enforce this Agreement without the necessity of proof that any
other remedy at law is inadequate.
12.4 Governing Law. This Agreement and all instruments, if any,
delivered in connection herewith or pursuant hereto shall be governed by and
construed in accordance with the substantive laws of the State of Colorado,
without regard to conflicts of law principles.
12.5 Jurisdiction. The parties hereto (a) agree that any action, suit
or proceeding arising in connection with this
53
<PAGE>
Agreement or the transactions contemplated hereby will be brought only in the
federal or state courts sitting in Denver County, Colorado, (b) hereby
irrevocably submit to the jurisdiction of such courts for purposes of
adjudicating any such action, suit or proceeding, and (c) waive any objection
based on lack of personal jurisdiction, FORUM NON CONVENIENS or any other
objection to venue in such courts.
12.6 Waiver. All the rights and remedies of any party under this
Agreement are cumulative and are not exclusive of any other rights and remedies
provided by law. Unless expressly stated to the contrary elsewhere herein, no
delay or failure on the part of either party in the exercise of any right or
remedy arising from a breach of this Agreement or any agreement or instrument
executed in connection with this Agreement shall operate as a waiver of any
subsequent right or remedy arising from a subsequent breach of this Agreement or
any agreement or instrument executed in connection with this Agreement. The
consent of any party where required hereunder to any act or occurrence shall not
be deemed to be a consent to any other act or occurrence.
12.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original, but all of which together
shall constitute one and the same instrument.
54
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose
wherein this letter and your acceptance shall become and evidence a binding
contract between us.
Very truly yours,
The PRIMA Group International, Inc.,
a Delaware corporation
By:
James R. Currier, President
ACCEPTED AND CONFIRMED AS OF THE ___ DAY OF _______, 1998:
Chatfield Dean & Co., Inc. (for itself and
as representative of Members of the
Underwriting Group)
By:___________________________
Kenneth L. Greenberg
Vice President
Corporate Finance
Mergers and Acquisitions
55
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
SCHEDULE I
This Schedule sets forth the name of each Member referred to in the
above Agreement and the number of Shares to be purchased by each Member.
Name Number of Shares
---- ----------------
Total
============= ================
56
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
SCHEDULE 2.19
SUBSIDIARIES
57
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
SCHEDULE 2.23
EMPLOYEE BENEFIT PLANS
58
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
SCHEDULE 2.24
NOTICES OF INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS
59
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
SCHEDULE 2.29
COMPLIANCE WITH BUSINESS ADVISORY LETTER AS OF THE DATE HEREOF
60
<PAGE>
THE PRIMA GROUP INTERNATIONAL, INC.
SCHEDULE 6.28
TIME FRAME FOR FULL COMPLIANCE WITH BUSINESS ADVISORY LETTER
61
EXHIBIT 5.1
April 27, 1998
The PRIMA Group International, Inc.
447 S. Sharon Amity Road, Suite 250
Charlotte, NC 28211
RE: The PRIMA Group International, Inc.,
Common Stock Par Value $0.01 Per Share
Dear Sir or Madam:
At your request, we have examined the Registration Statement on Form
S-1, including Pre-Effective Amendment No. 1, Pre-Effective Amendment No. 2 and
Pre-Effective Amendment No. 3 (collectively the "Registration Statement"), which
The PRIMA Group International, Inc. (the "Company") has filed with the
Securities and Exchange Commission in connection with the registration under the
Securities Act of 1933, as amended, of 2,300,000 shares of Common Stock par
value $0.01 per share (the "Shares"). The Registration Statement relates to the
registration of the Shares, which are to be offered to the public. We are
familiar with the proceedings taken and to be taken in connection with the
authorization, issuance and sale of the Shares. Additionally, we have examined
such questions of law and fact as we have considered necessary or appropriate
for purposes of this opinion.
Based upon the foregoing and the proceedings to be taken by the Company
as referred to above, we are of the opinion that the Shares to be issued have
been duly authorized, and upon the issuance of Shares and delivery and payment
therefor of legal consideration in excess of the aggregate par value of the
Shares issued, such Shares will be validly issued, fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters" of the prospectus included therein.
Very truly yours,
Rayburn, Moon & Smith, P.A.
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
AGREEMENT made as of March 16, 1998 between THE PRIMA GROUP
INTERNATIONAL, INC. ("Employer") and JAMES R. CURRIER, SR. ("Employee").
WITNESSETH:
WHEREAS, the parties hereto desire to provide for the Employee's
employment by Employer.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. Employment.
Employer agrees to employ the Employee and the Employee agrees to enter
into the employ of Employer on the terms and conditions hereafter set forth.
2. Capacity and Duties.
The Employee shall be employed as President and Chief Executive Officer
of Employer and shall perform such duties and have such responsibilities as
normally attributed to a president and chief executive officer of a Delaware
corporation. The Employee shall perform his responsibilities in accordance with
the direction and supervision of the Board of Directors of Employer, and he
shall devote such time, skill, energies, business judgment, knowledge and best
efforts to the business of Employer and the performance of such executive,
administrative and operational duties on behalf of Employer and its affiliates,
appropriate to the offices he holds or shall hold hereunder, as the Board of
Directors of Employer may request. The requirement that the Employee devote his
time to the business of Employer shall not preclude him from undertaking other
business and personal activities that do not, singly or in the aggregate,
materially impair his ability to fulfill his responsibilities under this
Agreement. Employer specifically acknowledges that Employee will continue to
provide consulting services on a part-time basis and that, from time to time,
this may create a conflict of interest. Employee agrees to offer Employer the
opportunity to take advantage of any business opportunities which arise from
Employee's consulting services.
3. Term.
The term of the Employee's employment hereunder shall be for the a
period of three (3) years, commencing on April 1, 1998. The term of employment
shall be automatically renewed for successive one-year terms, unless written
notice of non-renewal is given by either party not less than ninety (90) days
prior to the end of the initial three-year, or the then current one-year, term.
<PAGE>
4. Compensation.
(a) Salary. Employer shall pay or cause to be paid to the Employee a
salary of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) per year, payable in
equal semi-monthly installments (the "Base Salary"). The Base Salary shall be
increased each year on the anniversary of the effective date of this Agreement
in line with increases in the cost of living for the immediately preceding
twelve (12) months. However, in no event shall such increase be less than the
percentage increase in the "Consumer Price Index - United States Average for the
Urban Wage Earners and Clerical Workers - All Items," as published by the United
States Department of Labor (Bureau of Labor Statistics) for the immediately
preceding twelve (12) months. In addition, Base Salary shall be reviewed prior
to each anniversary date of this Agreement by the Board of Directors of
Employer.
(b) Bonus. For each fiscal year during the term of this Agreement,
beginning with the fiscal year ending December 31, 1998, Employee shall receive
a bonus payable at the discretion of the Board of Directors, or any committee
thereof, based upon operational, financial and stock market performance of
Employer, but not less than the amount necessary to pay interest and applicable
taxes under Employee's note in the principal amount of $600,000 to Employer.
(c) Non-Competition Payment. As consideration for the covenants
of Employee in section 9 for the period of the initial
term of this Agreement, Employer shall pay to Employee
within five (5) business days of the consummation of
Employer's initial public offering ("IPO"), the sum of THREE
HUNDRED THOUSAND DOLLARS ($300,000). The non-vested portions
of this payment shall be subject to forfeiture if Employee
voluntarily terminates this Agreement prior to the
expiration of the initial term. One-third of the payment
will vest on the effectiveness of the term of this Agreement.
The remaining one-third portions of the payment will vest on
the first and second anniversaries of the effectiveness of
this Agreement, respectively.
2
<PAGE>
5. Expenses. Employer shall reimburse Employee, to the extent not otherwise paid
for by Employer or one of its affiliates, for reasonable and necessary
out-of-pocket expenses, including, without limitation, entertainment, travel and
similar expenses incurred by him in performing the duties set forth in Section 2
hereof. Employee shall present an itemized account of such expenses, supported
by such documentation as is required under the Internal Revenue Code of 1986, as
amended, to support the deductibility of such expenses for federal income tax
purposes.
6. Benefits and Vacations.
(a) Stock Option Plan. Employer shall establish a Stock Incentive Plan
for key employees and directors of Employer and its subsidiaries in the form of
Exhibit "A". Upon the effective date of the IPO, Employee shall receive options
to acquire TWO HUNDRED THOUSAND (200,000) shares of Employer's Common Stock.
Options to purchase 100,000 shares of Employer's Common Stock shall be
exercisable on the first anniversary date of the IPO and shall have an exercise
price of 115% of the public offering price of the IPO. The options to purchase
the remaining 100,000 shares of Employer's Common Stock shall be exercisable in
three (3) installments of 30,000, 30,000 and 40,000 shares on the first, second
and third anniversaries of the effective date of the IPO, respectively. The
exercise price for the installments shall be 120%, 130%, and 140%, respectively
of the public offering price of the IPO. The options shall have a term of ten
years (five years if Employee is a ten percent (10%) shareholder and the option
is an incentive stock option as defined under Section 422 of the Internal
Revenue Code) and shall survive termination or expiration of this Agreement. If
this Agreement is terminated for cause as defined herein, then the options will
be exercisable for a period of six months after termination. If Employee leaves
the employment by Employer for reasons other than termination for cause, then
the options shall remain exercisable during their full term.
3
<PAGE>
(b) Insurance.
(i) Major Medical, Health and Dental. Employer shall
provide group coverage for Employee, and such dependents as
Employee shall select, with respect to major medical, health
and dental expenses. Employer shall pay one hundred percent
(100%) of premiums with respect to such coverage.
(ii) Disability. Employer shall provide group
disability, accidental death and dismemberment, and life
insurance coverage for Employee, with Employer paying one
hundred percent (100%) of the related premiums.
(iii) Additional Term Insurance. Employee shall be
provided additional term life insurance in the principal
amount of $1,000,000, payable to such beneficiaries as
selected by Employee. At the termination of this Agreement,
Employee shall be given the right to assume the policy and pay
the premiums due thereunder.
(c) Automobile Allowance. Employee shall receive an automobile
allowance of $1,500 per month during the term of this Agreement.
(d) Vacation. The Employee shall be entitled to six (6) weeks annual
paid vacation during each year of this Agreement. Employee shall also be
entitled to the same paid holidays, sick and personal time as are available to
all other employees in accordance with the policies of Employer.
(e) Withholding. The Employee acknowledges that certain payments
provided for herein are subject to withholding and other taxes.
7. Indemnification.
(a) Notwithstanding the termination of Employee's employment under
Section 8 of this Agreement, it is confirmed that, with respect to all periods
during which Employee shall be employed by Employer, (i) Employer shall
indemnify Employee in whatever capacity Employee is serving, including as a
director of Employer, and reimburse expenses to the fullest extent permitted by
the indemnification and reimbursement provisions of Employer's Certificate of
Incorporation and By-Laws in effect as of the date of this Agreement, provided
that such coverage is not prohibited under the provisions of the applicable
General Corporation Law; and (ii) Employer shall use its best efforts to
maintain in effect its Directors' and Officers' Indemnification Insurance
policies (under which Employee shall be deemed an "insured" to the fullest
extent provided in such policy) and to purchase substitute policies in form and
content substantially similar to those presently in force during all periods
under which Employee may remain liable under any applicable statute of
limitations. Upon request, Employer shall promptly provide Employee with copies
of all such policies and any notice of cancellation of them.
(b) In addition to the foregoing, as authorized by the Employer's
Certificate of Incorporation and By-Laws in effect as of the date of this
Agreement, the Employer further agrees,
4
<PAGE>
to the extent not prohibited by the applicable General Corporation Law, to
defend Employee by legal counsel reasonably acceptable to Employee in any
threatened or pending action, suit or proceeding as to which Employee may be
entitled to indemnification under this Agreement. In this regard, payment
in advance by the Employer of all expenses incurred or to be incurred by
Employee in defending or investigating each and every such action, suit or
proceeding which has been instituted and is pending on the date of this
Agreement or which shall subsequently be instituted is authorized by the
Board of Directors of the Employer, and Employee agrees to repay such
advanced amounts in the event it is ultimately determined that Employee is
not entitled to be indemnified by the Employer as authorized under its
Certificate of Incorporation and By-Laws, and the applicable General
Corporation Law. As regards any decision to advance expenses as to any action,
suit or proceeding not already referred to in this subparagraph, Employee will
be given the same consideration in the reaching of any such decision as shall be
given to any person who is a director or officer of Employer at the time of such
decision.
(c) Employer further agrees to notify Employee of all threatened or
pending actions, suits, or other proceedings by or against Employer to which
Employee is named a party, and to filed in connection with it, and shall
otherwise keep Employee reasonably informed of the status of such actions and
any offers of settlement.
(d) Employee agrees to notify Employer of all threatened or pending
actions, suits, or other proceedings against Employee in any capacity as an
employee of Employer.
8. Termination.
Notwithstanding Section 3, the term of the Employee's employment
hereunder shall terminate on the earliest of the (i) termination date provided
for under Section 3 or (ii) under any of the paragraphs of this Section 8.
(a) Death. In the event of the Employee's death, the Employee's
employment shall terminate automatically, effective as of the date of death, and
Employer shall pay to his estate the Base Salary amount in effect for that year
for a period of one year after his death. In addition, Employer shall pay to
Employee's estate any other amounts that otherwise would have been paid to the
Employee pursuant to Section 4 for the year after his death.
(b) Disability. If the Employee, due to physical or mental illness,
shall be disabled to perform the essential functions of his employment
hereunder, with or without reasonable accommodation, (a "disability"), then
either the Employee or Employer may by notice terminate the Employee's
employment under this Agreement effective as of a date 30 days after the date
such notice is given. Employee shall continue to receive all compensation
payable under Section 4 for a period of six (6) months after the date such
notice is given; provided, however, that it shall be reduced by the amount of
any disability or similar benefits to which he is entitled, notwithstanding
anything contained elsewhere in this Agreement to the contrary.
(c) By Employer for Cause. The Employee's employment may be terminated
effective immediately by Employer for "cause" by notice of termination to the
Employee. "Cause" for such termination shall be limited to convictions of a
felony, malfeasance in office or a material breach by
5
<PAGE>
the Employee of the covenants contained in this Agreement (as determined by
a majority vote of the Employers Board of Directors), which breach continues
for 30 days following receipt of written notice given by Employer's Board of
Directors specifying the breach and requesting that the Employee correct the
same.
(d) Compensation Upon Termination. Except as provided in Sections 8(a)
and 8(b), Employee shall receive compensation upon termination as follows: in
the event that Employer terminates Employee's Employment under this Agreement
other than for cause as provided in Section 8(c), Employee shall be entitled to
receive the full amount of his salary and benefits provided for in Section 6 for
the remaining term of this Agreement, and any stock options or shares under
stock bonus programs held by Employee shall become and remain exercisable or
vested for the period as set forth in the agreement governing such options or
bonus programs.
(e) Termination by Employee.
(i) If Employee shall voluntarily resign from
employment by Employer prior to the expiration of this
Agreement, any compensation payable to Employee under Section
4 shall be prorated through the date of termination.
(ii) If the Board of Directors or any designee
thereof prohibits Employee from issuing press releases, making
public filings, or prosecuting the business plan outlined in
the registration statement on Form S-1 for Employer's IPO that
Employee reasonably believes to be required under federal or
state law and if Employee has received advice of counsel
engaged by him confirming his belief, then Employee shall have
the right to terminate this Agreement. Upon such termination,
Employer shall pay to Employee the compensation payable to
Employee under Section 4 and shall provide the Employee the
benefits required under Section 6, for a period one year from
the date of termination. Employer shall pay the amount
prescribed in this sub-paragraph (ii) in cash on the date of
termination.
9. Exclusivity. Employee shall devote his best efforts to the performance of his
duties under this Agreement. Employee agrees that all information which he
obtains in the course of his employment is the property of Employer and agrees
that he will not discuss any such information or use any such information for
the benefit of himself or any person or entity other than Employer at any time
during or after his employment. During the period of five (5) years after
termination of employment of Employee hereunder, Employee agrees that he will
not engage in employment or business activities which are reasonably deemed to
be competitive to Employer and its business. The foregoing restriction shall not
apply if Employer elects to terminate this Agreement without cause and Employee
elects not to receive any further cash compensation as provided under the terms
of this Agreement. The parties hereto, recognizing that irreparable injury will
result to Employer, its business and property in the event of a breach of this
Agreement by Employee, and that employment is based primarily upon this
Agreement, it is agreed that in such event Employer shall be entitled, in
addition to any other remedies and damages available, to an injunction to
restrain the violation thereof by Employee, his partners, agents, servants,
employers, and Employees, and all persons acting for or with him. The Employee
represents and admits that in the
6
<PAGE>
event of the termination of his employment for any cause whatsoever, his
experiences and capabilities are such that he can obtain employment in
business engaged in other lines and/or of a different nature, and that the
enforcement of a remedy by way of injunction will not prevent him from
earning a livelihood.
10. Representation by the Employee.
The Employee hereby represents and warrants to Employer that the
execution of this Agreement and the performance of his duties and obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or by which he is bound and that he is not now subject to any
covenant against competition or similar covenant that would affect the
performance of his duties hereunder.
11. No Assignment.
This Agreement is personal and shall in no way be subject to
assignment, except by Employer incident to the sale of all or substantially all
of its business (whether by asset sale, stock sale or merger). Any attempt by
one party to assign this Agreement in any other circumstances without the prior
written consent of the other party shall be null and void.
12. Loan.
Concurrent with the consummation of the IPO, Employer shall loan to
Employee Six Hundred Thousand Dollars ($600,000) with interest accruing at
the annual rate of six percent (6%). Interest on the loan shall be payable and
the entire principal and any unpaid interest shall be payable on the eighth
anniversary of the loan. The loan shall be secured by a pledge of sixty
thousand (60,000) shares of Employer's Common Stock held by Employee.
Employer shall have the right to set-off any payments otherwise due Employee
against due but not yet made payments of Employee under the loan. The loan may
be prepaid by Employee at any time and in any amount without penalty.
13. Enforceability.
If any portion or provision of this Agreement shall to any extent be
declared illegal or unenforceable by a duly authorized court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
14. Notices.
All notices and other communications required or permitted to be given
hereunder shall be given by delivering the same in hand or by mailing the same
by certified or registered mail, return receipt requested, postage prepaid, as
follows:
7
<PAGE>
if to Employer, to: The PRIMA Group International, Inc. 447 S.
Sharon Amity Road, Ste. 250 Charlotte, North
Carolina 28211
if to the Employee, to: Mr. James R. Currier, Sr. 1301 Meadowood Lane
Charlotte, North Carolina 28211
(or to such other address as either party shall have furnished to the other by
like notice).
A notice shall be effective as of the date of such delivery or mailing, as the
case may be.
15. Entire Agreement.
This Agreement constitutes the only agreement and understanding between
Employer and the Employee in relation to the subject of the Employee's
employment by Employer; and there are no promises, representations, conditions,
provisions or terms related thereto other than those set forth herein. This
Agreement supersedes all previous understandings, agreements and
representations, written or oral, between Employer and the Employee regarding
the Employee's employment by Employer.
16. Governing Law.
This contract shall be construed under and be governed in all respects
by the internal laws, and not the laws pertaining to choice or conflicts of
laws, of the State of North Carolina.
17. Waiver; Amendment.
No waiver in any instance by either party of any provision of this
Agreement shall be deemed a waiver by such party of such provision in any other
instance or a waiver of any other provision hereunder in any instance. This
Agreement cannot be amended, supplemented or otherwise modified except in a
writing signed by Employer, and by the Employee (so long as he shall be employed
by Employer).
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
The PRIMA Group International, Inc.
By:
Name:
Title:
(SEAL) _____________________________________
James R. Currier, Sr.
9
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
AGREEMENT made as of March 16, 1998 between THE PRIMA GROUP
INTERNATIONAL, INC. (Employer") and GIANFRANCO CARBONATO ("Employee").
WITNESSETH:
WHEREAS, the parties hereto desire to provide for the Employee's
employment by Employer.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. Employment.
Employer agrees to employ the Employee and the Employee agrees to enter
into the employ of Employer on the terms and conditions hereafter set forth. It
is understood that Employee is employed by Prima Industrie S.p.A., an Italian
subsidiary of the Employer (hereinafter, the "Italian subsidiary"), wherein the
Employee has a pre-existing employment agreement. Employer and Employee
acknowledge that any benefits described herein are not in addition to current
benefits provided by the Italian subsidiary. Insofar as the benefits described
herein are greater than or in addition to those being provided to Employee by
the Italian subsidiary, then the Employee shall be entitled to receive the
greater or additional benefits. Insofar as the benefits described herein are
less than those being provided to Employee by the Italian subsidiary, then the
Employee shall continue to enjoy those benefits provided by the Italian
subsidiary without reduction or offset to the benefits provided herein. The
parties also acknowledge that as a result of the Employee's Italian citizenship
and residence, certain benefits accrue to the Employee by operation of Italian
law, and this agreement shall not limit or offset the benefits accruing to the
Employee as a result of his Italian citizenship and residence.
2. Capacity and Duties.
The Employee shall be employed as Executive Vice President and Chief
Operating Officer of Employer and shall perform such duties and have such
responsibilities as normally attributed to a chief operating officer of a
Delaware corporation. The Employee shall perform his responsibilities in
accordance with the direction and supervision of the President and the Board of
Directors of Employer, and he shall devote such time, skill, energies, business
judgment, knowledge and best efforts to the business of Employer and the
performance of such executive, administrative and operational duties on behalf
of Employer and its affiliates, appropriate to the offices he holds or shall
hold hereunder, as the President and the Board of Directors of Employer may
request. The requirement that the Employee devote his time to the business of
Employer shall not preclude him from undertaking other business and personal
activities that do not, singly or in the aggregate, materially impair his
ability to fulfill his responsibilities under this Agreement.
<PAGE>
3. Term.
The term of the Employee's employment hereunder shall be for the a
period of three (3) years, commencing on April 1, 1998. The term of employment
shall be automatically renewed for successive one-year terms, unless written
notice of termination is given by either party not less than ninety (90) days
prior to the end of the initial three-year, or the then current one-year, term.
4. Compensation.
(a) Salary. Employer shall pay or cause to be paid to the Employee a
salary of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) per year, payable in
equal semi-monthly installments (the "Base Salary"). The Base Salary shall be
increased each year on the anniversary of the effective date of this Agreement
in line with increases in the cost of living for the immediately proceeding
twelve (12) months. However, in no event shall such increase be less than the
percentage increase in the "Consumer Price Index - United States Average for the
Urban Wage Earners and Clerical Workers - All Items", as published by the United
States Department of Labor (Bureau of Labor Statistics) for the immediately
preceding twelve (12) months. In addition, Base Salary shall be reviewed prior
to each anniversary date of this Agreement by the Board of Directors of
Employer. Prima Industrie S.p.A. shall be responsible for twenty-five percent
(25%) of the base salary.
(b) For each fiscal year during the term of this Agreement, beginning
with the fiscal year ending December 31, 1998, Employee shall receive a bonus
payable at the discretion of the Board of Directors, or any committee thereof,
based upon operational, financial and stock market performance of Employer.
5. Expenses. Employer shall reimburse Employee, to the extent not otherwise paid
for by Employer or one of its affiliates, for reasonable and necessary
out-of-pocket expenses, including, without limitation, entertainment, travel and
similar expenses incurred by him in performing the duties set forth in Section 2
hereof. Employee shall present an itemized account of such expenses, supported
by such documentation as is required under the Internal Revenue Code of 1986, as
amended, to support the deductibility of such expenses for federal income tax
purposes.
6. Benefits and Vacations.
(a) Stock Option Plan. Employer shall establish a Stock Incentive Plan
for key employees and directors of Employer and its subsidiaries in the form of
Exhibit "A". Upon the effective date of Employee's employment, Employee shall
receive options to acquire ONE HUNDRED THOUSAND (100,000) shares of Employer's
Common Stock. These options shall vest in three (3) installments of 30,000,
30,000 and 40,000 shares on the first, second and third anniversary of the
effective date, respectively. The exercise price for the installments shall be
120%, 130% and 140%, respectively, of the public offering price of the IPO. The
options shall have a term of ten years (five years if Employee is a ten percent
(10%) shareholder and the option is an incentive stock option as defined under
Section 422 of the Internal Revenue Code) from vesting and shall survive
termination or expiration of this Agreement. If this Agreement is terminated for
2
<PAGE>
cause as defined herein, then those options vested at the time of such
termination will be exercisable for a period of six months after termination. If
the Employee leaves the employment by Employer for reasons other than
termination for cause, then the options shall remain exercisable during their
full term.
(b) Insurance.
(i) Major Medical, Health and Dental. Employer shall
provide group coverage for Employee, and such dependents as
Employee shall select, with respect to major medical, health
and dental expenses. Employer shall pay one hundred percent
(100%) of premiums with respect to such coverage.
(ii) Disability. Employer shall provide group
disability, accidental death and dismemberment, and life
insurance coverage for Employee, with Employer paying one
hundred percent (100%) of the related premiums.
(c) Automobile Allowance. Employee shall receive an automobile
allowance, payable by Employer's Italian subsidiary and the Employee's existing
terms and conditions of employment with that subsidiary.
(d) Vacation. The Employee shall be entitled to six (6) weeks annual
paid vacation during each year of this Agreement. Employee shall also be
entitled to the same paid holidays, sick and personal time as are available to
all other employees in accordance with the policies of Employer.
(e) Withholding. The Employee acknowledges that certain payments
provided for herein are subject to withholding and other taxes.
7. Indemnification.
(a) Notwithstanding the termination of Employee's employment under
Section 8 of this Agreement, it is confirmed that, with respect to all periods
during which Employee shall be employed by Employer, (i) Employer shall
indemnify Employee in whatever capacity Employee is serving, including as a
director of Employer, and reimburse expenses to the fullest extent permitted by
the indemnification and reimbursement provisions of Employer's Certificate of
Incorporation and By-Laws in effect as of the date of this Agreement, provided
that such coverage is not prohibited under the provisions of the applicable
General Corporation Law; and (ii) Employer shall use its best efforts to
maintain in effect it's Directors' and Officers' Indemnification Insurance
policies (under which Employee shall be deemed an "insured" to the fullest
extent provided in such policy) and to purchase substitute policies in form and
content substantially similar to those presently in force during all periods
under which Employee may remain liable under any applicable statutes of
limitations. Upon request, Employer shall promptly provide Employee with copies
of all such policies and any notice of cancellation of them.
(b) In addition to the foregoing, as authorized by the Employer's
Certificate of Incorporation and By-Laws in effect as of the date of this
Agreement, the Employer further agrees,
3
<PAGE>
to the extent not prohibited by the applicable General Corporation Law, to
defend Employee by legal counsel reasonably acceptable to Employee in any
threatened or pending action, suit or proceeding as to which Employee may be
entitled to indemnification under this Agreement. In this regard, payment
in advance by the Employer of all expenses incurred or to be incurred by
Employee in defending or investigating each and every such action, suit or
proceeding which has been instituted and is pending on the date of this
Agreement or which shall subsequently be instituted is authorized by the
Board of Directors of the Employer, and Employee agrees to repay such
advanced amounts in the event it is ultimately determined that Employee is
not entitled to be indemnified by the Employer as authorized under its
Certificate of Incorporation and By-Laws, and the applicable General
Corporation Law. As regards any decision to advance expenses as to any action,
suit or proceeding not already referred to in this subparagraph, Employee will
be given the same consideration in the reaching of any such decision as shall be
given to any person who is a director or officer of Employer at the time of such
decision.
(c) Employer further agrees to notify Employee of all threatened or
pending actions, suits, or other proceedings by or against Employer to which
Employee is named a party, and to filed in connection with it, and shall
otherwise keep Employee reasonably informed of the status of such actions and
any offers of settlement.
(d) Employee agrees to notify Employer of all threatened or pending
actions, suits, or other proceedings against Employee in any capacity as an
employee of Employer.
8. Termination.
Notwithstanding Section 3, the term of the Employee's employment
hereunder shall terminate on the earliest of the (i) termination date provided
for under Section 3 or (ii) under any of the paragraphs of this Section 8.
(a) Death. In the event of the Employee's death, the Employee's
employment shall terminate automatically, effective as of the date of death, and
Employer shall pay to his estate the salary that otherwise would have been paid
to the Employee pursuant to Section 4(a) up to the end of the fiscal quarter in
which he died.
(b) Disability. If the Employee, due to physical or mental illness,
shall be disabled to perform the essential functions of his employment
hereunder, with or without reasonable accommodation, (a "disability"), then
either the Employee or Employer may by notice terminate the Employee's
employment under this Agreement effective as of a date 30 days after the date
such notice is given. Employee shall continue to receive all compensation
payable under Section 4 for a period of six (6) months after the date such
notice is given; provided, however, that it shall be reduced by the amount of
any disability or similar benefits to which he is entitled, notwithstanding
anything contained elsewhere in this Agreement to the contrary.
(c) By Employer for Cause. The Employee's employment may be terminated
effective immediately by Employer for "cause" by notice of termination to the
Employee. "Cause" for such termination shall be limited to convictions of a
felony, malfeasance in office or a material breach by the Employee of the
covenants contained in this Agreement (as determined by a majority vote of
4
<PAGE>
the Employers Board of Directors), which breach continues for 30 days
following receipt of written notice given by Employer's Board of Directors
specifying the breach and requesting that the Employee correct the same.
(d) Compensation Upon Termination. Except as provided in Sections 8(a)
and 8(b), Employee shall receive compensation upon termination as follows: in
the event that Employer terminates Employee's Employment under this Agreement
other than for cause as provided in Section 8(c), Employee shall be entitled to
receive the full amount of his salary and benefits provided for in Section 6 for
the remaining term of this Agreement, and any stock options or shares under
stock bonus programs held by Employee shall become and remain exercisable or
vested for a period of the remaining term of this Agreement or for one (1) full
year, whichever is longer.
(e) Termination by Employee.
(i) If Employee shall voluntarily resign from
employment by Employer prior to the expiration of this
Agreement, any compensation payable to Employee under Section
4 shall be prorated through the date of termination.
(ii) If the Board of Directors or any designee
thereof prohibits Employee from issuing press releases or
making public filings that Employee reasonably believes to be
required under federal or state law and if Employee has
received advice of counsel engaged by him confirming his
belief, then Employee shall have the right to terminate this
Agreement. Upon such termination, Employer shall pay to
Employee the compensation payable to Employee under Section 4
and shall provide the Employee the benefits required under
Section 6, for a period one year from the date of termination.
Employer shall pay the amount prescribed in this sub-paragraph
(ii) in cash on the date of termination.
9. Exclusivity. Employee shall devote his best efforts to the performance of his
duties under this Agreement. Employee agrees that all information which he
obtains in the course of his employment is the property of Employer and agrees
that he will not discuss any such information or use any such information for
the benefit of himself or any person or entity other than Employer at any time
during or after his employment. During the period of one (1) year after
termination of employment of Employee hereunder, Employee agrees that he will
not engage in employment or business activities which are reasonably deemed to
be competitive to Employer and its business. The foregoing restriction shall not
apply if Employer elects to terminate this Agreement without cause and Employee
elects not to receive any further cash compensation as provided under the terms
of this Agreement. The parties hereto, recognizing that irreparable injury will
result to Employer, its business and property in the event of a breach of this
Agreement by Employee, and that employment is based primarily upon this
Agreement, it is agreed that in such event Employer shall be entitled, in
addition to any other remedies and damages available, to an injunction to
restrain the violation thereof by Employee, his partners, agents, servants,
employers, and Employees, and all persons acting for or with him. The Employee
represents and admits that in the event of the termination of his employment for
any cause whatsoever, his experiences and capabilities are such that he can
obtain employment in business engaged in other lines and/or of a different
nature, and that the enforcement of a remedy by way of injunction will not
prevent him
5
<PAGE>
from earning a livelihood.
10. Representation by the Employee.
The Employee hereby represents and warrants to Employer that the
execution of this Agreement and the performance of his duties and obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or by which he is bound and that he is not now subject to any
covenant against competition or similar covenant that would affect the
performance of his duties hereunder.
11. No Assignment.
This Agreement is personal and shall in no way be subject to
assignment, except by Employer incident to the sale of all or substantially all
of its business (whether by asset sale, stock sale or merger). Any attempt by
one party to assign this Agreement in any other circumstances without the prior
written consent of the other party shall be null and void.
12. Enforceability.
If any portion or provision of this Agreement shall to any extent be
declared illegal or unenforceable by a duly authorized court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
13. Notices.
All notices and other communications required or permitted to be given
hereunder shall be given by delivering the same in hand or by mailing the same
by certified or registered mail, return receipt requested, postage prepaid, as
follows:
if to Employer, to: The PRIMA Group International, Inc.
447 S. Sharon Amity Road, Ste. 250
Charlotte, North Carolina 28211
if to the Employee, to: Mr. Gianfranco Carbonato
C. Siracusa 108
10137 Torino
Italy
(or to such other address as either party shall have furnished to the other by
like notice).
A notice shall be effective as of the date of such delivery or mailing, as the
case may be.
14. Entire Agreement.
6
<PAGE>
This Agreement constitutes the only agreement and understanding between
Employer and the Employee in relation to the subject of the Employee's
employment by Employer; and there are no promises, representations, conditions,
provisions or terms related thereto other than those set forth herein. This
Agreement supersedes all previous understandings, agreements and
representations, written or oral, between Employer and the Employee regarding
the Employee's employment by Employer.
15. Governing Law.
This contract shall be construed under and be governed in all respects
by the internal laws, and not the laws pertaining to choice or conflicts of
laws, of the State of North Carolina.
16. Waiver; Amendment.
No waiver in any instance by either party of any provision of this
Agreement shall be deemed a waiver by such party of such provision in any other
instance or a waiver of any other provision hereunder in any instance. This
Agreement cannot be amended, supplemented or otherwise modified except in a
writing signed by Employer, and by the Employee (so long as he shall be employed
by Employer).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
The PRIMA Group International, Inc.
By:
Name:
Title:
____________________________________(SEAL)
Gianfranco Carbonato
7
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
AGREEMENT made as of March 16, 1998 between THE PRIMA GROUP
INTERNATIONAL, INC. (Employer") and GIOVANNI CIAMARONI ("Employee").
WITNESSETH:
WHEREAS, the parties hereto desire to provide for the Employee's
employment by Employer.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. Employment.
Employer agrees to employ the Employee and the Employee agrees to enter
into the employ of Employer on the terms and conditions hereafter set forth.
2. Capacity and Duties.
The Employee shall be employed as Vice President/Business Development
of Employer and shall perform such duties and have such responsibilities as
designated by the President of Employer and the Bylaws of Employer. The Employee
shall perform his responsibilities in accordance with the direction and
supervision of the President or the Board of Directors of Employer, and he shall
devote such time, skill, energies, business judgment, knowledge and best efforts
to the business of Employer and the performance of such executive,
administrative and operational duties on behalf of Employer and its affiliates,
appropriate to the offices he holds or shall hold hereunder, as the President or
the Board of Directors of Employer may request. The requirement that the
Employee devote his time to the business of Employer shall not preclude him from
undertaking other business and personal activities that do not, singly or in the
aggregate, require more than fifty percent of his time devoted to business, or
materially impair his ability to fulfill his responsibilities under this
Agreement. Employer specifically acknowledges that Employee will continue to
provide consulting services on a part-time basis and that, from time to time,
this may create a conflict of interest. Employee agrees to offer Employer the
opportunity to take advantage of any business opportunities which arise from
Employee's consulting services.
3. Term.
The term of the Employee's employment hereunder shall be for the a
period of three (3) years, commencing on April 1, 1998. The term of employment
shall be automatically renewed for successive one-year terms, unless written
notice of non-renewal is given by either party not less than ninety (90) days
prior to the end of the initial three-year, or the then current one-year, term.
<PAGE>
4. Compensation.
(a) Salary. Employer shall pay or cause to be paid to the Employee a
salary of ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000) per year, payable in
equal semi-monthly installments (the "Base Salary"). The Base Salary shall be
increased each year on the anniversary of the effective date of this Agreement
in line with increases in the cost of living for the immediately preceding
twelve (12) months. However, in no event shall such increase be less than the
percentage increase in the "Consumer Price Index - United States Average for the
Urban Wage Earners and Clerical Workers - All Items," as published by the United
States Department of Labor (Bureau of Labor Statistics) for the immediately
preceding twelve (12) months. In addition, Base Salary shall be reviewed prior
to each anniversary date of this Agreement by the Board of Directors of
Employer.
(b) Bonus. For each fiscal year during the term of this Agreement,
beginning with the fiscal year ending December 31, 1998, Employee shall receive
a bonus payable at the discretion of the Board of Directors, or any committee
thereof, based upon operational, financial and stock market performance of
Employer, but not less than the amount necessary to pay interest and applicable
taxes under Employee's note in the original principal amount of $600,000 to
Employer.
(c) Non-Competition Payment. As consideration for the covenants of
Employee in section 9 for the initial term of this
Agreement, Employer shall pay to Employee, within five (5)
business days of the consummation of Employer's initial
public offering ("IPO"), the sum of ONE HUNDRED FIFTY
THOUSAND DOLLARS ($150,000). The non-vested portions of
this payment shall be subject to forfeiture if Employee
voluntarily terminates this Agreement prior to the expiration
of the initial term. One-third of the payment will vest on
the effectiveness of the term of this Agreement. The
remaining one-third portions of the payment will vest on
the first and second anniversaries of the effectiveness
of this Agreement, respectively.
2
<PAGE>
5. Expenses. Employer shall reimburse Employee, to the extent not otherwise paid
for by Employer or one of its affiliates, for reasonable and necessary
out-of-pocket expenses, including, without limitation, entertainment, travel and
similar expenses incurred by him in performing the duties set forth in Section 2
hereof. Employee shall present an itemized account of such expenses, supported
by such documentation as is required under the Internal Revenue Code of 1986, as
amended, to support the deductibility of such expenses for federal income tax
purposes.
6. Benefits and Vacations.
(a) Stock Option Plan. Employer shall establish a Stock Incentive Plan
for key employees and directors of Employer and its subsidiaries in the form of
Exhibit "A". Upon the effective date of the IPO, Employee shall receive options
to acquire TWO HUNDRED THOUSAND (200,000) shares of Employer's Common Stock.
Options to purchase 100,000 shares of Employer's Common Stock shall be
exercisable on the first anniversary date of the IPO and shall have an exercise
price of 115% of the public offering price of the IPO. The options to purchase
the remaining 100,000 shares of Employer's Common Stock shall be exercisable in
three (3) installments of 30,000, 30,000 and 40,000 shares on the first, second
and third anniversaries of the effective date of the IPO, respectively. The
exercise price for the installments shall be 120%, 130%, and 140%, respectively
of the public offering price of the IPO. The options shall have a term of ten
years (five years if Employee is a ten percent (10%) shareholder and the option
is an incentive stock option as defined under Section 422 of the Internal
Revenue Code) and shall survive termination or expiration of this Agreement. If
this Agreement is terminated for cause as defined herein, then the options will
be exercisable for a period of six months after termination. If Employee leaves
the employment by Employer for reasons other than termination for cause, then
the options shall remain exercisable during their full term.
3
<PAGE>
(b) Insurance.
(i) Major Medical, Health and Dental. Employer shall
provide group coverage for Employee, and such dependents as
Employee shall select, with respect to major medical, health
and dental expenses. Employer shall pay one hundred percent
(100%) of premiums with respect to such coverage.
(ii) Disability. Employer shall provide group
disability, accidental death and dismemberment, and life
insurance coverage for Employee, with Employer paying one
hundred percent (100%) of the related premiums.
(iii) Additional Term Insurance. Employee shall be
provided additional term life insurance in the principal
amount of $1,000,000, payable to such beneficiaries as
selected by Employee. At the termination of this Agreement,
Employee shall be given the right to assume the policy and pay
the premiums due thereunder.
(c) Automobile Allowance. Employee shall receive an automobile
allowance of $1,500 per month during the term of this Agreement.
(d) Vacation. The Employee shall be entitled to six (6) weeks annual
paid vacation during each year of this Agreement. Employee shall also be
entitled to the same paid holidays, sick and personal time as are available to
all other employees in accordance with the policies of Employer.
(e) Withholding. The Employee acknowledges that certain payments
provided for herein are subject to withholding and other taxes.
7. Indemnification.
(a) Notwithstanding the termination of Employee's employment under
Section 8 of this Agreement, it is confirmed that, with respect to all periods
during which Employee shall be employed by Employer, (i) Employer shall
indemnify Employee in whatever capacity Employee is serving, including as a
director of Employer, and reimburse expenses to the fullest extent permitted by
the indemnification and reimbursement provisions of Employer's Certificate of
Incorporation and By-Laws in effect as of the date of this Agreement, provided
that such coverage is not prohibited under the provisions of the applicable
General Corporation Law; and (ii) Employer shall use its best efforts to
maintain in effect its Directors' and Officers' Indemnification Insurance
policies (under which Employee shall be deemed an "insured" to the fullest
extent provided in such policy) and to purchase substitute policies in form and
content substantially similar to those presently in force during all periods
under which Employee may remain liable under any applicable statute of
limitations. Upon request, Employer shall promptly provide Employee with copies
of all such policies and any notice of cancellation of them.
4
<PAGE>
(b) In addition to the foregoing, as authorized by the Employer's
Certificate of Incorporation and By-Laws in effect as of the date of this
Agreement, the Employer further agrees, to the extent not prohibited by the
applicable General Corporation Law, to defend Employee by legal counsel
reasonably acceptable to Employee in any threatened or pending action, suit or
proceeding as to which Employee may be entitled to indemnification under this
Agreement. In this regard, payment in advance by the Employer of all expenses
incurred or to be incurred by Employee in defending or investigating each and
every such action, suit or proceeding which has been instituted and is pending
on the date of this Agreement or which shall subsequently be instituted is
authorized by the Board of Directors of the Employer, and Employee agrees to
repay such advanced amounts in the event it is ultimately determined that
Employee is not entitled to be indemnified by the Employer as authorized under
its Certificate of Incorporation and By-Laws, and the applicable General
Corporation Law. As regards any decision to advance expenses as to any action,
suit or proceeding not already referred to in this subparagraph, Employee will
be given the same consideration in the reaching of any such decision as shall be
given to any person who is a director or officer of Employer at the time of such
decision.
(c) Employer further agrees to notify Employee of all threatened or
pending actions, suits, or other proceedings by or against Employer to which
Employee is named a party, and to filed in connection with it, and shall
otherwise keep Employee reasonably informed of the status of such actions and
any offers of settlement.
(d) Employee agrees to notify Employer of all threatened or pending
actions, suits, or other proceedings against Employee in any capacity as an
employee of Employer.
8. Termination.
Notwithstanding Section 3, the term of the Employee's employment
hereunder shall terminate on the earliest of the (i) termination date provided
for under Section 3 or (ii) under any of the paragraphs of this Section 8.
(a) Death. In the event of the Employee's death, the Employee's
employment shall terminate automatically, effective as of the date of death, and
Employer shall pay to his estate the Base Salary amount in effect for that year
for a period of one year after his death. In addition, Employer shall pay to
Employee's estate any other amounts that otherwise would have been paid to the
Employee pursuant to Section 4 for the year after his death.
(b) Disability. If the Employee, due to physical or mental illness,
shall be disabled to perform the essential functions of his employment
hereunder, with or without reasonable accommodation, (a "disability"), then
either the Employee or Employer may by notice terminate the Employee's
employment under this Agreement effective as of a date 30 days after the date
such notice is given. Employee shall continue to receive all compensation
payable under Section 4 for a period of six (6) months after the date such
notice is given; provided, however, that it shall be reduced by the amount of
any disability or similar benefits to which he is entitled, notwithstanding
anything contained elsewhere in this Agreement to the contrary.
5
<PAGE>
(c) By Employer for Cause. The Employee's employment may be terminated
effective immediately by Employer for "cause" by notice of termination to the
Employee. "Cause" for such termination shall be limited to convictions of a
felony, malfeasance in office or a material breach by the Employee of the
covenants contained in this Agreement (as determined by a majority vote of the
Employers Board of Directors), which breach continues for 30 days following
receipt of written notice given by Employer's Board of Directors specifying the
breach and requesting that the Employee correct the same.
(d) Compensation Upon Termination. Except as provided in Sections 8(a)
and 8(b), Employee shall receive compensation upon termination as follows: in
the event that Employer terminates Employee's Employment under this Agreement
other than for cause as provided in Section 8(c), Employee shall be entitled to
receive the full amount of his salary and benefits provided for in Section 6 for
the remaining term of this Agreement, and any stock options or shares under
stock bonus programs held by Employee shall become and remain exercisable or
vested for the period as set forth in the agreement governing such options or
bonus programs.
(e) Termination by Employee.
(i) If Employee shall voluntarily resign from
employment by Employer prior to the expiration of this
Agreement, any compensation payable to Employee under Section
4 shall be prorated through the date of termination.
(ii) If the Board of Directors or any designee
thereof prohibits Employee from issuing press releases, making
public filings, or prosecuting the business plan outlined in
the registration statement on Form S-1 for Employer's IPO that
Employee reasonably believes to be required under federal or
state law and if Employee has received advice of counsel
engaged by him confirming his belief, then Employee shall have
the right to terminate this Agreement. Upon such termination,
Employer shall pay to Employee the compensation payable to
Employee under Section 4 and shall provide the Employee the
benefits required under Section 6, for a period one year from
the date of termination. Employer shall pay the amount
prescribed in this sub-paragraph (ii) in cash on the date of
termination.
9. Exclusivity. Employee shall devote his best efforts to the performance of his
duties under this Agreement. Employee agrees that all information which he
obtains in the course of his employment is the property of Employer and agrees
that he will not discuss any such information or use any such information for
the benefit of himself or any person or entity other than Employer at any time
during or after his employment. During the period of five (5) years after
termination of employment of Employee hereunder, Employee agrees that he will
not engage in employment or business activities which are reasonably deemed to
be competitive to Employer and its business. The foregoing restriction shall not
apply if Employer elects to terminate this Agreement without cause and Employee
elects not to receive any further cash compensation as provided under the terms
of this Agreement. The parties hereto, recognizing that irreparable injury will
result to Employer, its business and property in the event of a breach of this
Agreement by Employee, and that employment is based primarily upon this
Agreement, it is agreed that in such event Employer
6
<PAGE>
shall be entitled, in addition to any other remedies and damages available,
to an injunction to restrain the violation thereof by Employee, his
partners, agents, servants, employers, and Employees, and all persons acting
for or with him. The Employee represents and admits that in the event of the
termination of his employment for any cause whatsoever, his experiences and
capabilities are such that he can obtain employment in business engaged in
other lines and/or of a different nature, and that the enforcement of a
remedy by way of injunction will not prevent him from earning a livelihood.
10. Representation by the Employee.
The Employee hereby represents and warrants to Employer that the
execution of this Agreement and the performance of his duties and obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or by which he is bound and that he is not now subject to any
covenant against competition or similar covenant that would affect the
performance of his duties hereunder.
11. No Assignment.
This Agreement is personal and shall in no way be subject to
assignment, except by Employer incident to the sale of all or substantially all
of its business (whether by asset sale, stock sale or merger). Any attempt by
one party to assign this Agreement in any other circumstances without the prior
written consent of the other party shall be null and void.
12. Loan.
Concurrent with the consummation of the IPO, Employer shall loan to
Employee Six Hundred Thousand Dollars ($600,000) with interest accruing at
the annual rate of six percent (6%). Interest on the loan shall be payable
annually and the entire principal and any unpaid interest shall be payable on
the eighth anniversary of the loan. The loan shall be secured by a pledge of
sixty thousand (60,000) shares of Employer's Common Stock held by Employee.
Employer shall have the right to set-off any payments otherwise due Employee
against due but not yet made payments of Employee under the loan. The loan may
be prepaid by Employee at any time and in any amount without penalty.
13. Enforceability.
If any portion or provision of this Agreement shall to any extent be
declared illegal or unenforceable by a duly authorized court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
14. Notices.
All notices and other communications required or permitted to be given
hereunder shall be given by delivering the same in hand or by mailing the same
by certified or registered mail, return receipt requested, postage prepaid, as
follows:
7
<PAGE>
if to Employer, to: The PRIMA Group International, Inc.
447 S. Sharon Amity Road, Ste. 250
Charlotte, North Carolina 28211
if to the Employee, to: Mr. Giovanni Ciamaroni
Falkestrasse 57b
D-46146 Oberhausen
Germany
(or to such other address as either party shall have furnished to the other by
like notice).
A notice shall be effective as of the date of such delivery or mailing, as the
case may be.
15. Entire Agreement.
This Agreement constitutes the only agreement and understanding between
Employer and the Employee in relation to the subject of the Employee's
employment by Employer; and there are no promises, representations, conditions,
provisions or terms related thereto other than those set forth herein. This
Agreement supersedes all previous understandings, agreements and
representations, written or oral, between Employer and the Employee regarding
the Employee's employment by Employer.
16. Governing Law.
This contract shall be construed under and be governed in all respects
by the internal laws, and not the laws pertaining to choice or conflicts of
laws, of the State of North Carolina.
17. Waiver; Amendment.
No waiver in any instance by either party of any provision of this
Agreement shall be deemed a waiver by such party of such provision in any other
instance or a waiver of any other provision hereunder in any instance. This
Agreement cannot be amended, supplemented or otherwise modified except in a
writing signed by Employer, and by the Employee (so long as he shall be employed
by Employer).
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
The PRIMA Group International, Inc.
By:
Name:
Title:
(SEAL) ______________________________________
Giovanni Ciamaroni
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
AGREEMENT made as of March 16, 1998 between THE PRIMA GROUP
INTERNATIONAL, INC. (Employer") and MICHAEL H. GILBERT ("Employee").
WITNESSETH:
WHEREAS, the parties hereto desire to provide for the Employee's
employment by Employer.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. Employment.
Employer agrees to employ the Employee and the Employee agrees to enter
into the employ of Employer on the terms and conditions hereafter set forth.
2. Capacity and Duties.
The Employee shall be employed as Vice President, Chief Financial
Officer, Secretary and Treasurer of Employer and shall perform such duties and
have such responsibilities as designated by the President of Employer and the
Bylaws of Employer. The Employee shall perform his responsibilities in
accordance with the direction and supervision of the President or the Board of
Directors of Employer, and he shall devote such time, skill, energies, business
judgment, knowledge and best efforts to the business of Employer and the
performance of such executive, administrative and operational duties on behalf
of Employer and its affiliates, appropriate to the offices he holds or shall
hold hereunder, as the President or the Board of Directors of Employer may
request. The requirement that the Employee devote his time to the business of
Employer shall not preclude him from undertaking other business and personal
activities that do not, singly or in the aggregate, materially impair his
ability to fulfill his responsibilities under this Agreement.
3. Term.
The term of the Employee's employment hereunder shall be for the a
period of three (3) years, commencing on April 1, 1998. The term of employment
shall be automatically renewed for successive one-year terms, unless written
notice of termination is given by either party not less than ninety (90) days
prior to the end of the initial three-year, or the then current one-year, term.
<PAGE>
4. Compensation.
(a) Salary. Employer shall pay or cause to be paid to the Employee a
salary of ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000) per year, payable in
equal semi-monthly installments (the "Base Salary"), retroactive to October 1,
1997. The Base Salary shall be increased each year on the anniversary of the
effective date of this Agreement in line with increases in the cost of living
for the immediately proceeding twelve (12) months. However, in no event shall
such increase be less than the percentage increase in the "Consumer Price Index
United States Average for the Urban Wage Earners and Clerical Workers - All
Items", as published by the United States Department of Labor (Bureau of Labor
Statistics) for the immediately preceding twelve (12) months. In addition, Base
Salary shall be reviewed prior to each anniversary date of this Agreement by the
Board of Directors of Employer.
(b) For each fiscal year during the term of this Agreement, beginning
with the fiscal year ending December 31, 1998, Employee shall receive a bonus
payable at the discretion of the Board of Directors, or any committee thereof,
based upon operational, financial and stock market performance of Employer.
5. Expenses. Employer shall reimburse Employee, to the extent not otherwise paid
for by Employer or one of its affiliates, for reasonable and necessary
out-of-pocket expenses, including, without limitation, entertainment, travel and
similar expenses incurred by him in performing the duties set forth in Section 2
hereof. Employee shall present an itemized account of such expenses, supported
by such documentation as is required under the Internal Revenue Code of 1986, as
amended, to support the deductibility of such expenses for federal income tax
purposes.
6. Benefits and Vacations.
(a) Stock Option Plan. Employer shall establish a Stock Incentive Plan
for key employees and directors of Employer and its subsidiaries in the form of
Exhibit "A". Upon the effective date of Employee's employment, Employee shall
receive options to acquire FIFTY THOUSAND (50,000) shares of Employer's Common
Stock. These options shall vest in three (3) installments of 20,000, 15,000 and
15,000 shares on the first, second and third anniversary of the effective date,
respectively. The exercise price for the installments shall be 110%, 120% and
130%, respectively, of the public offering price of the IPO. The options shall
have a term of ten years (five years if Employee is a ten percent (10%)
shareholder and the option is an incentive stock option as defined under Section
422 of the Internal Revenue Code) from vesting and shall survive termination or
expiration of this Agreement. If this Agreement is terminated for cause as
defined herein, then those options vested at the time of such termination will
be exercisable for a period of six months after termination and all other
options granted to Employee will be cancelled immediately.
2
<PAGE>
(b) Insurance.
(i) Major Medical, Health and Dental. Employer shall
provide group coverage for Employee, and such dependents as
Employee shall select, with respect to major medical, health
and dental expenses. Employer shall pay one hundred percent
(100%) of premiums with respect to such coverage.
(ii) Disability. Employer shall provide group
disability, accidental death and dismemberment, and life
insurance coverage for Employee, with Employer paying one
hundred percent (100%) of the related premiums.
(c) Automobile Allowance. Employee shall receive an automobile
allowance of $800.00 per month during the term of this Agreement.
(d) Vacation. The Employee shall be entitled to four (4) weeks annual
paid vacation during each year of this Agreement. Employee shall also be
entitled to the same paid holidays, sick and personal time as are available to
all other employees in accordance with the policies of Employer.
(e) Withholding. The Employee acknowledges that certain payments
provided for herein are subject to withholding and other taxes.
7. Indemnification.
(a) Notwithstanding the termination of Employee's employment under
Section 8 of this Agreement, it is confirmed that, with respect to all periods
during which Employee shall be employed by Employer, (i) Employer shall
indemnify and reimburse expenses to the fullest extent permitted by the
indemnification and reimbursement provisions of Employer's Certificate of
Incorporation and By-Laws in effect as of the date of this Agreement, provided
that such coverage is not prohibited under the provisions of the applicable
General Corporation Law; and (ii) Employer shall use its best efforts to
maintain in effect it's Directors' and Officers' Indemnification Insurance
policies (under which Employee shall be deemed an "insured" to the fullest
extent provided in such policy) and to purchase substitute policies in form and
content substantially similar to those presently in force during all periods
under which Employee may remain liable under any applicable statutes of
limitations. Upon request, Employer shall promptly provide Employee with copies
of all such policies and any notice of cancellation of them.
(b) In addition to the foregoing, as authorized by the Employer's
Certificate of Incorporation and By-Laws in effect as of the date of this
Agreement, the Employer further agrees, to the extent not prohibited by the
applicable General Corporation Law, to defend Employee by legal counsel
reasonably acceptable to Employee in any threatened or pending action, suit or
proceeding as to which Employee may be entitled to indemnification under this
Agreement. In this regard, payment in advance by the Employer of all expenses
incurred or to be incurred by Employee in defending or investigating each and
every such action, suit or proceeding which has been instituted and is pending
on the date of this Agreement or which shall subsequently be
3
<PAGE>
instituted is authorized by the Board of Directors of the Employer, and
Employee agrees to repay such advanced amounts in the event it is
ultimately determined that Employee is not entitled to be indemnified by the
Employer as authorized under its Certificate of Incorporation and By-Laws,
and the applicable General Corporation Law. As regards any decision to
advance expenses as to any action, suit or proceeding not already referred to
in this subparagraph, Employee will be given the same consideration in the
reaching of any such decision as shall be given to any person who is a director
or officer of Employer at the time of such decision.
(c) Employer further agrees to notify Employee of all threatened or
pending actions, suits, or other proceedings by or against Employer to which
Employee is named a party, and to filed in connection with it, and shall
otherwise keep Employee reasonably informed of the status of such actions and
any offers of settlement.
(d) Employee agrees to notify Employer of all threatened or pending
actions, suits, or other proceedings against Employee in any capacity as an
employee of Employer.
8. Termination.
Notwithstanding Section 3, the term of the Employee's employment
hereunder shall terminate on the earliest of the (i) termination date provided
for under Section 3 or (ii) under any of the paragraphs of this Section 8.
(a) Death. In the event of the Employee's death, the Employee's
employment shall terminate automatically, effective as of the date of death, and
Employer shall pay to his estate the salary that otherwise would have been paid
to the Employee pursuant to Section 4(a) up to the end of the fiscal quarter in
which he died.
(b) Disability. If the Employee, due to physical or mental illness,
shall be disabled to perform the essential functions of his employment
hereunder, with or without reasonable accommodation, (a "disability"), then
either the Employee or Employer may by notice terminate the Employee's
employment under this Agreement effective as of a date 30 days after the date
such notice is given. Employee shall continue to receive all compensation
payable under Section 4 for a period of six (6) months after the date such
notice is given; provided, however, that it shall be reduced by the amount of
any disability or similar benefits to which he is entitled, notwithstanding
anything contained elsewhere in this Agreement to the contrary.
(c) By Employer for Cause. The Employee's employment may be terminated
effective immediately by Employer for "cause" by notice of termination to the
Employee. "Cause" for such termination shall be limited to convictions of a
felony, malfeasance in office or a material breach by the Employee of the
covenants contained in this Agreement, which breach continues for 30 days
following receipt of written notice given by Employer's Board of Directors
specifying the breach and requesting that the Employee correct the same.
(d) Compensation Upon Termination. Except as provided in Sections 8(a)
and 8(b), Employee shall receive compensation upon termination as follows: in
the event that Employer
4
<PAGE>
terminates Employee's Employment under this Agreement other than for cause as
provided in Section 8(c), Employee shall be entitled to receive the full amount
of his salary and benefits provided for in Section 6 for the remaining term of
this Agreement, and any stock options or shares under stock bonus programs
held by Employee shall become and remain exercisable or vested for a period
of the remaining term of this Agreement or for one (1) full year, whichever is
longer.
(e) Termination by Employee.
(i) If Employee shall voluntarily resign from employment by
Employer prior to the expiration of this Agreement, any compensation
payable to Employee under Section 4 shall be prorated through the date
of termination.
(ii) If the Board of Directors or any designee thereof
prohibits Employee from issuing press releases or making public filings
that Employee reasonably believes to be required under federal or state
law and if Employee has received advice of counsel engaged by him
confirming his belief, then Employee shall have the right to terminate
this Agreement. Upon such termination, Employer shall pay to Employee
the compensation payable to Employee under Section 4 and shall provide
the Employee the benefits required under Section 6, for a period one
year from the date of termination. Employer shall pay the amount
prescribed in this sub-paragraph (ii) in cash on the date of
termination.
9. Exclusivity. Employee shall devote his best efforts to the performance of his
duties under this Agreement. Employee agrees that all information which he
obtains in the course of his employment is the property of Employer and agrees
that he will not discuss any such information or use any such information for
the benefit of himself or any person or entity other than Employer at any time
during or after his employment. During the period of one (1) year after
termination of employment of Employee hereunder, Employee agrees that he will
not engage in employment or business activities which are reasonably deemed to
be competitive to Employer and its business. The foregoing restriction shall not
apply if Employer elects to terminate this Agreement without cause and Employee
elects not to receive any further cash compensation as provided under the terms
of this Agreement. The parties hereto, recognizing that irreparable injury will
result to Employer, its business and property in the event of a breach of this
Agreement by Employee, and that employment is based primarily upon this
Agreement, it is agreed that in such event Employer shall be entitled, in
addition to any other remedies and damages available, to an injunction to
restrain the violation thereof by Employee, his partners, agents, servants,
employers, and Employees, and all persons acting for or with him. The Employee
represents and admits that in the event of the termination of his employment for
any cause whatsoever, his experiences and capabilities are such that he can
obtain employment in business engaged in other lines and/or of a different
nature, and that the enforcement of a remedy by way of injunction will not
prevent him from earning a livelihood.
10. Representation by the Employee.
The Employee hereby represents and warrants to Employer that the
execution of this Agreement and the performance of his duties and obligations
hereunder will not breach or be in
5
<PAGE>
conflict with any other agreement to which he is a party or by which he is
bound and that he is not now subject to any covenant against competition
or similar covenant that would affect the performance of his duties
hereunder.
11. No Assignment.
This Agreement is personal and shall in no way be subject to
assignment, except by Employer incident to the sale of all or substantially all
of its business (whether by asset sale, stock sale or merger). Any attempt by
one party to assign this Agreement in any other circumstances without the prior
written consent of the other party shall be null and void.
12. Enforceability.
If any portion or provision of this Agreement shall to any extent be
declared illegal or unenforceable by a duly authorized court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
13. Notices.
All notices and other communications required or permitted to be given
hereunder shall be given by delivering the same in hand or by mailing the same
by certified or registered mail, return receipt requested, postage prepaid, as
follows:
if to Employer, to: The PRIMA Group International, Inc.
447 S. Sharon Amity Road, Ste. 250
Charlotte, North Carolina 28211
if to the Employee, to: Mr. Michael H. Gilbert
5522 Kuykendall Road
Charlotte, North Carolina 28270
(or to such other address as either party shall have furnished to the other by
like notice).
A notice shall be effective as of the date of such delivery or mailing, as the
case may be.
14. Entire Agreement.
This Agreement constitutes the only agreement and understanding between
Employer and the Employee in relation to the subject of the Employee's
employment by Employer; and there are no promises, representations, conditions,
provisions or terms related thereto other than those set forth herein. This
Agreement supersedes all previous understandings, agreements and
representa-tions, written or oral, between Employer and the Employee regarding
the Employee's employment by Employer.
6
<PAGE>
15. Governing Law.
This contract shall be construed under and be governed in all respects
by the internal laws, and not the laws pertaining to choice or conflicts of
laws, of the State of North Carolina.
16. Waiver; Amendment.
No waiver in any instance by either party of any provision of this
Agreement shall be deemed a waiver by such party of such provision in any other
instance or a waiver of any other provision hereunder in any instance. This
Agreement cannot be amended, supplemented or otherwise modified except in a
writing signed by Employer, and by the Employee (so long as he shall be employed
by Employer).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
The PRIMA Group International, Inc.
By:
Name:
Title:
(SEAL) _____________________________________
Michael H. Gilbert
7
EXHIBIT 10.10
REVOLVING CREDIT
AND
SECURITY AGREEMENT
Revolving Credit and Security Agreement dated May 4, 1998,
("Agreement") between Prima Industrie S.p.A. ("Prima Industrie"), organized
under the laws of Italy Prima U.S. Inc. ("Prima U.S."), a Michigan corporation
(and collectively with Prima Industrie "Borrowers"), and THE PRIMA GROUP
INTERNATIONAL, INC., a corporation organized under the laws of Delaware (the
"Lender").
WHEREAS, Lender is willing to make loans to Borrowers, pursuant to the
terms of this Agreement for the purpose of providing Borrowers with a credit
facility; and
WHEREAS, Lender has agreed that such credit facility will be in the
form of revolving credit facilities in the amount of $3,000,000 with advances
always at the discretion of Lender;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
I. DEFINITIONS
1.1 Accounting Terms. As used in this Agreement, the Note, or any
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under Generally
Accepted Accounting Principles accounting principles ("GAAP") in effect in the
United State and consistently applied and maintained.
1.2 General Terms. For purposes of this Agreement the following
terms shall have the following meanings:
"Advances" shall mean and include the Revolving Advances.
"Advance Rates" shall have the meaning set forth in Section
2.1(a) hereof.
"Affiliate" of any Person shall mean (a) any Person (other
than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director or officer (i) of such Person, (ii) of any Subsidiary of such
Person or (iii) of any Person described in clause (a) above. For purposes of
this definition, control of a Person shall mean the power, direct or indirect,
(x) to vote 5% or more of the securities having ordinary voting power for the
election of directors of such Person, or (y) to direct or cause the direction of
the management and policies of such Person whether by contract or otherwise.
"Authority" shall have the meaning set forth in Section
4.19(d).
<PAGE>
"Bank" shall mean NationsBank of North Carolina.
"Blocked Accounts" shall have the meaning set forth in Section
4.15(h).
"Borrowers" shall mean Prima Industrie S.p.A. and Prima U.S.,
Inc.
"Business" shall mean the business of Borrowers as conducted
as of the Closing Date at their facilities in Collegno, Turin, Italy and in
Farmington Hills, Michigan.
"Business Day" shall mean any day other than a day on which
commercial banks in North Carolina are authorized or required by law to close,
or elect to close for holidays.
"Claims" shall mean all Liens, claims or encumbrances held or
asserted by any Person against any or all of the Collateral, other than (A)
Charges and (B) Permitted Encumbrances.
"Closing Date" shall mean May 11, 1998 or such other date
as may be agreed to by the parties hereto.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated thereunder.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Inventory;
(c) all of Prima U.S.'s rights, title and
interest in and to (i) its goods and other property including, but not limited
to all merchandise returned or rejected by Customers, relating to or securing
any of the Receivables; (ii) all of Prima U.S.'s rights as a consignor, a
consignee, an unpaid vendor, mechanic, artisan, or other lienor, including
stoppage in transit, setoff, detinue, replevin, reclamation and repurchase;
(iii) all additional amounts due to Prima U.S. from any Customer relating to the
Receivables; (iv) other property, including warranty claims, relating to any
goods securing this Agreement; (v) all of Prima U.S.'s contract rights, rights
of payment which have been earned under a contract right, instruments,
documents, chattel paper, warehouse receipts, bills of lading, shipping
documents, documents of title, deposit accounts, money and securities; (vi) if
and when obtained by Prima U.S., all real and personal property of third parties
in which Prima U.S. has been granted a lien or security interest as security for
the payment or enforcement of Receivables; and (vii) any other goods, personal
property or real property now owned or hereafter acquired in which either
Borrower has expressly granted a security interest or may in the future grant a
security interest to Lender hereunder, or in any amendment or supplement hereto,
or under any other agreement between Lender and Borrowers;
2
<PAGE>
(d) all of Borrowers' ledger sheets, ledger
cards, files, correspondence, records, books of account, business papers,
computers, computer software (owned by Borrower or in which it has an interest),
computer programs, tapes, disks and documents relating to (a), (b), and (c), of
this Paragraph; and
(e) all proceeds and products of (a), (b),
(c), and (d), in whatever form, including, but not limited to: cash, deposit
accounts (whether or not comprised solely of proceeds), certificates of deposit,
insurance proceeds (including hazard, flood and credit insurance), negotiable
instruments and other instruments for the payment of money, chattel paper,
security agreements or documents, eminent domain proceeds, condemnation proceeds
and tort claim proceeds.
"Consents" shall mean all filings and all licenses, permits,
consents, approvals, authorizations, qualifications and order of governmental
and transnational authorities and other third parties, domestic or foreign,
necessary to carry on Borrowers' business, including, without limitation, any
consents required under all applicable federal, state or other applicable law or
regulation.
"Contract Rate" shall mean the Revolving Interest.
"Controlled Group" shall mean all members of a controlled
group of corporations and all trades or business (whether or not incorporated)
under common control which, together with Borrower, are treated as a single
employer under Section 414 of the Code.
"Customers" shall mean and include the account debtor with
respect to any of the Prima U.S. Receivables and/or the prospective purchaser of
goods, services or both with respect to any contract or contract right, and/or
any party who enters into or proposes to enter into any contract or other
arrangement with either Borrower pursuant to which either Borrower is to deliver
any personal property or perform any services.
"Default" shall mean an event which, with the giving of notice
or passage of time or both, would constitute an Event of Default.
"Default Rate" shall have the meaning set forth in Section 3.1
hereof.
"Depository Accounts" shall have the meaning set forth in
Section 4.15(h) hereof.
"Documents" shall have the meaning set forth in Section 8.1(c)
hereof.
"Dollar" and the sign "$" shall mean lawful money of the
United States of America.
"Environmental Complaint" shall have the meaning set forth in
Section 4.19(d) hereof.
"Environmental Laws" shall mean all environmental, land use,
zoning, health, chemical use, safety and sanitation laws, statutes, ordinances
and codes relating to the protection of the environment and/or governing the
use, storage, treatment, generation, transportation, processing,
3
<PAGE>
handling, production or disposal of Hazardous Substances and the rules,
regulations, policies, guidelines, interpretations, decisions, orders and
directives of governmental agencies and authorities with respect thereto.
"Event of Default" shall mean the occurrence of any of the
events set forth in Article X hereof.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time. As used herein, any
reference to GAAP applied on a consistent basis shall mean GAAP applied on a
basis consistent with the manner in which the financial statements are prepared
pursuant to this Agreement.
"Indebtedness" of a Person at a particular date shall mean all
obligations of such Person which in accordance with GAAP would be classified
upon a balance sheet as liabilities (except capital stock and surplus earned or
otherwise) and in any event, without limitation by reason of enumeration, shall
include all indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and all indebtedness secured by
a Lien on assets owned by such Person, whether or not such indebtedness actually
shall have been created, assumed or incurred by such Person. Any indebtedness of
such Person resulting from the acquisition by such Person of any assets subject
to any Lien shall be deemed, for the purposes hereof, to be the equivalent of
the creation, assumption and incurring of the indebtedness secured thereby,
whether or not actually so created, assumed or incurred.
"Intangible Assets" shall mean all assets of Borrower as may
be properly classified as "intangible assets" in accordance with GAAP
consistently applied.
"Inventory" shall mean all of the Borrowers' now owned or
hereafter acquired goods, merchandise and other personal property, wherever
located, whether in transit or not, to be furnished under any contract of
service or held for sale or lease, all raw materials, work in process, finished
goods and materials and supplies of any kind, nature or description which are or
might be used or consumed in Borrowers' business or used in selling or
furnishing such goods, merchandise and other personal property, and all
documents of title or other documents representing them.
"Lender" shall have the meaning ascribed to such term in the
Preamble and shall include each Person which is a transferee, successor or
assign of Lender.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien, Charge, or encumbrance, or
preference, priority or other security agreement or preferential arrangement in
respect of any asset of any kind or nature whatsoever including, without
limitation, any conditional sale or other title retention agreement, any lease
having substantially the same economic effect as any of the foregoing, and the
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction.
"Maximum Revolving Advance Amount" shall mean three million
(United States of America) dollars ($3,000,000).
4
<PAGE>
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Sections 3(37) and 4001(a)(3) of ERISA.
"Note", shall mean the Revolving Credit Note.
"Obligations" shall mean and include any and all of Borrower's
Indebtedness and/or liabilities to Lender or any corporation that directly or
indirectly controls or is controlled by or is under common control with Lender
of every kind, nature and description, direct or indirect, secured or unsecured,
joint, several, joint and several, absolute or contingent, due or to become due,
now existing or hereafter arising, contractual or tortious, liquidated or
unliquidated, regardless of how such indebtedness or liabilities arise or by
what agreement or instrument they may be evidenced or whether evidenced by any
agreement or instrument, including, but not limited to, any and all of
Borrower's Indebtedness and/or liabilities under this Agreement or under any
other agreement between Lender and Borrower and all obligations of Borrower to
Lender to perform acts or refrain from taking any action.
"Other Documents" shall mean the Note(s), and any and all
other agreements, instruments and documents, including, without limitation,
guaranties, pledges, powers of attorney, consents, and all other writings
heretofore, now or hereafter executed by Borrower and/or delivered to Lender in
respect of the transactions contemplated by this Agreement.
"Parent" of any Person shall mean a corporation or other
entity owning, directly or indirectly at least 50% of the shares of stock or
other ownership interests having ordinary voting power to elect a majority of
the directors of the Person, or other Persons performing similar functions for
any such Person.
"Payment Office" shall mean such office of Lender which it may
designate by notice to Borrower to be the Payment Office.
"Permitted Encumbrances" shall mean (a) Liens in favor of
Lender; (b) Liens for taxes, assessments or other governmental charges not
delinquent, or, being contested in good faith and by appropriate Proceedings and
with respect to which proper reserves have been taken by Borrower; provided,
that, the Lien shall have no effect on the priority of the Liens in favor of
Lender or the value of the assets in which Lender has such a Lien and a stay of
enforcement of any such Lien shall be in effect; (c) deposits or pledges to
secure obligations under worker's compensation, social security or similar laws,
or under unemployment Insurance; (d) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations of like
nature arising in the ordinary course of Borrower's business; (e) judgment Liens
that have been stayed or bonded and mechanics', worker's materialmen's or other
like Liens arising in the ordinary course of Borrower's business with respect to
obligations which are not due or which are being contested in good faith by
Borrower; (f) Liens placed upon fixed assets hereafter acquired to secure a
portion of the purchase price thereof, provided that (x) any such lien shall not
encumber any other property of Borrower and (y) the aggregate amount of
Indebtedness secured by such Liens, incurred as a result of such purchases
during any fiscal year shall not exceed the amount provided for in Section 7.6;
(g) other
5
<PAGE>
Liens incidental to the conduct of Borrower's business or the ownership of its
property and assets which were not incurred in connection with the borrowing of
money or the obtaining of advances or credit, and which do not in the aggregate
materially detract from Lender's rights in and to the Collateral or the value of
Borrower's property or assets or which do not materially impair the use thereof
in the operation of Borrower's business; and (h) Liens disclosed on SCHEDULE
"1.2".
"Person" shall mean an individual a partnership, a
corporation, a business trust, a joint stock company, a trust, an unincorporated
association, a joint venture, a governmental authority or any other entity of
whatever nature.
"Prime Rate" shall mean the reference rate of the Bank as
publicly announced to be in effect from time to time, such rate to be adjusted
automatically, without notice, on the effective date of any change in such rate.
This rate of interest is determined from time to time by the Bank as a means of
pricing some loans to its customers and is neither tied to any external rate of
interest or index nor does it necessarily reflect the lowest rate of interest
actually charged by the Bank to any particular class or category of customers of
the Bank.
"Pro Forma Balance Sheet" shall have the meaning set forth in
Section 5.5(a) hereof.
"Pro Form Financial Statements: shall have the meaning set
forth in Section 5.5(b) hereof.
"Projections" shall have the meaning set forth in Section
5.5(b) hereof.
"Receivables" shall mean and include all of Prima U.S.'s
accounts, contract rights, instruments, documents, chattel paper, general
intangibles relating to accounts, drafts and acceptances, and all other forms of
obligations owning to Prima U.S.'s arising out of or in connection with the sale
or lease of Inventory or the rendition of services, all guarantees and other
security therefore whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to Lender hereunder.
"Related Person" shall mean as to any Person, any other Person
which, together with such Person, is treated as a single employer under Section
414(c) of the Code.
"Reportable Event" shall mean a reportable event described in
Section 4043(b) of ERISA or the regulations promulgated thereunder.
"Revolving Advances" shall mean Advances made under the Note.
"Revolving Credit Note" shall mean the promissory note
referred to in Section 2.1(a) hereof.
"Revolving Interest Rate" shall mean an interest rate per
annum equal to the sum of the Prime Rate.
6
<PAGE>
"Subsidiary" of any Person shall mean a corporation or other
entity of whose shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such power
only by reason of the happening of a contingency) to elect a majority of the
directors of such corporation, or other Persons performing similar functions for
such entity, are owned, directly or indirectly, by such Person.
"Term" shall mean the Closing Date through June 30, 1999 as
same may be extended in accordance with the provisions of Section 13.1.
"Termination Date" shall have the meaning set forth in Section
13.1 hereof.
"Transactions" shall have the meaning set forth in Section 5.5
hereof.
"Undrawn Availability" at a particular date shall mean an
amount equal to (a) the lesser of (i) the Formula Amount or (ii) the Maximum
Revolving Advance Amount, minus (b) the sum of (i) the outstanding amount of
Revolving advances, plus (ii) all amounts due and owing to Borrower's creditors
which remain unpaid beyond the present ordinary course of business payment
practices of the Business.
1.3 Uniform Commercial Code Terms. All terms used herein and defined in
the Uniform Commercial Code as adopted in the State of North Carolina shall have
the meaning given therein unless otherwise defined herein.
1.4 Other Terms and Computation of Time Periods. Wherever appropriate
in the context, terms used herein in the singular also include the plural. All
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations and vice versa, and each
masculine, feminine or neuter pronoun shall also include other genders. The
words "include", "includes" and "including" shall be deemed to be followed by
the phrase "without limitation". The computation of periods of time from a
specified dated to a later specified date, the word "from" means "from and
including" and the words "to" and "until", each means "to but excluding". All
references to any instruments or agreements, including, without limitation,
references to any of the Other Documents shall include any and all modifications
or amendments thereto and any and all extensions or renewals thereof.
II. ADVANCES, PAYMENTS
2.1 (a) Revolving Advances. Subject to the terms and conditions set
forth in this Agreement, Lender will make Revolving Advances to Borrowers in
aggregate amounts outstanding not to exceed the Maximum Revolving Advance
Amount. Advances may be made to either Borrower but their shall be only one
indebtedness created which shall be the joint and several obligation of each
Borrower.
The Revolving Advances shall be evidenced by the joint secured
promissory note of Borrowers ("Revolving Credit Note") substantially in the form
attached hereto as EXHIBIT "A".
7
<PAGE>
(b) Discretionary Rights. The Maximum Revolving Advance Amount
may be increased or decreased by Lender at any time and from time to time in the
exercise of its reasonable discretion; provided, however, so long as no Event of
Default has occurred and is continuing Lender shall provide Borrower with notice
(oral or written) five (5) Business Days prior to any such decrease. Borrower
consents to any such increases or decreases and acknowledges that decreasing the
Maximum Revolving Advance Amount may limit or restrict Advances requested by
Borrower.
2.2 Procedure for Revolving Advances Borrowing. Borrower may notify
Lender prior to 11:00 a.m. on a Business Day of its request to incur, on that
day, a Revolving Advance hereunder. Should any amount required to be paid as
interest hereunder, or as fees or other charges due from Borrower under this
Agreement or any other agreement with Lender, or with respect to any other
Obligation, become due, same shall be deemed a request for a Revolving Advance
as of the date such payment is due, in the amount required to pay in full such
interest, fee, charge or Obligation under this Agreement or any other agreement
with Lender, and such request shall be irrevocable.
2.3 Disbursement of Advance Proceeds. All Advances shall be disbursed
from whichever office or other place Lender may designate from time to time and,
together with any and all other Obligations of Borrower to Lender, shall be
charged to Borrower's account on Lender's books. During the Term, Borrower may
use the Revolving Advances by borrowing, prepaying and reborrowing, all in
accordance with the terms and conditions hereof. The proceeds of each Revolving
Advance requested by Borrower or deemed to have been requested by Borrower under
Section 2.2 hereof shall, with respect to requested Revolving Advances to the
extent Lender makes such Revolving Advances, be made available to Borrower on
the day so requested by way of credit to Borrower's operating account at Bank,
or such other bank as Borrower may designate following written notification to
Lender, in immediately available federal or other immediately available funds
or, with respect to Revolving Advances deemed to have been requested, be
disbursed to Lender in payment of outstanding Obligations.
2.4 Repayment of Advances.
(a) The Advances shall be due and payable in full on the last
day of the Term subject to earlier prepayment as herein provided.
(b) All payments of principal, interest and other amounts
payable hereunder, or under any of the related agreements shall be made to
Lender at the Payment Office not later than 1:00 p.m. (North Carolina Time) on
the due date therefor in lawful money of the United States of America in federal
or other funds immediately available to Lender. Lender shall have the right to
effectuate payment on any and all Obligations due and owing hereunder by
charging Borrowers' account or by making Advances as provided in Section 2.3
hereof.
(c) Borrower's shall pay principal, interest, and all other
amounts payable hereunder, or under any related agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim.
8
<PAGE>
2.5 Repayment of Excess Advances. Except as set forth in Section 10.1
hereof, the aggregate balance of Revolving Advances outstanding at any time in
excess of the limitations set forth in Section 2.1 hereof, shall be immediately
due and payable in either event without the necessity of any demand, at the
Payment Office, whether or not a Default or an Event of Default has occurred.
2.6 Statement of Account. Lender shall maintain, in accordance with its
customary procedures, a single loan account in the name of Borrowers in which
shall be recorded the date and amount of each Advance made by Lender and the
date and amount of each payment in respect thereof; provided, however, the
failure by Lender to record the date and amount of any Advance shall not
adversely affect Lender. For each month, Lender shall send to Borrowers a
Statement showing the accounting for the Advances made, payments made or
credited in respect thereof, and other transactions between Lender and
Borrowers, during such month. The monthly statements shall be deemed correct and
binding upon Borrowers in the absence of manifest error and shall constitute an
account stated between Lender and Borrowers unless Lender receives a written
statement of Borrowers' specific exceptions thereto within thirty (30) days
after such statement is received by Borrowers. The records of Lender with
respect to the loan account shall be prima facie evidence of the amounts of
Advances and other charges thereto and of payments applicable thereto.
2.7 Additional Payments. Any sums expended by Lender due to either
Borrower's failure to perform or comply with its obligations under this
Agreement including, without limitation, Borrower's obligations under Section
4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be charged to Borrowers account
as a Revolving Advance and added to the Obligations.
2.8 Prepayments. Borrowers shall not be entitled to prepay any Advances
hereunder without the express written consent of the Lender.
III. INTEREST AND FEES
3.1 Interest. Interest on Advances shall be payable in arrears on the
first day of each month. Interest charges shall be computed on the actual
principal amount of Advances outstanding at the end of each day at a rate per
annum equal to the Revolving Interest Rate. Whenever, subsequent to the date of
this Agreement, the Prime Rate is increased or decreased, the applicable
Contract Rate shall be similarly changed without notice or demand of any kind by
an amount equal to the amount of such change in the Prime Rate on the first day
of the month following the month in which any change in the Prime Rate occurred.
Upon and after the occurrence of an Event of Default, and during the
continuation thereof, the Obligations shall bear interest at the applicable
Contract Rate plus four (4%) percent per annum (the "Default Rate").
3.2 Computation of Interest and Fees. Interest and fees hereunder shall
be computed on the basis of a year of 360 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date hereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the applicable
rate during such extension, as more fully set forth herein.
9
<PAGE>
3.3 Maximum Charges. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that a court determines that Lender has received interest
and other charges hereunder in excess of the highest rate applicable hereto,
such excess interest shall be first applied to any unpaid principal balance
owned by Borrower's, and if the then remaining excess interest is greater than
the previously unpaid principal balance, Lender shall promptly refund such
excess amount to Borrowers and the provisions hereof shall be deemed amended to
provide for such permissible rate.
IV. COLLATERAL: GENERAL TERMS
4.1 Security Interest in the Collateral. To secure the prompt payment
and performance to Lender of the Obligations, each of the Borrowers hereby
assigns, pledges and grants to Lender a continuing security interest in and to
all of the Collateral, whether now owned or existing or hereafter acquired or
arising and wheresoever located. Each borrower shall mark its books and records
as may be necessary or appropriate to evidence, protect and perfect Lender's
security interest and shall cause its financial statements to reflect such
security interest.
4.2 Perfection of Security Interest. Each borrower shall take all
action that may be necessary, or that Lender may reasonably request, so as at
all times to maintain the validity, perfection, enforceability and priority of
Lender's security interest in the Collateral or to enable Lender to protect,
exercise or enforce its rights hereunder and in the Collateral, including, but
not limited to (i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) delivering to Lender, endorsed or accompanied by such
instruments of assignment as Lender may specify, and stamping or marking, in
such manner as Lender may specify, any and all chattel paper, instruments,
letters of credit and advices thereof and documents evidencing or forming a part
of the Collateral, (iii) entering into warehousing, lockbox and other custodial
arrangements satisfactory to Lender, and (iv) executing and delivering financing
statements, instruments of pledge, notices and assignments, in each case in form
and substance satisfactory to Lender, relating to the creation, validity,
perfection, maintenance or continuation of Lender's security interest under the
Uniform Commercial Code or other applicable law. All reasonable charges,
expenses and fees Lender may incur in doing any of the foregoing, and any local
taxes relating thereto, shall be charged to Borrowers' account as a Revolving
Advance and added to the Obligations, or, at Lender's option, shall be paid to
Lender immediately upon demand.
4.3 Disposition of Collateral. Each borrower will safeguard and protect
all Collateral for Lender's general account and make no disposition thereof
whether by sale, lease or otherwise except (a) the sale of Inventory in the
ordinary course of business or (b) items listed on SCHEDULE "4.3".
10
<PAGE>
4.4 Preservation of Collateral. Following the occurrence of a Default
or an Event of Default, in addition to the rights and remedies set forth in
Section 11.1 hereof, Lender; (a) may at any time take such steps as Lender deems
necessary to protect Lender's interest in and to preserve the Collateral,
including the hiring of such security guards or the placing of other security
protection measures as Lender may deem appropriate; (b) may employ and maintain
at any of Borrower's premises a custodian who shall have full authority to do
all acts necessary to protect Lender's interests in the Collateral; (c) may
lease warehouse facilities to which Lender may move all or part of the
Collateral; (d) may use any of Borrower's owned or leased lifts, hoists, trucks
and other facilities or equipment for handling or removing the Collateral; and
(e) shall have, and is hereby granted, a right of ingress and egress to the
places where the Collateral is located, and may proceed over and through any of
Borrower's owned or leased property. Borrower shall cooperate fully with all of
Lender's efforts to preserve the Collateral and will take such actions to
preserve the Collateral, including any expenses relating to the bonding of a
custodian, shall be charged to Borrower's account as a Revolving Advance and
added to the Obligations.
4.5 Ownership of Collateral. With respect to the Collateral, at the
time the Collateral becomes subject to Lender's security interest: (a) Borrower
shall be the sole owner of and fully authorized and able to sell, transfer,
pledge and/or grant a first security interest in each and every item of the
Collateral to Lender; and, except for Permitted Encumbrances the Collateral
shall be free and clear of all Liens, Claims, Charges and encumbrances
whatsoever; (b) each document and agreement executed by Borrower or delivered to
Lender in connection with this Agreement shall be true and correct in all
respects; (c) all signatures and endorsements of Borrower that appear on such
documents and agreements shall be genuine and Borrower shall have full capacity
to execute same; and (d) Borrower's Inventory shall be located as set forth on
SCHEDULE "4.5" and shall not be removed from such location(s) without the prior
written consent of Lender expect with respect to the sale of Inventory in the
ordinary course of business and to the extent permitted in Section 4.3 hereof.
4.6 Defense of Lender's Interests. Until (a) payment and performance in
full of all of the Obligations and (b) termination of this Agreement, Lender's
interests in the Collateral shall continue in full force and effect. During such
period Borrower shall not, without Lender's prior written consent, pledge, or
(except Inventory in the ordinary course of business and Equipment to the extent
permitted in Section 4.3 hereof), assign, transfer, create or suffer to exist a
Lien upon or encumber or allow or suffer all or any part of the Collateral to be
encumbered in any way except for Permitted Encumbrances. Borrower shall defend
Lender's interests in the Collateral against any and all Persons whatsoever. At
any time following demand by Lender for payment of all Obligations as permitted
hereunder, (x) Lender shall have the right to take possession of the indicia of
the Collateral and the Collateral in whatever physical form contained, including
without limitation: labels, stationery, documents, instruments and advertising
materials, (y) if Lender exercises this right to take possession of the
Collateral, Borrower shall, upon demand, assemble it in the best manner possible
and make it available to Lender at a place reasonably convenient to Lender and
(z) Borrower shall, and Lender may, at its option, instruct all suppliers,
carriers, forwarders, warehouses or others receiving or holding cash, checks,
inventory, documents or instruments in which or in the proceeds of which Lender
holds a security interest to deliver same to Lender and/or subject to Lender's
order and if they shall come into Borrower's possession, they, and each of them,
shall be held by Borrower in trust as Lender's trustee, and Borrower will
immediately deliver them
11
<PAGE>
to Lender in their original form together with any necessary endorsement. In
addition, with respect to all Collateral, Lender shall be entitled to all of the
rights and remedies set forth herein and further provided by the Uniform
Commercial Code or other applicable law.
4.7 Books and Records. Borrower (a) shall keep proper books of record
and account in which full, true and correct entries will be made of all dealings
or transactions of or in relation to its business and affairs; (b) set up on its
books accruals with respect to all taxes, assessments, charges, levies and
claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including without limitation by reason of
enumeration, accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of properties), which
should be set aside from such earnings in connection with its business. All
determinations pursuant to this subsection shall be made in accordance with, or
as required by GAAP consistently applied in the opinion of such independent
public accountant as shall then be regularly engaged by Borrower.
4.8 Financial Disclosure. Each Borrower hereby irrevocably authorizes
and directs all accountants and auditors employed by Borrower at any time during
the Term to exhibit and deliver to Lender copies of any of Borrower's financial
statements, trial balances or other accounting records of any sort in the
accountant's or auditor's possession, and to disclose to Lender any information
such accountants and auditors may have concerning Borrower's financial status
and business operations. Borrower hereby authorizes all federal, state and
municipal authorities to furnish to Lender copies of reports or examinations
relating to Borrower, whether made by Borrower or otherwise; however, Lender
will attempt to obtain such information or materials directly from Borrower
prior to obtaining such information or materials from such accountants, auditors
or such authorities.
4.9 Compliance with Laws. Borrower shall comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official applicable to the Collateral or any part thereof or to the operation of
Borrower's business the non-compliance with which would have a material adverse
effect on the Collateral, or the operations, business or condition (financial or
otherwise) of Borrower. Borrower may, however, contest or dispute any acts,
rules, regulations, orders and directions of those bodies or officials in any
reasonable manner, provided that any related Lien in inchoate or stayed and
sufficient reserves are established to the reasonable satisfaction of Lender to
protect Lender's Lien on or security interest in the Collateral.
4.10 Inspection of Premises. At all reasonable times Lender shall have
full access to and the right to audit, check, inspect and make abstracts and
copies from Borrower's books, records, audits, correspondence and all other
papers relating to the Collateral and the operation of Borrower's business.
Lender and its agents may enter upon any of Borrower's premises at any time
during business hours and at any other reasonable time, and from time to time,
for the purpose of inspecting the Collateral and any and all records pertaining
thereto and the operation of Borrower's business.
4.11 Insurance. Borrower shall bear the full risk of any loss of any
nature whatsoever with respect to the Collateral. At Borrower's own cost and
expense in amounts and with carriers
12
<PAGE>
acceptable to Lender, Borrower shall (a) keep all its insurable properties and
properties in which Borrower has an interest insured against the hazards of
fire, flood, sprinkler leakage, those hazards covered by extended coverage
insurance and such other hazards, and for such amounts, as is customary in the
case of companies engaged in businesses similar to Borrower's including, without
limitation, business interruption insurance; (b) maintain a bond in such amounts
as is customary in the case of companies engaged in businesses similar to
Borrower's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of Borrower
either directly or through authority to draw upon such funds or to direct
generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (d) maintain all such workmen's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which Borrower is engaged in business; (e) maintain a life insurance policy
covering the life of Gianfranco Carbonato in the face amount of at least two
hundred thousand dollars ($200,000); (f) furnish Lender with (i) copies of all
policies and evidence of the maintenance of such policies by the renewal thereof
at least thirty (30) days before any expiration date, and (ii) appropriate loss
payable endorsements in form and substance satisfactory to Lender, naming Lender
as loss payee as its interest may appear with respect to all insurance coverage
referred to in clauses (a), and (b) above, and providing (A) that all proceeds
thereunder shall be payable to Lender, (B) no such insurance shall be affected
by any act or neglect of the insured or owner of the property described in such
policy, and (C) that such policy and loss payable clauses may not: be canceled,
amended or terminated unless at least thirty (30) days, prior written notice is
given to Lender. In the event of any loss thereunder, the carriers named therein
hereby are directed by Lender and Borrower to make payment for such loss to
Lender and not to Borrower and Lender jointly. If any insurance losses are paid
by check, draft or other instrument payable to Borrower and Lender jointly,
Lender may endorse Borrower's name thereon and do such other things as Lender
may deem advisable to reduce the same to cash. Lender is hereby authorized to
adjust and compromise claims under insurance coverage referred to in clauses
(a), and (b) above. All loss recoveries received by Lender upon any such
insurance may be applied to the Obligations, in such order as Lender in its sole
discretion shall determine. Any surplus shall be paid by Lender to Borrower or
applied as may be otherwise required by law. Any deficiency thereon shall be
paid by Borrower to Lender, on demand. Anything hereinabove to the contrary
notwithstanding, and subject to the fulfillment of the conditions set forth
below, Lender shall remit to Borrower insurance proceeds received by Lender
during any calendar year under insurance policies procured and maintained by
Borrower which insure Borrower's insurable properties to the extent such
insurance proceeds do not exceed $100,000 in the aggregate during such calendar
year or $50,000 per occurrence. In the event the amount of insurance proceeds
received by Lender for any occurrence exceeds $50,000, then Lender shall not be
obligated to remit the insurance proceeds to Borrower unless Borrower shall
provide Lender with evidence reasonably satisfactory to Lender that the
insurance proceeds with be used by Borrower to repair, replace or restore the
insured property which was the subject of the insurable loss. In the event
Borrower has previously received (or, after giving effect to any proposed
Remittance by Lender to Borrower would receive) insurance proceeds which equal
or exceed $100,000 in the aggregate during any calendar year, then Lender may,
in its sole discretion, either place such proceeds in a cash collateral account
and remit the insurance proceeds to Borrower upon Borrower providing Lender with
evidence reasonably satisfactory to Lender that the insurance proceeds will be
used by Borrower to repair, replace or restore the insured property which was
the subject of the insurable loss or apply
13
<PAGE>
the proceeds to the Obligations, as aforesaid. The agreement of Lender to remit
insurance proceeds in the manner above provided shall be subject in each
instance to satisfaction of each of the following conditions: (x) No Event of
Default or Default shall then have occurred and be continuing, and (y) Borrower
shall use such insurance proceeds to repair, replace or restore the insurable
property which was the subject of the insurable loss and for no other purpose.
4.12 Failure to Pay Insurance. If Borrower fails to obtain insurance as
hereinabove provided, or to keep the same in force, Lender, if Lender so elects,
may obtain such insurance and pay the premium therefor for Borrower's account,
and charge Borrower's account therefor and such expenses so paid shall be part
of the Obligations.
4.13 Payment of Taxes. Borrower will pay, when due, all taxes
assessments and other Charges or Claims lawfully levied or assessed upon
Borrower or any of the Collateral including, without limitation, real and
personal property taxes, assessments and charges and all franchise, income,
employment, social security benefits, withholding, and sales taxes. If any tax
by any governmental authority is or may be imposed on or as a result of any
transaction between Borrower and Lender which Lender may be required to withhold
or pay or if any taxes, assessments, or other Charges remain unpaid after the
date fixed for their payment, or if any Claim shall be made, which, in Lender's
opinion, may possibly create a valid Lien, Charge or Claim on the Collateral,
Lender may without notice to Borrower pay the taxes, assessments, Liens, Charges
or Claims and Borrower hereby indemnifies and holds Lender harmless in respect
thereof. Lender will not pay any taxes, assessments, Liens, Charges or Claims to
the extent that Borrower has contested or disputed those Liens, Charges and
Claims in good faith, by expeditious protest, administrative or judicial appeal
or similar proceeding provided than any related tax lien is stayed and
sufficient reserves are established to the reasonable satisfaction of Lender to
protect Lender's security interest in or Lien on the Collateral. The amount of
any payment by Lender under this Section 4.13 shall be charged to Borrower's
account as a Revolving Advance and added to the Obligations and, until Borrower
shall furnish Lender with an indemnity therefor (or supply Lender with evidence
satisfactory to Lender that due provision for the payment thereof has been
made), Lender may hold without interest any balance standing to Borrower's
credit and Lender shall retain its security interest in any and all Collateral
held by Lender.
4.14 Payment of Leasehold Obligations. Borrower shall at all times pay,
when and as due subject to any grace period thereunder, its rental obligations
under all leases under which it is a tenant, and shall otherwise comply, in all
material respects, with all other terms of such leases and keep them in full
force and effect and, at Lender's requests will provide evidence of having done
so.
4.15 PRIMA U.S. Receivables.
(a) Nature of Receivables. Each of the Receivables shall be a
bona fide and valid account representing a bona fide indebtedness incurred by
the Customer therein named located in the United States of America, for a fixed
sum as set forth in the invoice relating thereto (provided immaterial or
unintentional invoice errors shall not be deemed to be a breach hereof) with
respect to an absolute sale or lease and delivery of goods upon stated terms of
Borrower, or work, labor or services theretofore rendered by Borrower as of the
date each Receivable is created. Same shall be
14
<PAGE>
due and owing in accordance with Borrower's standard terms of sale without
dispute, setoff or counterclaim.
(b) Solvency of Customers. Each Customer, to the best of
Borrower's knowledge, as of the date each Receivable is created, is and will be
solvent and able to pay all Receivables on which the Customer is obligated in
full when due, or with respect to such Customers of Borrower who, to the best of
Borrower's knowledge are not solvent, Borrower has set up on its books and in
its financial records bad debt reserves adequate to cover such Receivables.
(c) Locations of Borrower. Prima Industrie's chief executive
office is located at Via Antonelli, 32 Regina Margherita di Collegno (Turin)
Italy. Until written notice is given to Lender by Borrower of any other office
at which it keeps its records pertaining to Receivables, all such records shall
be kept at such executive office.
(d) Notification of Assignment of Receivables. At any time
following the occurrence of an Event of Default or a Default, or at such other
times as permitted under the Factoring Agreement Lender shall have the right to
send notice of the assignment of, and Lender' security interest in, the
Receivables to any and all Customers or any third party holding or otherwise
concerned with any of the Collateral. Thereafter, Lender shall have the sole
right to collect the Receivables, take possession of the Collateral, or both.
Lender's actual collection expenses, including, but not limited to, stationery
and postage, telephone and telegraph, secretarial and clerical expenses and the
salaries of any collection personnel used for collection, may be charged to
Borrower's account and added to the Obligations.
(e) Power of Lender to Act on Borrower's Behalf. Upon the
occurrence of an Event of Default or with the concurrence of Borrower, Lender
shall have the right to receive, endorse, assignee and/or deliver in the name of
Lender or Borrower any and all checks, drafts and other instruments for the
payment of money relating to the Receivables, and Borrower hereby waives notice
of presentment, protect and non-payment of any instrument so endorsed. Borrower
hereby constitutes Lender's designee as Borrower's attorney with power:
(i) which Lender may exercise at any time or
from time to time (a) to endorse Borrower's name upon any notes, acceptances,
checks, drafts, money orders or other evidences of payment or Collateral; (b) to
sign Borrower's name on any invoice or bill of lading relating to any of the
Receivables, drafts against Customers, assignments and verifications of
Receivables; (c) to send verifications of Receivables to any Customer; (d) to
sign Borrower's name on all financing statements or any other documents or
instruments deemed necessary or appropriate by Lender to preserve, protect, or
perfect Lender's interest in the Collateral and to file same; and (e) to do all
other acts and things necessary to carry out this Agreement; and
(ii) which Lender shall only exercise after the
occurrence and during the continuance of an Event of Default (a) to demand
payment of the Receivables; (b) to enforce payment of the Receivables by legal
proceedings or otherwise; (c) to exercise all of Borrower's rights and remedies
with respect to the collection of the Receivables and any other Collateral; (d)
to settle, adjust, compromise, extend or renew the Receivables; (e) to settle,
adjust or compromise any legal proceedings brought to collect Receivables; (f)
to prepare, file and sign Borrower's name on a
15
<PAGE>
proof of claim; (g) to prepare, file and sign Borrower's name on any notice of
Lien, assignment or satisfaction of Lien or similar document in connection with
the Receivables; and (h) to change the address for delivery of mail addressed to
Borrower to such address as Lender may designate.
All acts of said attorney or designee are hereby ratified and approved, and said
attorney or designee shall not be liable for any acts of omission or commission
nor for any error of judgment or mistake of fact or of law, unless done
maliciously or with gross (not mere) negligence; this power being coupled with
an interest is irrevocable while any of the Obligations remain unpaid.
(f) No Liability. Lender shall not, under any circumstances or
in any event whatsoever, have any liability for any error or omission or delay
of any kind occurring in the settlement, collection or payment of any of the
Receivables or any instrument received in payment thereof, or for any damage
resulting therefrom so long as Lender acts in a commercially reasonable manner.
Following the occurrence of an Event of Default or a Default, Lender may,
without notice or consent from Borrower, sue upon or otherwise collect, extend
the time of payment of, compromise or settle for cash, credit or upon any terms
any of the Receivables or any other securities, instruments or insurance
applicable thereto and/or release any obligor thereof. Upon the occurrence of an
Event of Default, Lender is authorized and empowered to accept the return of the
goods represented by any of the Receivables, without notice to or consent by
Borrower, all without discharging or in any way affecting Borrower's liability
hereunder.
(g) Establishment of a Lockbox Account, Dominion Account. Upon
an Event of Default and at Lender's sole option, exercisable at any time
following an Event of Default, all proceeds of Collateral shall, at the
direction of Lender, be deposited by Borrower into a lockbox account, dominion
account or such other "blocked account" ("Blocked Accounts") as Lender may
require pursuant to an arrangement with such bank as may be selected by Borrower
and be acceptable to Lender. Borrower shall issue to any such bank, an
irrevocable letter or instruction directing said bank to transfer such funds so
deposited to Lender, either to any account maintained by Lender at said bank or
by wire transfer to appropriate account(s) of Lender. All funds deposited in
such "blocked account" shall immediately become the property of Lender (subject
to application pursuant to the terms hereof) and Borrower shall obtain the
agreement by such bank to waive any offset rights against the funds so
deposited. Lender assumes no responsibility for such "blocked account"
arrangement, including without limitation, any claim of accord and satisfaction
or release with respect to deposits accepted by any bank thereunder.
Alternatively, Lender may establish depository accounts ("Depository Accounts")
in the name of Lender at a bank or banks for the deposit of such funds and
Borrower shall deposit all proceeds of Collateral or cause same to be deposited,
in kind, in such Depository Accounts of Lender in lieu of depositing same to the
Blocked Accounts.
(h) Adjustments. Borrower will not, without Lender's consent,
compromise or adjust any Receivable (or extend the time for payment thereof) or
accept any material returns of merchandise or grant any additional discounts,
allowances or credits thereon except for those compromises, adjustments,
returns, discounts, credits and allowances as have been heretofore customary in
the business of Borrower.
16
<PAGE>
4.16 Inventory. All Inventory has been, and will be, produced by the
Borrowers in accordance with all applicable labor and employment laws, and all
rules, regulations and orders thereunder.
4.17 Exculpation of Liability. Nothing herein contained shall be
construed to constitute Lender as Borrower's agent for any purpose whatsoever,
nor shall Lender be responsible or Liable for any shortage, discrepancy, damage,
loss or destruction of any part of the Collateral wherever the same may be
located and regardless of the cause thereof so long as Lender acts in a
commercially reasonable manner. Lender shall not, whether by anything herein or
in any assignment or otherwise, assume any of Borrower's obligations under any
contract or agreement assigned to Lender, and Lender shall not be responsible in
any way for the performance by Borrower of any of the terms and conditions
thereof.
4.18 Financing Statements. Except for the financing statements filed by
Lender and the financing statements described on SCHEDULE "4.18" no financing
statement covering any of the Collateral or any proceeds thereof is on file in
any public office.
V. REPRESENTATIONS AND WARRANTIES
Each of the Borrowers represents and warrants as follows:
5.1 Authority. Borrower has full power, authority and legal right to
enter into this Agreement and the Other Documents and perform all Obligations
hereunder. The execution, delivery and performance hereof and of the Other
Documents (a) are within Borrower's corporate powers, have been duly authorized,
are not in contravention of law or the terms of Borrower's by-laws, certificate
of incorporation or other applicable documents relating to Borrower's formation
or to the conduct of Borrower's business or of any material agreement or
undertaking to which Borrower is a party or by which Borrower is bound, and (b)
will not conflict with nor result in any breach in any of the provisions of or
constitute a default under or result in the creation of any Lien except
Permitted Encumbrances upon any asset of Borrower under the provisions of any
agreement, charter, instrument, by-law, or other instrument to which Borrower is
a party or by which it may be bound.
5.2 Formation and Qualifications.
(a) Prima Industrie is duly incorporated and in good standing
under the laws of Italy and Prima U.S. is duly incorporated and in good standing
under the laws of Michigan and each is qualified to do business and is in good
standing in the places listed on SCHEDULE "5.2 (A)" which constitute all places
in which qualification and good standing are necessary for Borrower to conduct
its business and own its property and where the failure to so qualify would have
a material adverse effect on Borrower or its business taken as a whole. Borrower
has delivered to Lender true and complete copies of its certificate of
incorporation and by-laws and will promptly notify Lender of any amendment or
changes thereto; and
(b) Prima Industrie has the following subsidiaries:
Prima Electronics S.p.A. and Prima U.S. Inc.
17
<PAGE>
5.3 Survival of Representations and Warranties. All representations and
warranties of Borrower contained in this Agreement and the Other Documents shall
be true at the time of Borrower's execution of this Agreement and the Other
Documents, and shall survive the execution, delivery and acceptance thereof by
the parties thereto and the closing of the transactions described therein or
related thereto; but the representations and warranties (other than
representations and warranties as set forth in Section 4.9 hereof) shall
terminate one year after payment in full of all Obligations and termination of
this Agreement.
5.4 Tax Returns. Borrower has filed all tax returns and other reports
it is required by law to file and has paid all taxes, assessments, fees and
other governmental charges that are due and payable. The provision for taxes on
the books of Borrower is adequate for all years not closed by applicable
statutes, and for its current fiscal year, and Borrower has no knowledge of any
deficiency or additional assessment in connection therewith not provided for on
its books.
5.5 Financial Statements.
(a) The pro forma balance sheet of Borrower (the "Pro Forma
Balance Sheet") furnished to Lender on the Closing Date reflects the
consummation of the transactions contemplated by the Subordinated Documentation
and under this Agreement (the "Transactions") and fairly reflects the financial
condition of Borrower as of the Closing Date after giving effect to the
Transaction, and has been prepared in accordance with GAAP, consistently
applied. The Pro Forma Balance Sheet of Borrower has been certified as accurate,
complete and correct in all material respects by the President and Chief
Financial Officer of Borrower. All financial statements refereed to in this
subsection 5.5(a), including the related schedules and notes thereto, have been
prepared in accordance with GAAP consistently applied without normal year-end
adjustments or footnotes and other presentation items and except as may be
disclosed in such financial statements.
(b) The twelve-month cash flow projections of Borrower for
each year, through the end of the Term and its projected balance sheets as of
the Closing Date, copies of which are annexed hereto as SCHEDULE "5.5 (B)" (the
"Projections") were prepared by the Chief Financial Officer of Borrower, are
based on underlying assumptions which provide a reasonable basis for the
projections contained therein and reflect Borrower's judgment based on present
circumstances of the most likely set of conditions and course of action for the
projected period. The Projections together with the Pro Forma Balance Sheet, are
referred to as the "Pro Forma Financial Statements").
5.6 Corporate Name. Borrower has not been known by any other corporate
name in the past five years and does not sell Inventory under any other name
except as set forth on SCHEDULE "5.6", nor has Borrower been the surviving
corporation of a merger or consolidation or acquired all or substantially all of
the assets of any Person during the preceding five (5) years.
18
<PAGE>
5.7 Safety and Environmental Compliance.
(a) Borrower has duly complied with, and its facilities,
business, assets, property, leaseholds and Equipment are in compliance in all
material respect with, the provisions of all applicable workplace safety and
Environmental Laws; there have been no outstanding citations, notices or orders
of non-compliance issued to Borrower or relating to its business, assets,
property, leaseholds or equipment under any such laws, rules or regulations.
(b) Borrower has been issued all required licenses,
certificates or permits relating to all applicable Environmental Laws.
5.8 Solvency; No Litigation, Violation, Indebtedness or Default.
(a) After giving effect to the Transactions, Borrower will be
solvent, able to pay its debts as they mature, have capital sufficient to carry
on its business and all businesses in which it is about to engage, and (i) as of
the Closing Date, the fair present saleable value of its assets, calculated on a
going concern basis, is in excess of the amount of its liabilities and (ii)
subsequent to the Closing Date, the fair saleable value of its assets
(calculated on a going concern basis) will be in excess of the amount of its
liabilities.
(b) Except as disclosed in SCHEDULE "5.8 (B)", Borrower has
(i) no pending or threatened litigation, actions or proceedings which involve
the possibility of materially and adversely affecting its business, assets,
operations, condition or prospects, financial or otherwise, or the Collateral,
or the ability of Borrower to perform this Agreement, and (ii) no liabilities
nor indebtedness other than the Obligations.
(c) Borrower is not in violation of any applicable statute,
regulation or ordinance in any respect materially and adversely affecting the
Collateral or its business, assets, operations or condition (financial or
otherwise), or prospects, nor is Borrower in violation of any order of any
court, governmental authority or arbitration board or tribunal.
5.9 Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, tradenames, trade secrets and
licenses owned or utilized by Borrower are set forth on SCHEDULE "5.9", are
valid and have been duly registered or filed with all appropriate governmental
authorities and constitute all of the intellectual property rights which are
necessary for the operation of its business; there is no objection to or pending
challenge to the validity of any such material patent, trademark, copyright,
tradename, trade secret or license and Borrower is not aware of any grounds for
any challenge, except as set forth in SCHEDULE "5.9" hereto. Each patent, patent
application, patent license, trademark, trademark application, trademark
license, service mark, service mark application, service mark license,
copyright, copyright application, copyright license owned or held by Borrower
and all trade secrets used by Borrower consists of original material or property
developed by Borrower or was lawfully acquired by Borrower from the proper and
lawful owner thereof. Each of such items has been maintained so as to preserve
the value thereof from the date of creation or acquisition thereof. With respect
to all software used by Borrower, Borrower is in possession of all source and
object codes related to each piece of software which is material to the
19
<PAGE>
Business or is the beneficiary of a source code escrow agreement, each such
source code escrow agreement being listed on SCHEDULE "5.9" hereto.
5.10 Licenses and Permits. Except as set forth in SCHEDULE "5.10",
Borrower (a) is in compliance with and (b) has procured and is now in possession
of, all material licenses or permits required by any applicable law or
regulation for the operation of its business in each jurisdiction wherein it is
now conducting or proposed to conduct business and where the failure to procure
such licenses or permits would have a material adverse effect on the business,
properties, condition (financial or otherwise) or operations, present or
prospective of Borrower.
5.11 Default of Indebtedness. Borrower is not in default in the payment
of the principal of or interest on any Indebtedness or under any instrument or
agreement under or subject to which any Indebtedness has been issued and no
event has occurred under the provision of any such instrument or agreement which
with or without the lapse of time or the giving of notice, or both, constitutes
or would constitute an event of default thereunder which has resulted in the
acceleration of the maturity of Indebtedness.
5.12 No Default. Borrower is not in default in the payment or
performance of any of its contractual obligations, which default would
materially and adversely affect the business, assets, operations, condition
(financial or otherwise) or prospects of Borrower.
5.13 No Burdensome Restrictions. Borrower is not party to any contract
or agreement the performance of which would materially and adversely affect the
business, assets, operations, condition (financial or otherwise) or prospects of
Borrower. Borrower has not agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property, whether
now owned or hereafter acquired, to be subject to a Lien which is not a
Permitted Encumbrance.
5.14 No Labor Disputes. Borrower is not involved in any labor dispute;
there are no strikes or walkouts or union organization of any of Borrower's
employees, or to the Borrower's knowledge, threatened or in existence and no
labor contract is scheduled to expire during the Term other than as set forth on
SCHEDULE "5.14" hereto.
5.15 Margin Regulations. Borrower is not engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U or
Regulation G of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect. No part of the proceeds of any Advance
will be used for "Purchasing" or "carrying" "margin stock" as defined in
Regulation U of such Board of Governors.
5.16 Investment Company Act. Borrower is not an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is it controlled by such a company.
5.17 Disclosure. No representation or warranty made by Borrower in this
Agreement or in any financial statement, report, certificate or any other
documents furnished in connection
20
<PAGE>
herewith or therewith contains any untrue statement of a material fact or omits
to state any material fact necessary to make the statements herein or therein
not misleading. There is no fact known to Borrower or which reasonably should be
known to Borrower which Borrower has not disclosed to Lender in writing with
respect to the transactions contemplated by this Agreement which materially and
adversely affects the condition (financial or otherwise), results of operations,
business, or assets of Borrower.
5.18 Swaps. Borrower is not a party to, nor will it be a party to, any
swap agreement whereby Borrower has agreed or will agree to swap interest rates
or currencies unless same provides that damages upon termination following an
event of default thereunder are payable on an unlimited "two-way basis" without
regarding to fault on the part of either party.
5.19 Conflicting Agreements. No provision of any mortgage, indenture,
contract, agreement, judgment, decree or order binding on Borrower or affecting
the Collateral conflicts with, or requires any Consent which has not already
been obtained, or would in any way prevent the execution, delivery or
performance of, the terms of this Agreement or the Other Documents.
5.20 Application of Certain Laws and Regulations. Neither Borrower nor
any Subsidiary of Borrower is subject to any statue, rule or regulation which
regulates the incurrence of any Indebtedness, including without limitation,
statutes or regulations relative to common or interstate carriers or to the same
of electricity, gas, steam, water, telephone, telegraph or other public utility
services.
5.21 Business and Property of Borrower. Upon and after the Closing
Date, Borrower does not propose to engage in any business other than the
Business and activities necessary to conduct the Business. On the Closing Date,
Borrower will own all the property and possess all of the rights and Consents
necessary for the conduct of the business of Borrower.
VI. AFFIRMATIVE COVENANTS
Each of the Borrowers shall, until payment in full of the Obligations
and termination of this Agreement:
6.1 Payment of Fees. Pay to Lender on demand all usual and customary
fees and expenses which Lender incurs in connection with (a) the forwarding of
Advance proceeds and (b) the establishment and maintenance of any Blocked
Accounts or Depository Account as the case may be. Lender may, without making
demand, charge the account of Borrower for all such fees and expenses.
21
<PAGE>
6.2 Conduct of Business and Maintenance of Existence and Assets. (a)
Conduct continuously and operate actively its business according to good
business practices (which shall include normally scheduled plant closings in the
ordinary course of Borrower's business) and maintain all of its properties
useful or necessary in its business in good working order and condition
(reasonable wear and tear excepted and except as may be disposed of in
accordance with the term of this Agreement), including, without limitation, all
licenses, patents, copyrights, tradenames, trade secrets and trademarks and take
all actions necessary to enforce and protect the validity of any intellectual
property right or other right included in the Collateral the failure of which
would have a material adverse effect on the business, assets, operations,
condition (financial or otherwise) or prospects of Borrower; (b) keep in full
force and effect its existence and comply in all material respects with the laws
and regulations governing the conduct of its business the failure of which would
have a material adverse effect on the business, assets, operations, condition
(financial or otherwise) or business prospects of Borrower; and (c) make all
such reports and pay all such franchise and other taxes and license fees and do
all such other acts and things as may be lawfully required to maintain its
rights, licenses, leases, powers and franchises under the laws of the United
States or any political subdivision thereof.
6.3 Violations. Promptly notify Lender in writing of any violation of
any law, statute, regulation or ordinance of any governmental entity, or of any
agency thereof, applicable to Borrower which may materially and adversely affect
the Collateral or Borrower's business, assets, operations, condition (financial
or otherwise) or prospects.
6.4 Government Receivables. Take all steps necessary to protect
Lender's interest in the Collateral under the Federal Assignment of Claims Act
or other applicable state or local statutes or ordinances and deliver to Lender
appropriately endorsed, any instrument or chattel paper connected with any
Receivable arising out of contracts between Borrower and the United States, any
state or any department, agency or instrumentality of any of them.
6.5 Execution of Supplemental Instruments. Execute and deliver to
lender from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Lender may reasonably request, in
order that the full intent of this Agreement may be carried into effect.
6.6 Payment of Indebtedness. Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all its obligations
and liabilities of whatever nature, except when the amount or validity thereof
is currently being contested in good faith by appropriate proceedings and
Borrower shall have provided for such reserves as Lender may reasonably deem
proper and necessary, subject at all times to any applicable subordination
arrangement in favor of Lender.
6.7 Standards of Financial Statements. Cause all financial statements
referred to in this Agreement (subject, in the case of interim financial
statements, to normal year-end audit adjustments and footnotes and other
presentation items) to be prepared in reasonable detail and to be fairly
presented in accordance with GAAP applied consistently throughout the periods
reflected therein (except as concurred in by such reporting accountants or
officer, as the case may be, and disclosed therein, in which event Borrower and
Lender shall, in good faith, negotiate any
22
<PAGE>
adjustments required to applicable Sections of this Agreement as a result of a
change required by GAAP or changes in the manner in which GAAP is applied and in
the event Borrower and Lender cannot agree on such adjustments within fifteen
(15) Business Days of receipt of such financial statements, Lender shall, in the
exercise of its reasonable business judgment, determine the necessary
adjustments and reset the financial covenants set forth in such sections in
which event the consent of Borrower shall not be required).
VII. NEGATIVE COVENANTS
Each of the Borrowers shall not, until satisfaction in full of the
Obligations and termination of this Agreement:
7.1 Merger, Consolidation, Acquisition and Sale of Assets.
(a) Enter into any merger, consolidation or other
reorganization with or into any other Person or acquire all or a substantial
portion of the assets or stock of any Person or permit any other Person to
consolidate with or merge with it.
(b) Sell, lease, transfer or otherwise dispose of any of its
properties or assets, except in accordance with this agreement.
7.2 Creation of Liens. Create or suffer to exist any Lien, Charge,
Claim or transfer upon or against any of its property or assets now owned or
hereafter acquired, except Permitted Encumbrances.
7.3 Guarantees. Become liable upon the obligations of any Person, by
assumption, endorsement or guaranty thereof or otherwise (other than to Lender)
except as disclosed in SCHEDULE "7.3" and the endorsement of checks in the
ordinary course of business.
7.4 Loans. Make advances, loans or extensions of credit to any Person,
including without limitation, any Parent, Subsidiary or Affiliate except with
respect to the extension of commercial trade credit in connection with the sale
of Inventory in the ordinary course of its business or advances to employees for
business related expenses in an amount not to exceed $5,000 to any employee or
$50,000 to all employees in the aggregate at any time.
7.5 Nature of Business. Substantially change the nature of the Business
as presently engaged, nor except as specifically permitted hereby purchase or
invest, directly or indirectly, in any assets or property other than in the
ordinary course of business for assets or property which are useful in,
necessary for and are to be used in the Business.
7.6 Leases. Enter as lessee into any lease arrangement for real or
personal property (unless capitalized and permitted under Section 7.5 hereof) if
after giving effect thereto, aggregate annual rental payments for all leased
property would exceed $500,000 in any one fiscal year.
23
<PAGE>
7.7 Subsidiaries.
(a) Form any Subsidiary.
(b) Enter into any partnership, joint venture or similar
arrangement.
7.8 Fiscal Year and Accounting Changes. Change its fiscal year end from
December 31, or make any change (i) in accounting treatment and reporting
practices except as required by GAAP or (ii) in tax reporting treatment except
as required by law.
7.9 Prepayment of Indebtedness. Without the written consent of Lender
at any time, directly or indirectly, prepay any Indebtedness in excess of
$100,000 (other than to Lender), or repurchase, redeem, retire or otherwise
acquire any Indebtedness of Borrower, or make any payment or distribution on the
Subordinated Indebtedness, or grant security with respect thereto except as
provided by in Section 7.12 hereof. Notwithstanding the foregoing, Borrower
shall not be prohibited from taking advantage of trade discounts in the normal
course of business.
7.10 Pledge of Credit. Pledge Lender's credit on any purchases or for
any purpose whatsoever or use any portion of any Advance in or for any business
other than the Business.
7.11 Amendment of Articles of Incorporation, By-Laws. Amend, modify or
waive any material term or material provision in its Articles of Incorporation
or By-Laws unless required by law.
VIII. CONDITIONS PRECEDENT
8.1 Conditions to Initial Advances. The agreement of Lender to make the
initial Advances requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Lender, immediately prior to or concurrently with the
making of such Advances, of the following conditions precedent by each of the
Borrowers:
(a) Notes. Lender shall have received the Notes duly
executed and delivered by an authorized officer of Borrower;
(b) Filings, Registrations and Recordings. Each document
(including, without limitation, any Uniform Commercial Code financing statement
and all documents required by Italian Civil Law) required by this Agreement, any
related agreement or under law or reasonably requested by Lender to be filed,
registered or recorded in order to create, in favor of Lender, a perfected
security interest in or lien upon the Collateral shall have been properly filed,
registered or recorded in each jurisdiction in which the filing, registration or
recordation thereof is so required or requested, and Lender shall have received
an acknowledgement copy, or other evidence satisfactory to it, of each such
filing, registration or recordation and satisfactory evidence of the payment of
any necessary fee, tax or expense relating thereto;
(c) Corporate Proceedings of Borrower. Lender shall have
received a copy of the resolutions in form and substance reasonably satisfactory
to Lender, of the Board of Directors of
24
<PAGE>
Borrower authorizing (i) the execution, delivery and performance of this
Agreement, the Notes, the Mortgage, any related agreements, and the Subordinated
Documentation if applicable (collectively the "Documents") and (ii) the granting
by Borrower of the security interests in and liens upon the Collateral in each
case certified by the Secretary or an Assistance Secretary of Borrower as of the
Closing Date; and, such certificate shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded as of the date
of such certificate;
(d) Incumbency Certificates of Borrower. Lender shall have
received a certificate of the Secretary or an Assistant Secretary of Borrower,
dated the Closing Date, as to the incumbency and signature of the officers of
Borrower executing this Agreement, any certificate or other documents to be
delivered by it pursuant hereto, together with evidence of the incumbency of
such Secretary or Assistant Secretary;
(e) Certificates. Lender shall have received a copy of the
Articles or Certificate of Incorporation of Borrower, and all amendments
thereto, certified by the Secretary of State or other appropriate official of
its jurisdiction of incorporation together with copies of the By-Laws of
Borrower and all agreements of Borrower's shareholders certified as accurate and
complete by the Secretary of Borrower;
(f) Good Standing Certificates. Lender shall have received
good standing certificates for Borrower dated not more than five (5) days prior
to the Closing, issued by the Secretary of State or other appropriate official
of Borrower in the jurisdiction of incorporation and each jurisdiction where the
conduct of Borrower's business activities or the ownership of its properties
necessitates qualification;
(g) Legal Opinion. Lender shall have received the executed
legal opinions of Ciomenti Studio Legale, Milan, Italy in form and substance
satisfactory to Lender which shall cover such matters incident to the
transactions contemplated by this Agreement, the Note, the Mortgage and related
agreements as Lender may reasonably require;
(h) No Litigation. (i) No litigation, investigation or
proceeding before or by any arbitrator or governmental authority shall be
continuing or threatened against Borrower or against the officers or directors
of Borrower (A) in connection with the Documents or any of the transactions
contemplated thereby and which, in the reasonable opinion of Lender, is deemed
material or (B) which if adversely determined, would, in the reasonable opinion
of Lender, have a material adverse effect on the business, assets, operations or
condition (financial or otherwise) to Borrower or the conduct of its business or
inconsistent with the due consummation of the Transactions shall have been
issued by any governmental authority;
(i) Financial Condition Opinions. Lender shall have received
executed Officers Certificates satisfactory in form and substance to it,
certifying the solvency of Borrower after giving effect to the Transactions and
the Indebtedness contemplated hereby and as to Borrower's financial resources
and its ability to meet its obligations and liabilities as they become due; to
the effect that as of the Closing Date and after giving effect to the
Transactions:
25
<PAGE>
(i) the assets of Borrower, at a fair valuation,
exceed the total liabilities (including contingent, subordinated, unmatured
and unliquidated liabilities) of Borrower;
(ii) current projections which are based on
underlying assumptions which provide a reasonable basis for the projections and
which reflect Borrower's judgment based on present circumstances of the most
likely set of conditions and Borrower's most likely course of action for the
period projected, demonstrate that Borrower will have sufficient cash flow to
enable it to pay its debts as they mature; and
(iii) Borrower does not have an unreasonably small
capital base with which to engage in its anticipated business.
For purposes of this subsection (i), the "fair valuation, of the assets of
Borrower shall be determined on the basis of the amount which may be realized
within a reasonable time, either through collection or sale of such assets at
market value, conceiving the latter as the amount which could be obtained for
the property in question within such period by a capable and diligent
businessman from an interested buyer who is willing to purchase under ordinary
selling conditions.
(j) Collateral Examination. Lender shall have completed
Collateral examinations, the results of which shall be satisfactory in form and
substance to Lender, of the Receivables, Inventory, General Intangibles, Real
Property and Equipment of Borrower and all books and records in connection
therewith;
(k) Fees. Lender shall have received all fees payable
as of the Closing Date due to Lender;
(l) Pro Forma Financial Statements. Lender shall have received
a copy of the Pro Forma Financial Statements which shall be reasonably
satisfactory in all material respects to Lender;
(m) Insurance. Lender shall have received in form and
substance satisfactory to Lender, certified copies of Borrower's casualty
insurance binders, with loss payable endorsements on Lender's standard form of
loss payee endorsement naming Lender as loss payee, and certified copies of
Borrower's liability insurance binders, together with endorsements naming Lender
as a co-insured;
(n) Payment Instructions. Lender shall have received written
instructions from Borrower directing the application of proceeds of the initial
Advances made pursuant to this Agreement;
(o) Consents. Lender shall have received any and all Consents
necessary to permit the effectuation of the transactions contemplated by this
Agreement and the Other Documents; and, Lender shall have received such Consents
and waivers of such third parties as might assert claims with respect to the
Collateral, as Lender and its counsel shall deem necessary;
26
<PAGE>
(p) No Adverse Material Change. Since December 31, 1997, there
shall not have occurred (i) any material adverse change in the business,
financial condition, prospects or results of operations of the Business or
Borrower, or the existence or value of any Collateral; or (ii) any event,
condition or state of facts which would reasonably be expected materially and
adversely to affect the business, financial condition or results of operations
of Borrower or the Business;
(q) Other. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
Transactions shall be reasonably satisfactory in form and substance to Lender
and its counsel.
8.2 Conditions to Each Advance. The agreement of Lender to make any
Advance requested to be made on any date (including, without limitation, its
initial Advance), is subject to the satisfaction of the following conditions
precedent as of the date such Advance is made:
(a) Representations and Warranties. Each of the
representations and warranties made by each of the Borrowers in or pursuant to
this Agreement and the Other Documents, and each of the representations and
warranties contained in any certificate, document or financial or other
statement furnished at any time under or in connection with this Agreement or
the Other Documents shall be true and correct in all material respects on and as
of such date as if made on and as of such date except such representations and
warranties which specifically relate to another date which shall be true and
correct as of such other date;
(b) No Default. No Event of Default or Default shall have
occurred and be continuing on such date, or would exist after giving effect to
the Advances requested to be made, on such date, provided, however that Lender
in its sole discretion may continue to make Advances notwithstanding the
existence of an Event of Default or Default; and
(c) Maximum Advances. In the case of any requested Revolving
Advance, after giving effect to such request, the aggregate Revolving Advances
shall not exceed the maximum Revolving Advances permitted hereunder.
Each request for an Advance by either Borrower hereunder shall constitute a
representation and warranty by both Borrowers as of the date of such Advance
that the conditions contained in this subsection shall have been satisfied.
IX. INFORMATION AS TO BORROWER
Each of the Borrowers shall, until satisfaction in full of the
Obligations and the termination of this Agreement:
9.1 Disclosure of Material Matters. Promptly upon learning thereof,
report to Lender all matters materially affecting the value, enforceability or
collectibility of any item of Collateral with a value in excess of $25,000
including, without limitation, Borrower's reclamation or repossession of, or the
return to Borrower of, a material amount of goods or claims or disputes asserted
by any Customer or other obligor.
27
<PAGE>
9.2 Schedules. Deliver to Lender on or before the fifteenth (15th) day
of each month as and for the prior month (a) accounts receivable agings, (b)
accounts payable schedules and (c) Inventory reports for receivables of Prima
U.S., Inc. In addition, Borrower will deliver to Lender at such intervals as
Lender may require: (i) confirmatory assignment schedules, (ii) copies of
Customers' invoices, (iii) evidence of shipment or delivery, and (iv) such
further schedules, documents and/or information regarding the Collateral as
Lender may require including, without limitation, trial balances and test
verifications. Lender shall have the right to confirm and verify all Receivables
by any manner and through any medium it considers advisable and do whatever it
may deem reasonably necessary to protect its interests hereunder. The items to
be provided under this Section are to be in form satisfactory to Lender and
executed by Borrower and delivered to Lender from time to time solely for
Lender's convenience in maintaining records of the Collateral, and Borrower's
failure to deliver any of such items to Lender shall not affect, terminate,
modify or otherwise limit Lender's Lien with respect to the Collateral.
9.3 Litigation. Promptly notify Lender in writing of (i) any litigation
affecting Borrower, whether or not the claim is covered by insurance, and (ii)
any suit or administrative proceeding, in the case of Subclauses (i) or (ii),
which may materially and adversely affect the Collateral or Borrower's business,
assets, operations, condition (financial or otherwise) or prospects.
9.4 Occurrence of Defaults, etc. Promptly notify Lender in writing upon
the occurrence of (a) any Event of Default or Default; (b) any event of default
under the Subordinated Documentation; (c) any event which with the giving of
notice or lapse of time, or both, would constitute an event of default under the
Subordinated Documentation; (d) any event, development or circumstance whereby
any financial statements or other reports furnished to Lender fail in any
material respect to present fairly, in accordance with GAAP consistently
applied, the financial condition or operating results of Borrower as of the date
of such statements; (e) any accumulated retirement plan funding deficiency
which, if such deficiency continued for two plan years and was not corrected as
provided in Section 4971 of the Internal Revenue Code, could subject Borrower to
a tax imposed by Section 4971 of the Internal Revenue Code; (f) each and every
default by Borrower which results in the acceleration of the maturity of any
Indebtedness for borrowed money in excess of $100,000, including the names and
addresses of the holders of such Indebtedness with respect to which there is a
default existing or with respect to which the maturity has been or could be
accelerated, and the amount of such Indebtedness; and (g) any other development
in the business or affairs of Borrower which might reasonably be expected to be
materially adverse; in each case describing the nature thereof and the action
Borrower proposes to take with respect thereto.
9.5 Government Receivables. Notify Lender immediately if any of its
Receivables arise out of contracts between Borrower and the United States, any
state, or any department, agency or instrumentality of any of them.
9.6 Annual Financial Statements. Furnish Lender as soon as available
but in no event later than one hundred twenty (120) days provided no Event of
Default has occurred and is continuing or ninety (90) days at all other times
after the end of each fiscal year of Borrower, audited financial statements of
Borrower including, but not limited to, statements of income, equity and cash
flow from the beginning of the current fiscal year to the end of such fiscal
year and the balance sheet as at the end of such fiscal year, all prepared in
accordance with GAAP applied on a
28
<PAGE>
basis consistent with prior practices, and in reasonable detail and reported
upon without qualification by an independent certified public accounting firm
selected by Borrower and satisfactory to Lender (the "Accountants"), together
with a comparison of the actual results during such fiscal year to those
originally budgeted by Borrower prior to the beginning of such fiscal year,
along with management's discussion and analysis of variances, as provided in
Section 9.12 hereof. The report of such accounting firm shall be accompanied by
a statement of such accounting firm certifying that they have caused the
Agreement to be reviewed in making the examination upon which such report was
based, and either no information came to their attention which to their
knowledge constituted an Event of Default or a Default under this Agreement or
any related agreement or, if such information came to their attention,
specifying any such Default or Event of Default, its nature when it occurred and
whether it is continuing. In addition, the reports shall be accompanied by a
certificate of Borrower's Chief Financial Officer which shall state that, based
on an examination sufficient to permit him to make an informed statement, no
Default or Event of Default exists, or, if such is not the case, specifying such
Default or Event of Default, its nature, when it occurred, whether it is
continuing and the steps being taken by Borrower with respect to such event.
9.7 Quarterly Financial Statements. Furnish Lender as soon as available
but in no event later than forty (40) days after the end of each calendar
quarter an unaudited balance sheet of Borrower and unaudited statements of
income, net worth and cash flow of Borrower each reviewed by the Accountants
reflecting results of operations from the beginning of the fiscal year to the
end of such six month period and for such six month period, prepared on a basis
consistent with prior practices and complete and correct in all material
respects, subject to normal year end adjustments and lacking footnotes and other
presentation items. The financial statements shall be accompanied by a
certificate of Borrower's Chief Financial Officer which shall state that, based
on an examination sufficient to permit him to make an informed statement, no
Default or Event of Default exists, or, if such is not the case, specifying such
Default or Event of Default, its nature, when it occurred, whether it is
continuing and the steps being taken by Borrower with respect to such event and,
such certificate shall have appended thereto calculations which set forth
Borrower's compliance with the financial covenants referred to in Sections 6.5,
6.6, 6.7, 6.8, 6.9, 6.10, 6.11 and 6.12 hereof.
9.8 Monthly Financial Statements. Furnish Lender as soon as available
but in no event later than thirty (30) days after the end of each month, an
unaudited balance sheet of Borrower and unaudited statements of income,
stockholders' equity and cash flow of Borrower reflecting results of operations
from the beginning of the fiscal year to the end of such month and for such
month, prepared on a basis consistent with prior practices and fairly presented
in accordance with GAAP consistently applied, subject to normal year end
adjustments and lacking footnotes and other presentation items. The reports
shall be accompanied by a certificate of Borrower, signed by the President
and/or Chief Financial Officer of Borrower, which shall state whether an Event
of Default or an Default has occurred.
9.9 Other Reports. Furnish Lender as soon as available, but in any
event within ten (10) days after the issuance thereof, (i) with copies of such
financial statements, reports and returns as Borrower shall send to its
stockholders and (ii) copies of all notices sent pursuant to the Subordinated
Documentation.
29
<PAGE>
9.10 Additional Information. Furnish Lender with additional information
as Lender shall reasonably request in order to enable Lender to determine
whether the terms, covenants, provisions and conditions of this Agreement and
the Note have been complied with by Borrower including, without limitation and
without the necessity of any request by Lender, (a) copies of all environmental
audits and reviews, (b) at least thirty (30) days prior thereto, notice of
Borrower's opening of any new office or place of business or Borrower's closing
of any existing office or place of business and (c) promptly upon Borrower's
learning thereof, of any labor dispute to which Borrower may become a party, any
strikes or walkouts relating to any of its plants or other facilities, and the
expiration of any labor contract to which Borrower is a party or by which
Borrower is bound.
9.11 Projected Operating Budget. Furnish Lender, no less than thirty
(30) days prior to the beginning of each of Borrower's fiscal years commencing
with fiscal year ending on December 31, 1998, a month by month projected
operating budget and cash flow of Borrower for such fiscal year (including an
income statement for each month and a balance sheet as at the end of the last
month in each fiscal quarter), such projections to be accompanied by a
certificate signed by Borrower's President or Chief Financial Officer to the
effect that such projections have been prepared on the basis of sound financial
planning practice consistent with past budgets and financial statements and that
such officer has no reason to question the reasonableness of any material
assumptions on which such projections were prepared.
9.12 Variances From Operating Budget. Furnish Lender, concurrently with
the delivery of the financial statements referred to in Section 9.7 and 9.8 and
each monthly report referred to in Section 9.9 hereof for the months of June and
December, a written report summarizing all material variances from budgets
submitted by Borrower pursuant to Section 9.12 and a discussion and analysis by
management with respect to such variances.
9.13 Notice of Suits, Adverse Events. Furnish Lender with prompt notice
of (i) any lapse or other termination of any Consent issued to Borrower by any
Governmental Body or any other Person that is material to the operation of
Borrower's business, (ii) any refusal by any Governmental Body or any other
Person to renew or extend any such Consent; and (iii) copies of any periodic or
special reports filed by Borrower with any Governmental Body or Person, if such
reports indicate any material change in the business, operations, affairs or
condition of Borrower, or if copies thereof are requested by Lender, and (iv)
copies of any material notices and other communications from any Governmental
Body or Person which specifically relate to Borrower.
9.14 Additional Documents. Execute and deliver to Lender, upon request,
such documents and agreements as Lender may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement.
30
<PAGE>
X. EVENTS OF DEFAULT
The occurrence of any one or more of the following events with respect
to either Borrower shall constitute an "Event of Default":
10.1 failure by Borrower to pay any principal or interest on the
Obligations when due, whether at maturity or by reason of acceleration pursuant
to the terms of this Agreement or by notice of intention to prepay, or by
required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due; provided, however, if the
aggregate balance of Revolving Advances outstanding at any time is in excess of
the amounts permitted under Section 2.1 hereof, (x) such failure shall continue
unremedied for more than three (3) Business Days after notice thereof shall have
been given to Borrower by Lender;
10.2 any representation or warranty made or deemed made by Borrower in
this Agreement or any related agreement or in any certificate, document or
financial or other statement furnished at any time in connection herewith or
therewith shall prove to have been misleading in any material respect on the
date when made or deemed to have been made;
10.3 failure by Borrower to (i) furnish financial information required
to be provided hereunder (a) when due or (b) when requested which is unremedied
for a period of ten (10) Business Days from the date of such request, or (ii)
permit the inspection of its books or records as required hereunder;
10.4 issuance of a notice of Lien, Charge, Claim, levy, assessment,
injunction or attachment against a material portion of the Collateral which is
not stayed or lifted within thirty (30) days;
10.5 failure or neglect of Borrower to perform, keep or observe any
other term, provision, condition, covenant herein contained, or contained in any
other agreement or arrangement, now or hereafter entered into between Borrower
and Lender, other than a failure or neglect of Borrower to perform, keep or
observe such term, provision, condition or covenant, contained in Sections 4.7,
4.8, 4.9, 4.11, 6.1, 6.3, 6.4, 9.3 or 9.5 hereof which failure is cured within
the earlier of (i) twenty (20) days after the occurrence of the failure or
neglect or (ii) fifteen (15) days after notice from Lender to Borrower of such
failure or neglect;
10.6 any judgment is rendered or judgment liens filed against Borrower
for an amount in excess of $100,000 which within thirty (30) days of such
rendering or filing is not either satisfied, stayed or discharged of record or
bonded on appeal;
10.7 Borrower shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (ii) make a general
assignment for the benefit of creditors, (iii) commence a voluntary case under
any state, federal, or Italian bankruptcy moratorium or insolvency laws (as now
or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vi) acquiesce to, or fail to have dismissed, within forty-five (45)
days, any petition filed against it in any involuntary case under such
bankruptcy
31
<PAGE>
moratorium or insolvency laws, or (vii) take any action for the purpose of
effecting any of the foregoing;
10.8 Borrower shall admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business;
10.9 any change in Borrower's condition or affairs (financial or
otherwise) which in Lender's opinion materially impairs the Collateral or the
ability of Borrower to perform its Obligations under this Agreement;
10.10 any Lien created hereunder in favor of Lender or provided for
hereby or under any related agreement in favor of Lender for any reason ceases
to be or is not a valid and perfected Lien having a first priority interest
(subject to permitted purchase money security interests, and mechanics liens
which are not yet due and owing);
10.11 a default of the obligations of Borrower under any other
agreement to which it is a party shall occur which materially adversely affects
its condition, affairs or prospects (financial or otherwise) which default is
not cured within any applicable grace or cure period;
10.12 termination or breach agreement executed and delivered to Lender
in connection with the Obligations of Borrower, or if the signer thereof
attempts to terminate, challenges the validity of, or its liability under, any
such agreement;
10.13 Borrower shall cease to be a subsidiary of Lender;
10.14 Borrower shall claim in writing to Lender that any material
provision of this Agreement shall, for any reason, cease to be valid and binding
on Borrower;
10.15 (i) any Governmental Body shall (A) revoke, terminate, suspend or
adversely modify any license, permit, patent trademark or tradename of Borrower,
the continuation of which is material to the continuation of Borrower's
business, or (B) commence proceedings to suspend, revoke, terminate or
materially adversely modify any such license, permit, trademark, tradename or
patent and such proceedings shall not be dismissed or discharged within sixty
(60) days, or (ii) any agreement which is necessary and material to the
operation of Borrowers business shall be revoked or terminated and not replaced
by a substitute acceptable to Lender within thirty (30) days after the date of
such revocation or termination, and such revocation or termination and
non-replacement would have a material adverse effect on Borrower's business or
financial condition;
10.16 any material portion of the Collateral be seized or taken by a
Governmental Body, or Borrower or the title and rights of Borrower shall have
become the subject matter of litigation which is reasonably likely to, in the
opinion of Lender, upon final determination, result in impairment or loss of the
security provided by this Agreement or the Other Documents;
32
<PAGE>
XI. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT
11.1 Rights and Remedies. Upon the occurrence of (i) an Event of
Default in the form of a payment default under the terms of either Note and the
terms of this Agreement, all Obligations shall be immediately due and payable
and this Agreement and the obligation (if any) of Lender to make Advances shall
be deemed terminated; (ii) any of the other Events of Default and at any time
thereafter (such Event of Default not having previously been cured) - at the
option of Lender all Obligations shall be immediately due and payable and Lender
shall have the right to terminate this Agreement and to terminate the obligation
(if any) of Lender to make Advances, and (iii) filing of a petition against
Borrower in any involuntary case under any state or federal bankruptcy laws the
obligations (if any) of the Lender to make Advances hereunder shall be
terminated other than as may be permitted by an appropriate order of the
bankruptcy court having Jurisdiction over the Borrower. Upon the occurrence of
any Event of Default, Lender shall have the right to exercise any and all other
rights and remedies provided for herein, under the Uniform Commercial Code and
at law or equity generally, including, without limitation, the right to
foreclose the security interests granted herein and to realize upon any
Collateral by any available judicial procedure and/or to take possession of and
sell any or all of the Collateral with or without judicial process. Lender may
enter any of Borrower's premises or other premises without legal process and
without incurring liability to Borrower therefor, and Lender may thereupon, or
at any time thereafter, in its discretion without notice or demand, take the
Collateral and remove the same to such place as Lender may deem advisable and
Lender may require Borrower to make the Collateral available to Lender at a
convenient place. With or without having the Collateral at the time or place of
sale, Lender may sell the Collateral, or any part thereof, at public or private
sale, at any time or place, in one or more sales, at such price or prices, and
upon such terms, either for cash, credit or future delivery, as Lender may
elect. Except as to that part of the Collateral which is perishable or threatens
to decline speedily in value or is of a type customarily sold on a recognized
market, Lender shall give Borrower reasonable notification of such sale or
sales, it being agreed that in all events written notice mailed to Borrower at
least five (5) days prior to such sale or sales is reasonable notification. At
any public sale Lender may bid for and become the purchaser, and Lender or any
other purchaser at any such sale thereafter shall hold the Collateral sold
absolutely free from any claim or right of whatsoever kind, including any equity
of redemption and such right and equity are hereby expressly waived and released
by Borrower. In connection with the exercise of the foregoing remedies, Lender
is granted permission to use all of Borrower's trademarks, trade styles, trade
names, patents, patent applications, licenses, franchises and other proprietary
rights which are used in connection with (a) Inventory for the purpose of
disposing of such Inventory and (b) Equipment for the purpose of completing the
manufacture of unfinished goods. The proceeds realized from the sale of any
Collateral shall be applied first to the reasonable costs, expenses and
reasonable attorneys' fees and disbursements incurred by Lender for collection
and for acquisition, completion, protection, removal, storage, sale and delivery
of the Collateral; second to interest due upon any of the Obligations; and third
to the principal of the Obligations. if any deficiency shall arise, Borrower
shall remain liable to Lender therefor.
11.2 Lender's Discretion. Lender shall have the right in its sole
discretion to determine which rights, Liens, security interests or remedies
Lender may at any time pursue, relinquish,
33
<PAGE>
subordinate, or modify or to take any other action with respect thereto and such
determination will not in any way modify or affect any of Lender's rights
hereunder.
11.3 Setoff. In addition to any other rights which Lender may have
under applicable law, upon the occurrence of an Event of Default hereunder,
Lender shall have a right to apply any of Borrower's property held by Lender or
by the Bank to reduce the Obligations then due and owing.
11.4 Rights and Remedies not Exclusive. The enumeration of the
foregoing rights and remedies is not intended to be exhaustive and the exercise
of any right or remedy shall not preclude the exercise of any other right or
remedies, all of which shall be cumulative and not alternative.
XII. WAIVERS AND JUDICIAL PROCEEDINGS
12.1 Waiver of Notice. Each Borrower hereby waives notice of
non-payment of any of the Receivables, demand, presentment, protest and notice
thereof with respect to any and all instruments, notice of acceptance hereof,
notice of loans or advances made, credit extended, Collateral received or
delivered, or any other action taken in reliance hereon, and all other demands
and notices of any description, except such as are expressly provided for
herein.
12.2 Delay. No delay or omission on Lender's part in exercising any
right, remedy or option shall operate as a waiver of such or any other right,
remedy or option or of any default.
XIII. EFFECTIVE DATE AND TERMINATION
13.1 Term. This Agreement, which shall inure to the benefit of and
shall be binding upon the respective successors and permitted assigns of each of
the Borrowers and Lender, shall become effective on the date hereof and shall
continue in full force and effect until May 31, 2001 (the "Term") unless sooner
terminated as herein provided. Borrowers may terminate this Agreement at any
time upon sixty (60) days' prior written notice ("Termination Date") upon
payment in full of the Obligations.
13.2 Termination. The termination of the Agreement shall not affect any
of Borrower's or Lender's rights, or any of the Obligations having their
inception prior to the effective date of such termination, and the provisions
hereof shall continue to be fully operative until all transactions entered into,
rights or interests created or Obligations have been fully disposed of,
concluded or liquidated. The security interests, Liens and rights granted to
Lender hereunder and under the Other Documents to which either Borrower is a
party and the financing statements filed hereunder shall continue in full force
and effect, notwithstanding the termination of this Agreement, until all of the
Obligations of Borrower have been paid or performed in full after the
termination of this Agreement or Borrower has furnished Lender with an
indemnification satisfactory to Lender with respect thereto. Accordingly,
Borrower waives any rights which it may have under Section 9-404(i) of the
Uniform Commercial Code to demand the filing of termination statements with
respect to the Collateral, and Lender shall not be required to send such
termination statements to Borrower, or to file them with any filing office,
unless and until this Agreement shall have been terminated in accordance with
its terms and all Obligations paid in full in immediately available funds. All
34
<PAGE>
representations, warranties, covenants, waivers and agreements contained herein
shall survive termination hereof until all Obligations are repaid or performed
in full.
XIV. MISCELLANEOUS
14.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of North Carolina applied to contracts
to be performed wholly within the State of North Carolina, United States of
America. Any judicial proceeding brought by or against Borrower with respect to
any of the Obligations, this Agreement or any related agreement may be brought
by Lender in any court of competent jurisdiction in the State of North Carolina,
United States of America, and, by execution and delivery of this Agreement,
Borrower accepts for itself and in connection with its properties, generally and
unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. Nothing herein shall affect the right to serve process in
any manner permitted by law or shall limit the right of Lender to bring
proceedings against Borrower in the courts of any other jurisdiction. Borrower
waives any objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of jurisdiction or
venue or based upon forum non conveniens. Any judicial proceeding by Borrower
against Lender involving, directly or indirectly, any matter or claim in any way
arising out of, related to or connected with this Agreement or any related
agreement, shall be brought only in a federal or state court located in the
State of North Carolina.
14.2 Entire Understanding. This Agreement and the documents executed
concurrently herewith contain the entire understanding between Borrower and
Lender and supersedes all prior agreements and understandings, if any, relating
to the subject matter hereof. Any promises, representations, warranties or
guarantees not herein contained and hereinafter made shall have no force and
effect unless in writing, signed by Borrower's and Lender's respective officers.
Neither this Agreement nor any portion or provisions hereof may be changed,
modified, amended, waived, supplemented, discharged, canceled or terminated
orally or by any course of dealing, or in any manner other than by an agreement
in writing, signed by the party to be charged. Borrower acknowledges that it has
been advised by counsel in connection with the execution of this Agreement and
Other Documents and is not relying upon oral representations or statements
inconsistent with the terms and provisions of this Agreement.
14.3 Successors and Assigns; Participations; New Lenders. This
Agreement shall be binding upon and inure to the benefit of Borrower, Lender,
all future holders of the Note and their respective successors and assigns,
except that Borrower may not assign or transfer any of its rights or obligations
under this Agreement without the prior written consent of Lender. Lender shall
be entitled to assign or transfer any of its rights and obligations hereunder at
any time without the consent of Borrower.
14.4 Application of Payments. Lender shall have the continuing and
exclusive right to apply or reverse and re-apply any payment and any and all
proceeds of Collateral to any portion of the Obligations. To the extent that
Borrower makes a payment or Lender receives any payment or proceeds of the
Collateral for Borrower's benefit, which are subsequently invalidated, declared
to be fraudulent or preferential, set aside or required to be repaid to a
trustee, debtor in possession,
35
<PAGE>
receiver, custodian or any other party under any bankruptcy law, common law or
equitable cause, then, to such extent, the Obligations or part thereof intended
to be satisfied shall be revived and continue as if such payment or proceeds had
not been received by Lender.
14.5 Indemnity. Borrower shall indemnity Lender from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, reasonable fees and disbursements of
counsel) which may be imposed on, incurred by, or asserted against Lender in any
litigation, proceeding or investigation instituted or conducted by any
governmental agency or instrumentality or any other Person with respect to any
aspect of, or any transaction contemplated by, or referred to in, or any matter
related to, this Agreement, whether or not Lender is a party thereto, except to
the extent that any of the foregoing arises out of the gross (not mere)
negligence or willful misconduct of the party being indemnified.
14.6 Notice. Any notice or request hereunder may be given to Borrower
or to Lender at their respective addresses set forth below or at such other
address as may hereafter be specified in a notice designated as a notice of
change of address under this Section. Any notice or request hereunder shall be
given by (a) hand delivery, (b) overnight courier, or (c) telecopy to the number
set out below (or such other number as may hereafter be specified in a notice
designated as a notice of change of address) with electronic confirmation or
subsequently confirmed by registered or certified mail. Notices and requests
shall, in the case of telecopy, be deemed to have been given when electronic
confirmation of its receipt is received and in the case of overnight courier, be
deemed to have been given when deposited with the overnight courier service.
(A) If to Lender, at: The PRIMA Group International, Inc.
447 S. Sharon Amity Road, Suite 250
Charlotte, NC 28211
Attention: James R. Currier, Sr.
Telephone: 704-366-8999
Telecopier: 704-366-4585
<TABLE>
<S><C>
(B) If to Borrower, at: Prima Industria, S.p.A. Prima U.S. Inc.
Via Antonelli 32 23399 Commerce Drive
10097 Regina Margherita Suite B-10
di Collegno, (TO) Farmington Hills, MI 48335
Italy
Attention: Gianfranco Carbonato Michael Cheney
Telephone: 011 39 11 410 3205 248-449-4994
Telecopier: 011 39 11 411 7334
</TABLE>
14.7 Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
36
<PAGE>
14.8 Expenses. All costs and expenses including, without limitation,
reasonable attorneys' fees and disbursements incurred by Lender, (a) in all
efforts made to enforce payment of any obligation or effect collection of any
Collateral, or (b) in connection with the entering into, modification,
amendment, administration and enforcement of this Agreement or any consents or
waivers hereunder and all related agreements, documents and instruments, or (c)
in instituting, maintaining, preserving, enforcing and foreclosing on Lender's
security interest in or Lien on any of the Collateral, whether through judicial
proceedings or otherwise, or (d) in defending or prosecuting any actions or
proceedings arising out of or relating to Lender's transactions with Borrower,
or (e) in connection with any advice given to Lender with respect to its rights
and obligations under this Agreement and all related agreements, may be charged
to Borrower's account as a Revolving Advance and shall be part of the
Obligations.
14.9 Injunctive Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, any remedy at law may prove to be inadequate relief to
Lender; therefore, Lender, if Lender so requests, shall be entitled to temporary
and permanent injunctive relief in any such case without the necessity of
proving actual damages.
14.10 Consequential Damages. Neither Lender nor any agent or attorney
for Lender shall be liable to Borrower for consequential damages arising from
any breach of contract, tort or other wrong relating to the establishment,
administration or collection of the Obligations.
14.11 Captions. The captions at various places in this Agreement are
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.
14.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
14.13 Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
37
<PAGE>
Each of the parties have signed this Agreement as of the _____ day
of _____________________________, 1998.
Prima Industrie S.p.A.
By:
____________________________________
Name:
________________________
Title:
________________________
Address:
________________________
________________________
Prima U.S. Inc.
By:
____________________________________
Name:
________________________
Title:
________________________
Address:
________________________
________________________
The PRIMA Group International, Inc.
By:
____________________________________
Name:
________________________
Title:
________________________
Address:
________________________
________________________
38
<PAGE>
STATE OF
____________________
COUNTY OF
___________________
On this _____ day of _________, 199___, before me personally came
_______________________, to me known, who, being by me duly sworn, did depose
and say that he is the ____________________ of Prima Industrie, S.p.A., the
company described in and which executed the foregoing instrument; that he knows
the seal of the company; that the seal affixed to said instrument is such
company seal; that it was so affixed by order of the board of directors of said
company, and that he signed his name thereto by like order.
-------------------------------
Notary Public
My commission expires: ________________
STATE OF
____________________
COUNTY OF
___________________
On this _____ day of _________, 199___, before me personally came
_______________________, to me known, who, being by me duly sworn, did depose
and say that he is the ____________________ of PRIMA U.S. INC., the corporation
described in and which executed the foregoing instrument; that he knows the seal
of the corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the board of directors of said
corporation, and that he signed his name thereto by like order.
-------------------------------
Notary Public
My commission expires: ________________
39
<PAGE>
STATE OF
____________________
COUNTY OF
___________________
On this _____ day of _________, 199___, before me personally came
_______________________, to me known, who, being by me duly sworn, did depose
and say that he is the ____________________ of THE PRIMA GROUP INTERNATIONAL,
INC., the corporation described in and which executed the foregoing instrument;
that he knows the seal of the corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the board
of directors of said corporation, and that he signed his name thereto by like
order.
-------------------------------
Notary Public
My commission expires: ________________
40
<PAGE>
EXHIBIT A
JOINT REVOLVER LOAN
PROMISSORY NOTE
May , 1998
FOR VALUE RECEIVED, The PRIMA Group International, Inc. ("Lender") has
agreed, for so long as no Default or Event of Default exists, and subject to the
provisions of the Revolving Credit and Security Agreement by and between
Borrowers and Lender dated May, 1998 ("Loan Agreement") to make loans (the
"Revolver Loans") to Borrowers from time to time, as requested by Borrowers, in
the manner set forth below, up to a maximum aggregate amount at any time
outstanding equal to $3,000,000,000. Subject to the terms and conditions hereof
and in the Loan Agreement, Borrowers shall be entitled to reborrow all amounts
repaid with respect to the Revolver Loans. All Revolver Loans shall be used
exclusively for Borrowers' business needs in a manner consistent with the terms
hereof and the terms of the Loan Agreement, and applicable law. Each Borrower
jointly and severally agrees to pay interest on any unpaid principal amount of
any Revolver Loan outstanding from the respective dates such principal amounts
are advanced until paid (whether at stated maturity, on acceleration or
otherwise) at a variable rate per annum equal to the Prime Rate in effect from
time to time. The applicable rate of interest shall be increased or decreased,
as the case maybe, by an amount equal to any increase or decrease in the Prime
Rate. "Prime Rate" shall mean the reference rate of NationsBank of North
Carolina as publicly announced to be in effect from time to time, such rate to
be adjusted automatically without notice, on the effective date of any change in
such rate. "Prime Rate" is determined by NationsBank as a means of pricing some
loans to its customers and is neither tied to any external rate of interest or
index nor does it necessarily reflect the lowest rate of interest actually
charged by NationsBank to any particular class or category of customers. All
such interest shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days. Any adjustment in the interest rate,
whether upward or downward, shall become effective on the first day of the month
next following the month in which the Prime Rate is reduced or increased.
All payments shall be due on the next business day following a due
date, if said due date is not a business day.
<PAGE>
This secured Note is the Revolver Note of Borrowers referred to in the
Loan Agreement. The Loan Agreement and the Other Documents referred to therein
contain additional rights and privileges of the holder of this Note. In addition
to Collateral specified in the Loan Agreement, any of either Borrower's property
used as Collateral for any other current or future agreement between Borrowers
and Lender (or Lender's successors in interest) shall also provide security for
this secured loan (the "Collateral"). Capitalized terms used and not defined
herein have the meanings assigned to them in the Loan Agreement. This Note is
not assignable or negotiable by Borrowers without the express written consent of
Lender, in its sole and absolute discretion.
If a Revolver Loan Event of Default, as provided in the Loan Agreement,
shall occur, or if a default by Borrowers shall occur pursuant to the terms and
conditions of any other current or future agreement between Borrowers and Lender
(or Lender's successors in interest) the unpaid balance of the principal of this
secured Note, together with all accrued but unpaid interest hereon, as well as
any other charges due hereunder, may be declared and shall thereupon become due
and payable in the manner and with the effect provided in the Loan Agreement.
Payment of principal and interest shall be made in lawful money of the
United States of America. Time is of the essence with regard to this Note. To
the fullest extent permitted by applicable law, Borrowers expressly waive
presentment, demand, protest, notice of dishonor, notice of non-payment, notice
of maturity, notice of protest, presentment for the purpose of accelerating
maturity, diligence in collection and the benefit of any exemption, moratorium
or insolvency laws.
Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or remaining provisions of
this Note. No delay or failure on the part of Lender in the exercise of any
right or remedy hereunder shall operate as a waiver thereof, nor as an
acquiescence in any default, nor shall, any single or partial exercise by Lender
of any right or remedy hereunder or under the Loan Agreement preclude any other
right or remedy. Lender, at its option, may enforce its rights against either
Borrower or any Collateral securing this Note without enforcing its rights
against the other Borrower, or any other property or indebtedness due or to
become due to Lender. Each Borrower agrees that, without notice to either
Borrower, Lender may at any time release, surrender, substitute or exchange any
Collateral securing this Note and may at any time release any party primarily or
secondarily liable for the indebtedness evidenced by this Note, including either
Borrower, without impairing Lender's rights against the remaining Borrower or
Borrowers or the remaining collateral.
This secured Note is executed and delivered in and shall, in all
respects, be governed by and construed in accordance with the laws of the State
of North Carolina, United States of America, including all matters of
construction, validity and performance and the Borrower specifically agrees to
such jurisdiction and venue with regard to any suit or other matter pertaining
to this Note or any document referenced herein.
<PAGE>
IN WITNESS WHEREOF, each Borrower has caused this secured Note to be
duly executed in its name to evidence its joint and several obligation
hereunder.
ATTEST: Prima Industries, S.p.A.
___________________ By:_______________________
Secretary
Its:______________________
(Corporate Seal)
ATTEST: Prima U.S. Inc.
___________________ By:_______________________
Secretary
Its:______________________
(Corporate Seal)
EXHIBIT 10.11
AMENDED AGREEMENT
FOR CO-DEVELOPMENT OF LASER-ON-LINE PRODUCTS AND TECHNOLOGY
This Agreement is made the as of the Effective Date as (defered in
Section 8.11 hereof) by and among The PRIMA Group International, Inc., a
Delaware corporation with its principal place of business at 447 S. Sharon Amity
Road, Suite 250, Charlotte, North Carolina 28211 ("PRIMA"), Prima Industrie
S.p.A., organized under the laws of Italy with its principal place of business
at Via Antonelli, 32, 10097 Regina Margherita Di Collegno, Torino, Italy
("Industrie"), and Prima Electronics S.p.A., organized under the laws of Italy
with its principal place of business in Moncalieri, Torino, Italy,
("Electronics"). (PRIMA, Industrie and Electronics shall be referred to from
time to time collectively as "Developers" and individually as "Developer"); (the
"Agreement").
WHEREAS, PRIMA, Industrie and Electronics desire to assist each other
in areas of mutual business interest including development of a new series of
products to be known as the "Laser On Line" series, Technology, and associated
intellectual property, and
WHEREAS, all of the parties hereto will benefit financially from
further Products and Technology development,
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the parties agree as follows:
ARTICLE I
GENERAL PROVISIONS
1.01 Agreement of Joint Development. The Developers hereby agree,
subject only to the condition subsequent specified in Section 8.11, to the joint
development of the Products (the "Project") under the terms and provisions of
this Agreement and the rights and liabilities of the Developers shall be as
provided in this Agreement. The Developers do not hereby intend to form a
separate legal entity for the conduct of the development.
1.02 Name of the Project. The name of the Products shall be "Laser on
Line" and the Project shall be known as the "Laser on Line Project", or such
other name as the Developers from time to time may designate. The Developers
shall not cause to be filed an assumed or fictitious name certificate or
certificates for the Project but may seek registration of the name "Laser on
Line" as a trademark or servicemark.
1.03 Purpose of the Project. The purpose of the Project is to research
and develop, experiment with, manufacture and market the Products based upon the
Technology.
1.04 Duration of the Project. The Project shall commence upon the
Effective Date and shall continue until its termination in accordance with the
provisions of this Agreement.
<PAGE>
1.05 Definitions.
(a) "Affiliate" means a Person which directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the Person specified.
(b) "Development Project" shall mean the efforts undertaken by
the Developers to integrate their services and to develop the Products under the
terms and conditions of this Agreement.
(c) "Patents" means all United States patents, patent
applications, all reissue and renewal applications, all divisional applications,
all continuation applications, all continuation-in-part applications, and all
corresponding foreign patents and patent applications which in the absence of a
valid license agreement would be infringed by the use, sale or manufacture or
other disposition of the Products or Technology.
(d) "Pre-existing Technology" shall means hardware, software,
know-how, or designs owned by or licensed to Electronics and Industrie existing
prior to the Effective Date, necessary for the development, implementation and
use of the Product and Technology.
(e) "Products" shall mean any and all tangible and intangible
products, including but not limited to hardware and software, to be known as the
"Laser on Line" series developed under this Agreement by the Developers and
Technology incorporated therein.
(f) "Technology" shall mean all inventions, know-how,
developments, improvements, technical data, results, data, designs, hardware,
software and other information in any form, patentable or unpatentable, which
are conceived, created, written, developed, reduced to practice, and acquired by
the Developers during the Duration of the Project and which relate to the
Development Project.
(g) "United States" means the United States of America, its
possessions and its territories.
(h) "GAAP" means generally accepted accounting principles.
ARTICLE II
2.01 Contributions.
(a) PRIMA will provide funding for all Project activities
which shall be accounted for by the parties in accordance with United States
GAAP. PRIMA undertakes to use its best efforts to make available to Industrie
and Electronics such funds for research and development of the Products and
Technology as are reasonably necessary, in order for Industrie and Electronics
to pursue their obligations hereunder.
2
<PAGE>
(b) Industrie and Electronics shall provide to the Project any
necessary rights in existing Technology, personnel, facilities, and daily
management.
ARTICLE III
PROJECT MANAGEMENT
3.01 Management of the Project. Strategic management of the Project
shall be provided by PRIMA; on site management and daily control of the business
and affairs of the Project shall be vested in Industrie, except as may be
otherwise provided in this Agreement.
3.02 Products Liability or Infringement Claims. Each Developer shall
notify the other Developers of any infringement or products liability claim,
suit, action or proceeding against it arising from the development, sale,
assignment, licensing or other distribution of the Products. PRIMA shall have
the right, but not the obligation, to defend on behalf of itself and the other
Developers any such claim, suit, action or proceeding. The expenses (including
attorneys' fees) incurred in connection with the defense of any such claim,
suit, action or proceeding shall be allocated among the Developers in accordance
with US GAAP.
3.03 No Compensation. The Developers shall receive no compensation
for performing their duties as Developers under this Agreement.
3.04 Contracts with the Developers or their Affiliates.
(a) Industrie and Electronics may enter into contracts for
goods or services between themselves and/or any other Developer or any Affiliate
of any Developer. The validity of any transaction, agreement or payment
involving the Developer and the Project, or any Affiliate of a Developer and the
Project, otherwise permitted by the terms of this Agreement shall not be
affected by reason of (i) the relationship between the Project and Developer or
any Affiliate of any Developer or (ii) the approval of the transaction,
agreement or payment to the Developer or any Affiliate by officers or directors
of the Developer.
(b) Industrie shall, among other things and in accordance with
its management and operation of the Project as contemplated in this Agreement,
(i) manufacture the Products during the term of this Agreement, and (ii) provide
marketing services for the Products in Italy.
(c) Prima shall provide marketing services for the Products
outside Italy.
3.05 Insurance. Industrie shall (a) maintain, with insurers or
underwriters of good repute, such insurance relating to the Project and the
Products as is customary for business of a like nature to maintain against such
risks (including without limitation against product liability actions and
actions in respect of product liability by third parties or any of the
Developers pursuant to such terms (including deductible limits or self-insured
retentions) as are customary for such businesses, and (b) pay all premiums and
other sums payable in respect of maintaining such insurance.
3
<PAGE>
ARTICLE IV
DEVELOPMENT OF PRODUCTS AND TECHNOLOGY
4.01 Development agreement. Industrie and Electronics jointly and
severally agree to use their best efforts to perform research and
experimentation as part of the Development Project, including research and
experimentation necessary to obtain approval under any law or regulation in the
United States, Italy or the world governing intellectual property rights
pertaining to the Products and/or Technology for purposes of sale, licensing or
other disposition around the world; and that Industrie and Electronics shall
pursue full and complete intellectual property registration and protection of
the Products and Technology in the name of the appropriate party as determined
under Section 4.02 under such laws of such countries as agreed to from time to
time by the Developers.
4.02 Ownership of Products and Technology.
(a) PRIMA shall own all right, title and interest in and to
the Products and Technology, including without limitation any patents,
copyrights, trade secrets, know-how and other intellectual property rights
therein under the laws of any country other than Italy and shall have the
exclusive right to sell, transfer, license, or assign such right, title and
interest in all such countries.
(b) It is agreed between the Developers that with regard to
any intellectual property rights acquired in the Products or Technology under
the laws of Italy, Industrie shall be the sole and exclusive owner of any such
property rights, and shall, as between the Developers, have the exclusive right
to sell, assign, license or distribute the Products and Technology (according to
the terms of this Agreement) to any third party domiciled in Italy and the
exclusive right to sell, transfer, license, or assign such right title and
interest in Italy.
(c) Work Made For Hire: To the extent that the Products or
Technology may be protectable by copyright laws of the United States of America,
copyrights in the Products shall be owned exclusively by PRIMA and shall be
deemed works made for hire for purposes of the U.S. Copyright Act. If the
Products shall be determined not to be work made for hire by a court or other
body of competent jurisdiction or if ownership of all right, title, and interest
of copyrights therein shall not otherwise be deemed to vest exclusively in the
owner of PRIMA, then Industrie and Electronics, without additional compensation,
shall forthwith assign to PRIMA, and do by this Agreement hereby assign to
PRIMA, the ownership of such rights, including the copyrights in the Products
and Technology, together with all rights arising from such copyright ownership,
and PRIMA shall have the right to register in its own name such copyrights.
Industrie and Electronics further agree to deliver to PRIMA assignments of all
of Industrie and Electronics other intellectual property rights in the Products
in a form satisfactory to PRIMA and its legal counsel.
4.03 Consultation. Consistent with the purposes and limitations herein,
the Developers shall consult with each other on a continuing basis to evaluate
the current state of the Products and Technology, as well as proposed pending
patent (or other applicable intellectual property rights) with regard to the
Products and Technology. Industrie and Electronics shall promptly communicate to
each other and to PRIMA any improvement or development in the Products or
Technology.
4
<PAGE>
ARTICLE V
ACCESS TO TECHNOLOGY
5.01 Access to Technology. All Developers shall be entitled to access
to the Technology under this Agreement solely for the purposes set forth herein.
The Developers agree that at no time shall any Developer sell, assign, pledge,
license or otherwise dispose of or in any way encumber all or any part of its
interest in the Products or Technology or any other product embodying the
Products or derived from the Technology to any other party, except as agreed
herein. No part of the Products or Technology that is not protected by a patent
or other intellectual property right shall be disclosed by any Developer to any
party except as permitted by this Agreement.
5.02 Protection of Technology. Upon termination of this Agreement, and
subject to PRIMA's rights, Industrie and Electronics shall use their best
efforts to protect and safeguard all tangible manifestations of the Technology
(and all proprietary information of the Venture) in the possession of Industrie
or Electronics or any of their Affiliates, and except as set forth in this
Agreement shall not make, use, sell, disclose, license, or otherwise distribute,
the Products or any part of the Products or Technology or any products embodying
the Products or derived from the Technology and shall not assert that they have
any right to prevent any other Developer from making, using, selling, licensing
or disclosing any of the Technology or any product embodying or derived from the
Products or the Technology so long as such distribution is made in accordance
with the terms of this Agreement.
5.03 Pre-existing Technology. To the extent that any Pre-Existing
Technology is contained in the Products or Technology, Industrie and Electronics
grant to PRIMA an irrevocable, non-exclusive worldwide, royalty free license to
use, sell, market, sublicense or otherwise distribute such Pre-existing
Technology as part of the Products or Technology.
ARTICLE VI
ASSIGNABILITY OF INTERESTS
6.01 Assignment of Interests. No Developer may sell, transfer, assign,
pledge, license or otherwise dispose of all or any part of its interest in the
Project (whether voluntarily, involuntarily or by operation of law) without the
prior written consent of the other Developers, which consent shall not be
unreasonably withheld by the other Developers.
ARTICLE VII
CONFIDENTIALITY
7.01 Confidentiality. The Products and Technology shall be considered
"Confidential Information" and maintained in confidence by the Developers.
During this Agreement and thereafter, Developers shall keep the Confidential
Information in strict confidence and shall not disclose it to any person or
entity, nor use the same for any purpose other than performing the Development
Project. Developers agree to safeguard the Confidential Information by
restricting its internal dissemination only to those employees within their own
companies having a need to know
5
<PAGE>
the Confidential Information for purposes of this Agreement. Notwithstanding
anything herein to the contrary, it is understood and agreed that during
the term of this Agreement and thereafter, the Products shall be free to be
used, sold or otherwise distributed to others without restriction in
accordance with Section 4.02. Each Developer shall advise the other Developers
in writing of any misappropriation or misuse of the Confidential
Information of which the notifying party may become aware.
7.02 Exclusions. The foregoing duty of nonuse and nondisclosure of
Confidential Information shall not apply to information which: (a) is or becomes
in the public domain (for example, the information is disclosed in an issued
patent) through no fault or act of one of the Developers; (b) is obtained by one
of the Developers from a third party under no duty of nonuse and nondisclosure;
or (c) is required to be revealed pursuant to law.
ARTICLE VIII
MISCELLANEOUS
8.01 Notices. Notices required or permitted hereunder shall be in
writing and shall be sent to the addresses set forth herein or to such other
addresses as the Parties may hereafter specify, and shall be deemed given on the
earlier of:
(a) physical delivery to a Developer; and
(b) five (5) days after mailing by prepaid first
class or express mail.
8.02 Successors and Assigns. Subject to the restrictions on transfer
set forth in this Agreement, it and each and every provision of it shall be
binding upon and shall inure to the benefit of the Developers, their respective
successors, successors-in-title, and assigns, and each and every
successor-in-interest to any Developer, whether such successor acquires such
interest by way of gift, purchase, foreclosure, or by any other method, shall
hold such interest subject to all of the terms and provisions of this Agreement.
8.03 Amendments. In addition to any amendments otherwise authorized in
this Agreement, amendments may be made to this Agreement from time to time by
unanimous written consent of the Developers.
8.04 Partition. The Developers agree that no Developer, nor any
successor-in-interest to any Developer, shall have the right while this
Agreement remains in effect to have the property of the Project partitioned, or
to file a complaint or institute any proceeding at law or in equity to have the
property of the Project partitioned, and each Developer, on behalf of itself,
its successors, representatives and assigns, waives any such right. It is the
intention of the Developers that during the term of this Agreement, the rights
of the Developers and their successors-in-interest, as among themselves, shall
be governed by the terms of this Agreement, and that the right of any Developer
or its successor-in-interest to assign, transfer, sell, license or otherwise
dispose of its interest in the Project shall be subject to the limitations and
restrictions of this Agreement.
6
<PAGE>
8.05 No Waiver. The failure of any Developer to insist upon strict
performance of a covenant or of any obligation under this Agreement,
irrespective of the length of time for which such failure continues, shall not
be a waiver of such Developer's right subsequently to demand strict compliance.
No consent or waiver, express or implied, to or of any breach or default in the
performance of any obligation under this Agreement, shall constitute a consent
or waiver to or of any other breach or default in the performance of the same or
any other obligation under this Agreement.
8.06 Entire Agreement. This Agreement constitutes the full and complete
agreement of the parties with respect to the subject matter of this Agreement.
8.07 Captions. Titles or captions of articles, sections and paragraphs
contained in this Agreement are inserted only as a matter of convenience and for
reference, and in no way are intended to define, limit, extend or describe the
scope of this Agreement or the intent of any provision of it.
8.08 Counterparts. This Agreement may be executed in a number of
counterparts, all of which together shall for all purposes constitute one
Agreement, binding upon all Developers.
8.09 Applicable Law. This Agreement shall be deemed to have been
entered into and shall be construed and enforced in accordance with the laws of
the internal law of the State of North Carolina without regard to conflict of
law principles as applied to contracts made and to be performed entirely within
North Carolina.
8.10 Severability. If any provision of this Agreement is or becomes or
is deemed invalid, illegal or unenforceable in any jurisdiction, (a) such
provision shall be construed or deemed amended to conform to applicable laws so
as to be valid and enforceable, or, if it cannot be so construed or deemed
amended without materially altering the intention of the parties, it shall be
stricken, (b) the validity, legality and enforceability of such provision will
not in any way be affected or impaired by it in any other jurisdiction and (c)
the remainder of this Agreement shall remain in full force and effect.
8.11 Effective Date. The Effective Date of this Agreement ("Effective
Date") shall be the date of the closing of the initial public offering of PRIMA.
7
<PAGE>
In witness whereof, the Developers have executed this Agreement as
of the ____ day of ______________, 19__.
The PRIMA Group International, Inc.
By:
Name:
Title:
Prima Industrie S.p.A.
By:
Name:
Title:
Prima Electronics S.p.A.
By:
Name:
Title:
8
EXHIBIT 10.12
PROMISSORY NOTE AND SECURITY AGREEMENT
THIS PROMISSORY NOTE AND SECURITY AGREEMENT (the "Agreement" or "Note")
is made this _____ day of May, 1998 by and between JAMES R. CURRIER, a North
Carolina resident ("Borrower") and THE PRIMA GROUP INTERNATIONAL, INC., a
corporation organized under the laws of State of Delaware ("Lender" or
"Company").
WITNESSETH
WHEREAS Lender has agreed to lend to Borrower the principal amount of
$600,000 in order to retire certain indebtedness to Miojusti Investments BV; and
WHEREAS to induce Lender to provide the loan, Borrower has agreed to
grant Lender a security interest in certain collateral;
NOW THEREFORE, based upon the premises and the mutual promises and
covenants set forth herein, the parties agree as follows:
1. Loan. FOR VALUE RECEIVED, the undersigned Borrower promises to pay
Lender or order at 447 S. Sharon Amity Road, Suite 250, Charlotte, North
Carolina or such other place as the holder of this Note may designate, the
principal sum of SIX HUNDRED THOUSAND DOLLARS ($600,000), or so much as has been
advanced hereunder with interest thereon accruing from the date hereof at an
annual rate of six percent (6%).
2. Terms. Interest only shall be payable in eight (8) annual
installments on the anniversary date hereof in each year, beginning in 1999,
with the principal and accrued interest, together with all unpaid sums under
this Note being payable on the anniversary date in 2006. In the event that any
installment of interest and principal shall not have been paid on or before its
respective due date, and shall remain delinquent for more than fifteen (15)
days thereafter, then the Lender may charge a penalty of four percent (4%) on
said late installment. In the event that the due date for any installment
is not a business day, the payment required for such date shall be made on
the first preceding business day.
All payments of principal and interest shall be made in lawful money of
the United States which shall be the legal tender in payment of all debts,
public and private, at the time of payment.
This Note may be prepaid in whole or in part without penalty or
premium. Partial prepayments shall be applied first to principal and then to
accrued and unpaid interest.
This Note is secured by a security interest in the Collateral as herein
defined.
<PAGE>
3. Security Interest. Borrower hereby hypothecates and grants a
security interest to Lender in his 60,000 shares of common stock of The PRIMA
Group International, Inc. (the "Collateral"). Borrower agrees to do all acts
necessary to give Lender "control" of the Collateral, as that term is defined by
the Uniform Commercial Code in Section 8-106, including but not limited to
delivering the Collateral stock certificate(s) to Lender and endorsing such
certificate(s) to Lender or in blank or having such certificates registered in
the name of Lender.
4. Title. Borrower represents and warrants that he has title to the
Collateral, and that he is not prohibited by contract, judgment or decree from
entering into this Agreement, granting the security interest created by this
Agreement and performing his obligations under this Agreement.
5. UCC Financing Statements. Borrower agrees to execute at any
reasonable time and from time to time such other documents or instruments,
including financing statements under the Uniform Commercial Code, necessary or
appropriate to perfect and to continue in force the security interest created by
this Agreement.
6. Default and Remedies.
(a) The following events shall constitute a default under this
Agreement:
(i) Failure to pay the installments under this
Agreement when due; and
(ii) A breach of the representations, warranties
or covenants of this Agreement after failure
by Borrower to cure the same within fifteen
(15) days of receipt by Borrower of notice
from or on behalf of Lender identifying the
breach.
(b) Upon the occurrence of a default, Lender shall have the
right to take possession of the Collateral and to apply the Collateral against
the outstanding indebtedness and to take any other actions or remedies provided
to a secured party or permitted under the Uniform Commercial Code.
7. Waivers. All parties to this Agreement, including the undersigned
and any sureties, endorsers or guarantors, hereby waive presentment for payment,
demand, protest, notice of dishonor, notice of acceleration of maturity, and all
defenses on the ground of extension of time for payment hereof, and agree to
continue and remain bound for the payment of principal, interest and all other
sums payable hereunder, notwithstanding any change or changes by way of release,
surrender, exchange, or substitution of any security for this Note or by way of
any extension of extensions of time for the payment of principal; and all such
parties waive all and every kind of notice of such change or changes and agree
that the same may be made without notice to or consent of any of them. The
rights and remedies of the holder as provided herein shall be cumulative and
concurrent and may be pursued singularly, successively or together at the sole
discretion of the holder, and may be exercised as often as occasion therefor
shall occur,
2
<PAGE>
and the failure to exercise any such right or remedy shall in no event be
construed as a waiver or release of the same.
8. Forgiveness of Indebtedness. The remaining outstanding
indebtedness under this Agreement will be cancelled if:
(a) Borrower's employment is terminated by Lender without
cause or Borrower's employment agreement is not renewed by Lender;
(b) Substantially all of the assets or stock of Lender are
sold (including a merger where Lender is not the surviving eneity) for a per
share consideration greater than or equal to 130% of the offering price of
Lender's common stock in the initial public offering ("IPO");
(c) Lender receives gross proceeds of $30 million or more from
a follow-on public offering of equity or debt securities;
(d) There is a 100% increase as of the end of any fiscal year
in Lender's stockholders' equity or market capitalization, based upon public
float, as compared to those results at the end of the month in which the IPO is
consummated; or
(e) There is a 100% increase as of the end of any fiscal year
in the Company's total revenues or net income as compared to those results for
the year ended December 31, 1997.
9. Miscellaneous.
(a) Maximum Interest. Nothing herein contained, nor any
transaction related hereto, shall be construed or so operate as to require the
undersigned, or any party liable for payment of this Note, to pay interest at a
greater rate than the maximum allowed by applicable law. Should any interest or
other charges paid or payable by the undersigned, or any party liable for the
payment of the Note, in connection herewith, result in the computation or
earning of interest in excess of the maximum allowed by applicable law, then any
and all such excess paid shall be automatically credited against and in
reduction of the balance due under this Note, and the portion of said excess
which exceeds the balance due under this Note shall be paid by the then holder
hereof to the undersigned and parties liable for the payment of this Note.
(b) Attorneys' Fees. In addition to all amounts due under this
Note, the undersigned agrees to pay reasonable attorneys' fees actually incurred
at the usual hourly rate of such attorneys when and if this Note is placed in
the hands of an attorney for collection after default.
(c) Governing Law. This Note shall be governed by, and shall
be interpreted, construed and enforced in accordance with, the laws of the State
of North Carolina.
IN WITNESS WHEREOF, the undersigned has executed this Note under seal,
this the day and year first above written.
_______________________________(Seal)
James R. Currier
3
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Registration Statement and Prospectus of The
PRIMA Group International, Inc. of our report dated March 25, 1998, accompanying
the financial statements of The PRIMA Group International, Inc. and our report
dated March 16, 1998, accompanying the consolidated financial statements of
Prima Industrie S.p.A. contained in such Registration Statement, and to the use
of our name and the statements with respect to us, as appearing under the
headings "Experts" and "Selected Financial Data" in the Prospectus.
HEIN + ASSOCIATES LLP
Denver, Colorado
April 27, 1998
EXHIBIT 23.3
MICHAEL A. ALMOND
400 N. CHURCH STREET #222
CHARLOTTE, NORTH CAROLINA 28202
April 15, 1998
The PRIMA Group International, Inc.
447 S. Sharon Amity Road
Suite 250
Charlotte, NC 28211
RE: Rule 438 Consent
Dear Sir or Madam:
This letter is to acknowledge that I have agreed to accept election,
and have agreed to serve, as a member of the Board of Directors of The Prima
Group International, Inc. (the "Company") subject to the precondition that the
Registration Statement for the public offering by the Company is declared
effective by the Securities and Exchange Commission. I hereby consent to being
named in the Registration Statement (File No. 333-38059) to reflect my agreement
as set forth in this letter and to the filing of this letter as an Exhibit to
the Registration Statement.
Sincerely yours,
/s/ Michael A. Almond
__________________________
Michael A. Almond
WSC:MAA:te
Enclosure
EXHIBIT 23.4
W. EDWIN McMAHAN
3007 CLARENDON ROAD
CHARLOTTE, NORTH CAROLINA 28211
April 15, 1998
The PRIMA Group International, Inc.
447 S. Sharon Amity Road
Suite 250
Charlotte, NC 28211
RE: Rule 438 Consent
Dear Sir or Madam:
This letter is to acknowledge that I have accepted election, and have
agreed to serve, as a member of the Board of Directors of The Prima Group
International, Inc. (the "Company") subject to the precondition that the
Registration Statement for the public offering by the Company is declared
effective by the Securities and Exchange Commission. I hereby consent to being
named in the Registration Statement (File No. 333-38059) to reflect my agreement
as set forth in this letter and to the filing of this letter as an Exhibit to
the Registration Statement.
Sincerely yours,
/s/ W. Edwin McMahan
_____________________________
W. Edwin McMahan
WSC:MAA:te
Enclosure
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 585 1,330
<SECURITIES> 0 0
<RECEIVABLES> 21,670 19,452
<ALLOWANCES> 426 345
<INVENTORY> 7,949 8,223
<CURRENT-ASSETS> 33,777 31,305
<PP&E> 7,612 5,859
<DEPRECIATION> 5,966 4,308
<TOTAL-ASSETS> 36,352 33,909
<CURRENT-LIABILITIES> 27,457 24,973
<BONDS> 0 0
0 0
0 0
<COMMON> 27 27
<OTHER-SE> 4,717 5,351
<TOTAL-LIABILITY-AND-EQUITY> 36,352 33,909
<SALES> 41,108 43,560
<TOTAL-REVENUES> 42,315 44,186
<CGS> 34,357 35,157
<TOTAL-COSTS> 40,904 42,005
<OTHER-EXPENSES> 391 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,375 1,167
<INCOME-PRETAX> 1,737 1,999
<INCOME-TAX> 189 444
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,335 1,363
<EPS-PRIMARY> .49 .50
<EPS-DILUTED> 0 0
</TABLE>
