<PAGE> 1
As filed with the Securities and Exchange Commission on May 15, 1998
Registration No. 333-46115
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
AMENDMENT NO. 2
to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------
PERFORMANCE PRINTING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 2799 75-2418082
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification Number)
Code Number)
</TABLE>
3012 Fairmount
Dallas, Texas 75201
(214) 665-1000
(Address, including zip code and telephone number, including area code,
of registrant's principal executive offices and principal place of business)
John T. White
President
PERFORMANCE PRINTING CORPORATION
3012 Fairmount
Dallas, Texas 75201
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------
Copies To:
Garza & Staples, P.C. Crouch & Hallett, L.L.P.
1230 Lincoln Center Two 717 North Harwood, Suite 1400
Dallas, Texas 75240 Dallas, Texas 75201
Attn: Joe B. Garza Attn: Susan Henderson
(800) 442-7040 (214) 953-0053
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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 statement 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 statement 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.
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================================
Proposed maximum Proposed
offering price maximum
Title of each class of securities to be Amount to be per share(1) aggregate offering Amount of
registered(1) registered price(1) registration fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units (2) 1,380,000 $5.125 $7,072,500 $2,144
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (3) 1,380,000 (3) (3) (3)
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants (3)(9) 1, 380,000 (3) (3) (3)
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, issuable under Common Stock
Purchase Warrants(4)(9) 1, 380,000 $7.50 $10,350,000 $3,137
- -----------------------------------------------------------------------------------------------------------------------------
Representative's Warrants (5)(9) 120,000 $.0009 $100 $.04
- -----------------------------------------------------------------------------------------------------------------------------
Units underlying Representative's Warrants 120,000 $6.15 $738,000 $224
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock included in Representative's
Units (6) 120,000 (6) (6) (6)
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants included in
Representative's Warrants (7) 120,000 (7) (7) (7)
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of
Common Stock Purchase Warrants Underlying
the Representative's Units (8) 120,000 $7.50 $900,000 $272
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $5,777
=============================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the amount of the
registration fee pursuant to Rule 457 under the Securities Act of
1933, as amended.
(2) Includes 180,000 Shares of Common Stock and 180,000 Warrants issuable
pursuant to the Representative's over-allotment option.
(3) Included in the Units. No additional registration fee is required.
(4) Represents shares of Common Stock issuable upon exercise of the
Warrants registered hereby together with such additional indeterminate
number of shares as may be issued upon exercise of such Warrants by
reason of the anti-dilution provisions contained therein.
(5) Representative's Warrants to purchase up to 120,000 Units consisting
of an aggregate of 120,000 shares of Common Stock and 120,000
Warrants.
(6) Represents shares of common stock issuable upon exercise of the
Representative's Warrant, together with such additional indeterminate
number of shares of Common Stock as may be issued upon exercise of
such Representative's Warrant by reason of the anti-dilution
provisions contained therein.
(7) Representative's Warrants to purchase up to 120,000 Common Stock
Purchase Warrants.
(8) Issuable upon exercise of Common Stock Purchase Warrants underlying
the Representative's Units.
(9) Pursuant to Rule 416 of the Securities Act of 1933, no separate
registration fee is required because the Common Stock underlying the
Common Stock Purchase Warrants is being registered in the same
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> 3
================================================================================
PROSPECTUS
SUBJECT TO COMPLETION, DATED MAY 15, 1998
[LOGO]
1,200,000 UNITS
Consisting of 1,200,000 Shares of Common Stock and
1,200,000 Redeemable Common Stock Purchase Warrants
Performance Printing Corporation (the "Company" or "Performance Printing")
is offering 1,200,000 units (the "Units"), each Unit consisting of one share
(the "Shares") of Common Stock, $.01 par value per share (the "Common Stock"),
and one Redeemable Common Stock Purchase Warrant (the "Warrants"). The Units,
the Shares and the Warrants offered hereby are referred to collectively as the
"Securities." The Shares and Warrants included in the Units may be not be
traded separately until ________, 1998 (180 days from the date of this
Prospectus) unless earlier separated upon three days notice from the
Representative to the Company (the "Separation Date"). The Warrants may not be
exercised until they are separated from the Units. Prior to this Offering,
there has been no public market for the Common Stock and the Warrants. It is
estimated that the initial public offering price will be $5.125 per Unit (the
"Offering Price").
Each Warrant entitles the holder to purchase one share of Common Stock at a
price of $7.50 per share during the five-year period commencing on the
Separation Date. The Warrants are redeemable by the Company for $.15 per Warrant
on not less than 30 nor more than 60 days written notice if the closing price
for the Common Stock for seven trading days during any 10 consecutive trading
day period ending not more than 15 days prior to the date that the notice of
redemption is mailed equals or exceeds $10.00 per share subject to adjustment
under certain circumstances and provided there is then a current effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
with respect to the issuance and sale of the Common Stock upon the exercise of
the Warrants. Any redemption of the Warrants during the one-year period
commencing on the date of this Prospectus shall require the written consent of
the Representative. See "Description of Securities."
Prior to this Offering, there has been no public market for the Units,
Common Stock or the Warrants. The initial public offering price of the Units
and the exercise price and other terms of the Warrants have been determined
through negotiations between the Company and the Representative and are not
related to the Company's assets, book value, financial condition or other
recognized criteria of value. Although the Company has applied for the listing
of the Units, Common Stock and the Warrants on the Boston Stock Exchange under
the symbols "PPC/U," "PPC" and "PPC&W," respectively, and inclusion on the
Nasdaq SmallCap Market under the symbols "INKSU," "INKS" and "INKSW,"
respectively, there can be no assurance that an active trading market in the
Company's securities will develop or be sustained.
-------------------
THESE ARE SPECULATIVE SECURITIES. AN INVESTMENT IN THE SECURITIES OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION FROM THE
PUBLIC OFFERING PRICE OF THE COMMON STOCK AND SHOULD BE CONSIDERED ONLY BY
INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
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>
====================================================================================================================
Price to Underwriting Discounts Proceeds to
Public and Commissions (1) Company (2)(3)
====================================================================================================================
<S> <C> <C> <C>
Per Share .............................. $ $ $
====================================================================================================================
Per Warrant............................. $ $ $
====================================================================================================================
====================================================================================================================
Total(3)................................ $ $ $
</TABLE>
*SEE FOOTNOTES ON FOLLOWING PAGE
The Securities are offered by the Underwriters on a firm commitment basis,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to their right to reject orders in whole or in part.
It is expected that delivery of the certificates for the shares of Common Stock
will be made on or about ___________, 1998.
[LOGO] FIRST LONDON SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS ____________, 1998
<PAGE> 4
{Description of pictures and text on gatefold inside of the front cover of the
prospectus}
Page 1 of the gatefold:
Picture #1: Machinery and operator of the machinery.
Picture #2: Machinery and operator of the machinery.
Picture #3: Machinery and operator of the machinery.
Picture #4: Drawing of a toy top.
Text:
A Top
Performer
in P-O-P
Performance is a single-source supplier of P-O-P and promotional marketing
materials. We offer experience, knowledge and special capabilities in the
areas of offset and screen printing, display packaging and P-O-P displays.
Pages 2 & 3 of the gatefold:
Picture #1: Machinery.
Picture #2: Building.
Picture #3: Machinery and operator of the machinery.
Picture #4: Products manufactured by the Company.
Picture #5: Products manufactured by the Company.
Picture #6: Products manufactured by the Company.
Picture #7: Products manufactured by the Company.
Picture #8: Products manufactured by the Company.
Picture #9: Products manufactured by the Company.
Text:
There are many quality printers in America and we, at Performance Printing
Corporation, have separated ourselves from the crowd by offering our
customers a wide range of capabilities and services.
Our special capabilities are in the areas of screen printing,
point-of-purchase displays and display packaging. Performance's services
include design and electronic prepress, both UV and conventional sheetfed
offset printing, large- format screen printing, off-line specialty coating,
plastic forming, a wide range of finishing services, kitting and
fulfillment.
We at Performance have the people and the expertise to take jobs from start
to finish. We give customers more than promises. We give them Performance.
Performance Printing Corporation, is a single-source supplier of
point-of-purchase and other promotional materials on both paper and
plastics.
P-O-P Displays
Display Header signs
Shelf Strips
Self Wobblers
Floor Graphics
Static Cling Decals
Pressure-sensitive Decals
Translites
Trading Cards
Product Trays
Pole Toppers
Posters
Counter cards
Table Tents
Box Labels
Display Packaging
Mouse Pads
Counter Mats
Proportion Wheels
Book Marks
<PAGE> 5
(1) Does not include additional underwriting compensation to be received
by the Representative in the form of (i) a non-accountable expense
allowance equal to 2% of the gross proceeds of this Offering, of which
$50,000 has been paid to date, and (ii) a warrant issued to the
Representative for nominal consideration (the "Representative's
Warrant") to purchase up to 120,000 Shares and 120,000 Warrants
exercisable for a four-year period commencing one year from the date
hereof at an exercise price equal to $6.15, subject to adjustment. In
addition, the Company has granted to the Representative certain
registration rights with respect to registration of the shares of the
Units, the Common Stock, the Warrants and the shares of Common Stock
issuable upon exercise of the Warrants. The Company has agreed to pay
the Representative upon the exercise or redemption of the Warrants a
fee equal to 5% of the gross proceeds received by the Company from the
exercise of the Warrants and 5% of the aggregate redemption price for
the Warrants redeemed. The Representative or its designees must be
designated by the Warrant holder as having solicited the Warrant in
order to receive the fee. The Company has agreed to indemnify the
Underwriters against certain liabilities arising under the Act.
(2) Before deducting expenses payable by the Company estimated at $500,000
including the Representative's non- accountable expense allowance.
(3) The Company has granted the Representative an option (the
"Representative's Over-allotment Option"), exercisable within 30 days
from the date of this Prospectus, to purchase on the same terms as the
Securities offered hereby up to 180,000 additional Units solely to
cover over-allotments, if any. If the Representative's Over-allotment
Option is exercised in full, the total Price to Public, Underwriting
Commissions, and Proceeds to Company and Proceeds to the Company will
be $___________, $_____________ and $______________, respectively.
See "Underwriting."
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (the "Registration
Statement"), pursuant to the Act with respect to the securities offered by this
Prospectus. This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits thereto. THE STATEMENTS
CONTAINED IN THIS PROSPECTUS AS TO THE CONTENTS OF ANY CONTRACT OR OTHER
DOCUMENT IDENTIFIED AS EXHIBITS IN THIS PROSPECTUS ARE NOT NECESSARILY
COMPLETE, AND IN EACH INSTANCE, REFERENCE IS MADE TO A COPY OF SUCH CONTRACT OR
DOCUMENT FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT, EACH STATEMENT
BEING QUALIFIED IN ANY AND ALL RESPECTS BY SUCH REFERENCE. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement and exhibits which may be
inspected without charge at the Commission's principal office at Judiciary
Plaza, 450 Fifth Street, NW, Washington, DC 20549.
Upon consummation of this Offering, the Company will become subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at its New York Regional Office, Room 1300, 7 World Trade
Center, New York, New York 10048; and at its Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may also be obtained from the
Public Reference Section of the Commission at prescribed rates. The Company's
Registration Statement on Form SB-2 as well as any reports to be filed under
the Exchange Act can also be obtained electronically after the Company has
filed such documents with the Commission through a variety of databases,
including among others, the Commission Electronic Data Gathering, Analysis And
Retrieval ("EDGAR") program, Knight- Ridder Information, Inc., Federal
Filings/Dow Jones and Lexis/Nexis. Additionally, the Commission maintains a
Website (at http://www.sec.gov) that contains such information regarding the
Company. In addition, such material may also be inspected and copied at the
offices of the Boston Stock Exchange, Inc., One Boston Place, Boston,
Massachusetts.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other reports as the Company
deems appropriate or as may be required by law.
Such requests may be directed to John T. White, Chief Executive
Officer, c/o Performance Printing Corporation, 3012 Fairmount, Dallas, Texas
75201, telephone number (214) 665-1000.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OR THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
5
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and must be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, (i) all information in this Prospectus assumes no exercise
of the Warrants, the Representative's Over-allotment Option and the
Representative's Warrant; (ii) all information in this Prospectus assumes a
public offering price of $5.125 per Unit ($5.00 per share of Common Stock and
$.125 per Warrant); and (iii) all share and per share data have been adjusted
to give effect to a 440 for one stock split in April, 1998. All references to
the "Company" refer to Performance Printing Corporation.
THE COMPANY
Performance Printing is a specialty printing and display manufacturing
company that is a single-source supplier of point-of-purchase and promotional
marketing materials. The Company also offers unique capabilities in the areas
of offset and screen printing, point-of-purchase displays and display
packaging.
The Company's business has been built around a core specialty of
printing with inks and coatings which are cured with ultra violet light ("UV").
This UV printing technology enables the Company to print on Substrates other
than paper, such as vinyl, styrene and polyethelene terephtalate-glycol
("PETG"). Services provided by the Company include design and electronic
pre-press services, both UV and Conventional Sheetfed Offset Printing,
Large-Format Screen Printing, Large-Format Digital Printing, Off-Line Specialty
Coating, Plastic Forming, a wide range of finishing services and direct
shipments of finished point-of-purchase advertising kits to retail stores. The
foregoing capitalized terms, commonly used in the printing industry, are
defined in the Glossary on Page 43 below.
The Company operates a printing division and a display division from
separate plants and owns a majority interest in Performance Packaging, L.L.C.
("Performance Packaging"), which packages trading cards and related materials.
The remaining 49% interest of Performance Packaging is owned by Pinnacle Brands
Trading Company ("Pinnacle") which is the primary customer of Performance
Packaging. In 1997, 96.4% of total revenues at Performance Packaging were from
Pinnacle. All three plants are located in Dallas, Texas.
From 1987 to 1995, the Company sustained revenue growth of 24% per
annum. For the fiscal year ended December 31, 1997, the Company recorded
revenues of $20,114,549 and net income of $551,465 compared to the fiscal year
ended December 31, 1996 revenues of $15,715,395 and net income of $213,360, a
28% increase in revenues and a 158% increase in net income. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operation."
The Company has the capabilities to develop concepts and design
prototypes of point-of-purchase displays and also to create graphic design for
commercial printing and display packaging customers. These concept-to-completion
services are instrumental in attracting and retaining the graphic arts customer.
Historically, the Company has grown and profited by increasing its capacity and
adding services complimentary to its existing specialties, such as point-of-
purchase display services.
The Company has a two-point growth strategy that is based upon internal
expansion and acquisitions. Internal expansion focuses on building the Company's
existing business and adding new specialties and related services when
appropriate. The acquisition strategy is to acquire small commercial printers
and screen printers in several key markets around the United States and convert
these plants to shops similar to its Dallas operations. The sales force at each
plant would be trained to sell point-of-purchase advertising and related
materials. Jobs requiring the use of the multi-million dollar presses such as
the Company's equipment in Dallas would be transferred to Dallas for production.
The regional plants would facilitate the development of close relationships with
major users of point-of-purchase advertising and related materials, with primary
emphasis on sales, pre-press and short run work in the regional plants.
The Company was founded in 1981 and incorporated in 1992 as a Texas
corporation. The Company will convert from "S" Corporation status to "C"
Corporation status upon the consummation of the Offering. It currently has over
160 employees. The Company's offices are located at 3012 Fairmont, Dallas, Texas
75201, and its telephone number is (214) 665-1000.
6
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................................... 1,200,000 Units, each Unit consisting of one share of
Common Stock and one Warrant, each Warrant entitling
the holder to purchase one share of Common Stock a
$7.50 per share until _____, 2003 (5 years from the
date of this Prospectus). See "Description of
Securities."
Description of the
Warrants............................................. The Warrants are not immediately exercisable and are
not transferable separately from the Shares until
________, 1998 (180 days from the date of this
Prospectus) unless earlier separated on three days
notice from the Representative to the Company. See
"Description of Securities."
Common Stock Outstanding:
Before the Offering......................... 4,400,000 Shares
After the Offering.......................... 5,600,000 Shares (1)(2)
Warrants Outstanding:
Before the Offering......................... None
After the Offering.......................... 1,200,000 (3)
Estimated Net Proceeds .............................. $5.0 million (4)
Use of Proceeds: .................................... Repay outstanding indebtedness and provide additional
working capital. See "Use of Proceeds."
Risk Factors ........................................ The Securities offered hereby are speculative and
involve a high degree of risk. Investors should
carefully consider the risk factors enumerated
hereafter before investing in the Common Stock and the
Warrants. See "Risk Factors" and "Dilution."
Proposed Trading Symbols (2)(5):
Boston Stock Exchange:
Units......................................... PPC/U
Common Stock................................. PPC
Warrant...................................... PPC&W
Nasdaq SmallCap Market:
Units........................................ INKSU
Common Stock................................. INKS
Warrants..................................... INKSW
</TABLE>
- ----------------------
(1) Does not include 300,000 shares of Common Stock reserved for issuance under
the Company's stock option plan (the "Stock Option Plan"). No shares have
been granted under the Stock Option Plan as of the date of this Prospectus.
See "Management-Stock Option Plan."
7
<PAGE> 8
(2) Does not include (i) up to 180,000 shares issuable pursuant to the
Representative's Over-allotment Option, (ii) 1,200,000 shares of Common
Stock issuable upon the exercise of the Warrants offered hereby and (iii)
240,000 shares of Common Stock issuable upon the exercise of the
Representative's Warrants and the Warrants included therein.
(3) Does not include (i) up to 180,000 Warrants issuable pursuant to the
Representative's Over-allotment Option and (ii) the Representative's
Warrants and the 120,000 Warrants included therein.
(4) After deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company, including a 2% non-accountable
expense allowance payable to the Representative.
(5) Boston Stock Exchange and the Nasdaq SmallCap Market symbols do not imply
that an established public trading market will develop for any of these
securities, or if developed, that any such market will be sustained. See
"Risk Factor-Possible Applicability of Rules Relating to Low-Priced Stock;
Possible Failure to Qualify for Boston Stock Exchange or Nasdaq SmallCap
Listing."
8
<PAGE> 9
SUMMARY FINANCIAL DATA
The following summary financial data should be read in
conjunction with the financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The data for the years
ended December 31, 1997 and 1996 are derived from the audited financial
statements included elsewhere in this Prospectus. The data for the three months
ended March 31, 1998 and 1997 are derived from unaudited financial statements
that are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS YEAR ENDED YEAR ENDED
ENDED ENDED DECEMBER 31, DECEMBER 31,
STATEMENTS OF OPERATIONS DATA: MARCH 31, 1998 MARCH 31, 1997 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue $ 4,629,824 $ 3,939,448 $ 20,114,549 $ 15,715,395
Costs of goods sold 3,694,190 3,058,955 15,466,484 12,101,986
Gross profit 935,634 880,493 4,648,065 3,613,409
Selling, general and administrative expenses 752,731 720,056 3,269,575 2,872,913
Income from operations 110,903 89,937 984,375 518,174
Other expense, net (27,780) (93,754) (432,910) (346,564)
Pre-tax income (loss) 83,123 (3,817) 551,465 213,360
============== ============== ============== ==============
Income tax provision (1) (29,554) -- (189,638) (81,354)
Net income (Loss) (1) $ 53,569 $ (3,817) $ 361,827 $ 132,006
============== ============== ============== ==============
PROFORMA EARNINGS PER SHARE (1):
Basic and diluted $ 0.01 $ 0.00 $ 0.08 $ 0.03
Weighted average outstanding shares 4,400,000 4,400,000 4,400,000 4,400,000
OTHER DATA:
EBITDA (2) $ 413,930 $ 336,995 $ 1,884,060 $ 1,629,012
Net cash provided by (used in) operating activities (27,016) 508,065 568,543 485,755
============== ============== ============== ==============
Net cash provided by (used in) investing activities (124,104) 173,422 656,081 236,506
============== ============== ============== ==============
Net cash provided by (used in) financing activities (573,943) (1,413,213) (1,270,200) 85,816
============== ============== ============== ==============
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
March 31, 1998
---------------------------
Actual As Adjusted (3)
=========== ===========
<S> <C> <C>
BALANCE SHEET DATA:
Working capital ($ 269,506) $ 4,268,526
=========== ===========
Total assets 9,698,195 12,140,000
=========== ===========
Long-term debt and capitalized lease
Shareholders' equity $ 1,069,431 $ 5,846,335
=========== ===========
</TABLE>
- -----------
(1) Adjusted to reflect the conversion from "S" Corporation status to "C"
Corporation status upon consummation of the Offering.
(2) EBITDA represents operating income excluding interest, taxes, depreciation,
amortization of goodwill and other intangible assets (as presented on the
face of the income statement). EBITDA is not a substitute for net cash
provided by operating income in accordance with generally accepted
accounting principles. EBITDA is presented because management believes
that it is a widely accepted financial indicator of a company's ability to
service and/or incur indebtedness, maintain current operating levels of
fixed assets and acquire additional operations and businesses.
Accordingly, significant uses of EBITDA include, but are not limited to,
interest and principal payments on long-term debt, including indebtedness
under the Company's revolving credit agreement. Items excluded from
EBITDA, such as interest, taxes, depreciation and amortization, are
significant components of the Company's operations and should be considered
in evaluating the Company's financial performance.
(3) The as adjusted summary balance sheet data has been prepared as if the
Offering had occurred as of March 31, 1998 and reflects the issuance of the
Securities offered by the Company hereby and the application by the Company
of the net proceeds therefrom. See "Use of Proceeds."
10
<PAGE> 11
RISK FACTORS
Prospective investors should carefully review the following risk
factors together with the other information in this Prospectus in evaluating
the Company and its business prior to purchasing the Securities offered by this
Prospectus. This Prospectus contains forward-looking statements that involve
risks and uncertainties. Actual results could differ from those discussed in
the forward-looking statements as a result of factors, including those set
forth below and elsewhere in the Prospectus.
PRINTING BUSINESS DEPENDENT ON INDIVIDUAL ORDERS AND NOT ON LONG-TERM CONTRACTS
The Company's business is characterized by individual orders from
customers for specific printing projects rather than long-term contracts, with
continued engagement for successive jobs dependent upon the customer's needs
and its satisfaction with the services provided. The Company has equipped its
plants to meet expected increases in demand over the next few years. The
profitability of the Company is dependent in part on the continued growth in
revenues, and the Company has no binding commitments from its customers to
assure that the revenues of the Company will be sufficient to cover its fixed
costs in the future.
Since many of the services rendered by the Company relate to large
projects for customers, sales to particular customers may vary significantly
from year to year depending on the number and the size of projects required.
During 1997, five customers together represented more than 34% of the Company's
sales. For 1997, one customer (Pinnacle) accounted for 12.5% of sales. The
Company had 306 customers in 1997 with an average of approximately $65,700 of
sales per customer. The Company has no printing contracts with any of its
customers, and though it believes that its relations with its customers are
good, the loss of business from a significant customer could have a material
adverse effect on the results of operations, financial condition and cash flows
of the Company.
FLUCTUATIONS IN REVENUES
Because the Company has no long-term contracts with its customers, the
Company is unable to predict the number, size and profitability of printing
jobs in a given period. Consequently, the timing of projects in any quarter
could have a significant impact on the financial results in that quarter.
Quarterly results in the future may be influenced by these or other factors
and, accordingly, there may be significant variations in the Company's
quarterly operating results.
HISTORY OF WORKING CAPITAL SHORTAGES
In each of 1992 and 1996, the Company was unable to fund its working
capital needs through cash flow from operations and third party financing
sources. As a result, the Company borrowed an aggregate of $410,000 and
$350,000 from its shareholders in 1992 and 1996, respectively, to meet its
working capital needs. There can be no assurance in the future that the
Company will be able to fund its working capital requirements through cash flow
from operations, from third party financing sources or from loans from its
shareholders. See "Certain Transactions."
OWNERSHIP OF PERFORMANCE PACKAGING
The Company owns 51% of Performance Packaging. Pinnacle owns the
remaining 49% and as the principal customer of Performance Packaging, accounted
for 96.4% of Performance Packaging's sales in the fiscal year ended December
31, 1997. Under the terms of the First Renewal of the Packaging Services
Agreement dated April 1, 1997 (the "Packaging Agreement"), Pinnacle has first
call on 100% of the packaging capacity of Performance Packaging in exchange for
certain fixed cost payments. Pinnacle has legal control of Performance
Packaging, although the Company currently manages its operations. The
requirement to provide Pinnacle with first call on 100% of the packaging
capacity of Performance Packaging may be a deterrent to the growth and
profitability of Performance Packaging. See "Business Affiliated Companies."
11
<PAGE> 12
DEPENDENCE ON KEY PERSONNEL
The Company's success is largely dependent on the skills, experience
and performance of certain key members of its management, including
particularly John T. White, the Company's Chief Executive Officer and W. Chris
Pumpelly, its Chairman. The loss of the services of either of these key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not maintain
key-man insurance on the lives of Messrs. White and Pumpelly, but carries life
insurance on such persons as required by the terms of a loan guaranteed by the
Small Business Administration on a building owned by the Company. There are no
employment agreements between the Company and any of the executive officers.
The Company's future success and plans for growth also depend on its ability to
attract, train and retain skilled personnel in all areas of its business. See
"Management."
USE OF PROCEEDS
Upon consummation of the Offering, the Company will use 49.1% of the
net proceeds from the Offering to repay indebtedness. Management will have
broad discretion as to the application of the remaining 50.9% of the net
proceeds, which will be allocated for working capital. A portion of such
proceeds may be used for acquisitions.
GEOGRAPHIC CONCENTRATION AND ECONOMIC CONDITIONS
The Company's operations are located in the Dallas-Fort Worth
Metroplex, and the majority of its customers are located in North Texas. The
Company and its profitability may be susceptible to the effects of unfavorable
or adverse local economic factors and conditions affecting this geographic
region.
TECHNOLOGICAL CHANGES
Production technology in the printing industry has evolved and
continues to evolve. The Company does not consider itself a technology leader
and does not attempt to be a leader in this area. The Company invests in
technology improvements after such improvements have been proven to be
cost-effective. The printing industry has experienced significant changes due
to technological changes. Because of advances in computer and related
communication technologies, certain products that were once printed by
commercial printers are now generated on computers through word processing or
desktop publishing software. In addition, some information is now disseminated
in digital or electronic formats rather than disseminated in a paper format and
this trend could continue in the future.
CONTROL BY PRINCIPAL SHAREHOLDERS
Upon completion of this Offering, the directors and executive officers
will own approximately 79% of the outstanding Common Stock of the Company. As
a result, these shareholders will be able to control the management and
policies of the Company through the ability to determine the outcome of
elections for the Company's Board of Directors and other matters requiring the
vote or consent of shareholders of the Company. See "Principal Shareholders."
DILUTION
Purchasers of shares of the Common Stock will suffer an immediate,
substantial dilution of approximately $3.96 per share or approximately 79% in
the net tangible book value of their shares of Common Stock since $5.00 of the
Unit purchase price attributable to the Common Stock substantially exceeds the
current tangible book value per share of Common Stock. See "Dilution."
12
<PAGE> 13
COMPETITION
The commercial printing industry is extremely competitive and
fragmented. The Company has no patented or proprietary products. The Company
competes with numerous large and small printing companies, some of which have
greater financial resources, and the number of printing companies providing UV
Curing of Inks and Coatings is greater at this time than it has been in prior
years. The Company competes on the basis of ongoing customer service, quality
of finished products and price. No assurance can be given that the Company
will be able to compete effectively in the future. See "Business-Competition."
INTEGRATION OF ACQUISITIONS
A material element of the Company's growth strategy is to expand its
business by purchasing commercial printers in other geographical markets and
converting them into satellite operations of the Company. The Company has no
experience in purchasing printing companies. While the Company continuously
evaluates opportunities to make strategic acquisitions, it has no present
commitments or agreements with respect to any material acquisitions. There can
be no assurance that the Company will be able to identify and acquire such
companies or that it will be able to successfully integrate the operations of
any companies it acquires. Further, any acquisition may initially have an
adverse effect upon the Company's operating results while the acquired
businesses are adopting the Company's management and operating practices. In
addition, there can be no assurance that the Company will be able to establish,
maintain or increase profitability of an entity once it has been acquired.
Also, if the Company does not have sufficient cash resources for any
acquisition, its growth could be limited. There can be no assurance that the
Company will be able to obtain adequate financing for any acquisition, or that,
if available, such financing will be on terms acceptable to the Company. The
consent of the Company's primary lender will be required to be obtained in
order to consummate such acquisitions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and "Business-Business Strategy."
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward looking statements" within the
meaning of Section 27A of the Act, and Section 21E of the Exchange Act. The
actual results of the Company may differ significantly from the results
discussed in such forward-looking statements. Certain factors that might cause
such differences include, but are not limited to, the factors discussed in this
"Risk Factors" section. The safe harbors contained in Section 27A of the Act
and Section 21E of the Act, which apply to certain forward-looking statements,
are not applicable to this Offering.
NO DIVIDENDS EXCEPT TAX DIVIDENDS
The Company has not declared or paid any cash dividends on its Common
Stock since its inception except for Subchapter S distributions to the
shareholders proportional to their Subchapter S tax liabilities. The Company
currently intends to retain all earnings for the operation and expansion of its
business and does not anticipate paying any dividends in the foreseeable
future. In addition, the Company's credit agreement prohibits the payment of
dividends. See "Dividend Policy" and Note 1 of "Notes to Financial
Statements."
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to the environmental laws and regulations of
the United States and Texas concerning emissions into the air, discharges into
waterways and the generation, handling and disposal of waste materials. While
the Company believes it is currently in substantial compliance with these laws
and regulations, there can be no assurance that future changes in such laws and
regulations will not have a material effect on the Company's operations. See
"Business-Government Regulation and Environmental Matters."
13
<PAGE> 14
SHARES OF COMMON STOCK RESERVED UNDER STOCK OPTION PLAN
The Company has reserved 300,000 shares of Common Stock for issuance
to key employees, officers, directors and consultants pursuant to the Company's
Stock Option Plan. The existence of these options and any other options or
warrants may prove to be a hindrance to future equity financing by the Company.
Further, the holders of such options may exercise them at a time when the
Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
5,600,000 shares of Common Stock (5,780,000 shares if the Representative's
Over-allotment Option is exercised in full). The existing shareholders have
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock or any securities exercisable for or convertible into Common
Stock for a period of one year after the date of this Prospectus without the
prior written consent of the Representative.
No predictions can be made as to the effect, if any, that market sales
of such shares will have on the market price of shares of Common Stock
prevailing from time to time. However, sales of substantial amounts of Common
Stock in the open market or the availability of such shares for sale following
the Offering could adversely affect the market price for the Common Stock. See
"Shares Eligible for Future Sale," "Description of Securities" and "Principal
Shareholders."
ARBITRARY OFFERING PRICE AND EXERCISE PRICE OF WARRANTS
The public offering price of the Units and the exercise price of the
Warrants, as well as the exercise price of the Warrants underlying the
Representative's Warrant, have been determined solely by negotiations between
the Company and the Representative. Among the factors considered in determining
these prices were the Company's current financial condition and prospects,
market prices of similar securities of comparable publicly traded companies,
and the general condition of the securities market. However, the public
offering price of the Units as well as the amount of the offering price
attributable to the Common Stock and the Warrants and the exercise price of the
Warrants and the underlying Warrants do not necessarily bear any relationship
to the Company's assets, book value, earnings or any other established
criterion of value. See "Underwriting."
Holders of the Warrants have the right to exercise the Warrants only
if the underlying shares of Common Stock are qualified, registered or exempt
from registration under applicable securities laws of the states in which the
various holders of the Warrants reside. The Company cannot issue shares of
Common Stock to holders of the Warrants in states where such shares are not
qualified, registered or exempt. It is possible that the Warrants could be
held by persons residing in states where the Company is unable to qualify the
Common Stock underlying the Warrants for sale. The Company has undertaken,
however, to qualify the Warrants for listing on the Boston Stock Exchange which
provides for blue-sky registration in 11 states. The Warrants may expire,
unexercised, which would result in the holders losing all the value of the
Warrants. See "Description of Securities--Warrants."
REDEEMABLE WARRANTS AND IMPACT ON INVESTORS
The Warrants are subject to redemption by the Company in certain
circumstances. The Company's exercise of this right would force a holder of the
Warrants to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for the holder to do so, to sell the Warrants at the
then current market price when the holder might otherwise wish to hold the
Warrants for possible additional appreciation, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants in the event of a call for redemption. Holders who do not exercise
their Warrants prior to redemption by the Company will forfeit their right to
purchase the shares of Common Stock underlying the Warrants. The foregoing
notwithstanding, the Company may not redeem the Warrants at any time that a
current registration statement under the Act is not then in effect. The
Company may be expected to redeem the Warrants at a time when the market price
of the Common Stock exceeds $10.00 per share for more than 10 days. See
"Description of Securities-Warrants."
14
<PAGE> 15
EXERCISE OF REPRESENTATIVE'S PURCHASE WARRANTS
In connection with this Offering, the Company will sell to the
Representative, for nominal consideration, a Representative's Warrant to
purchase 120,000 Units from the Company. The Representative's Warrant will be
exercisable for a four-year period commencing one year from the effective date
of the Offering at an exercise price of $6.15, subject to adjustment. The
Representative's Warrant may have certain dilutive effects because the holders
thereof will be given the opportunity to profit from a rise in the market price
of the underlying shares with a resulting dilution in the interest of the
Company's other shareholders. The terms on which the Company could obtain
additional capital during the life of the Representative's Warrant may be
adversely affected because the holders of the Representative's Warrant might be
expected to exercise them at a time when the Company would otherwise be able to
obtain comparable additional capital in a new offering of securities at a price
per share greater than the exercise price of the Representative's Warrant.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SECURITIES PRICES
Prior to this Offering, there has been no public market for the Units,
the Common Stock or the Warrants. Although the Company has applied to list the
Units, the Common Stock and the Warrants on the Boston Stock Exchange and the
Nasdaq SmallCap Market, there can be no assurance that a regular trading market
will develop (or be sustained, if developed) for the Units, the Common Stock or
the Warrants upon completion of this Offering, or that purchasers will be able
to resell their Units, Common Stock or Warrants or otherwise liquidate their
investment without considerable delay, if at all. Recent history relating to
the market prices of newly public companies indicates that, from time to time,
there may be significant volatility in their market price. There can be no
assurance that the market price of the Units, the Common Stock or the Warrants
will not be volatile as a result of a number of factors, including the
Company's financial results or various matters affecting the stock market
generally.
PREFERRED STOCK AUTHORIZED
The Company's Articles of Incorporation authorize the issuance of
3,000,000 shares of preferred stock, the rights, preferences and privileges of
which are to be determined by the Company's Board of Directors. Although the
Company has no intention at the present to issue any preferred stock, the
Company may in the future issue and sell preferred stock, which will likely
have dividend, distribution and liquidation preferences senior to common
shareholders and voting rights which may dilute the common shareholder voting
rights. See "Description of Securities- Preferred Stock."
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET
It is anticipated that a significant amount of the Units will be sold
to customers of the Representative. Although the Representative has advised
the Company that it intends to make a market in the Securities, it will have no
legal obligation to do so. The prices and the liquidity of the Securities may
be significantly affected by the degree, if any, of the Representative's
participation in the market. No assurance can be given that any market making
activities of the Representative, if commenced, will be continued. The Common
Stock and the Warrants may not be traded separately until _________, 1998, (180
days from the date of this Prospectus) unless earlier separated upon three days
notice in the sole discretion of the Representative and without the consent of
the Unit holders. The Warrants are not exercisable until separated from the
Units. Factors that the Representative will consider in determining to separate
the Units are the trading price and volume for the Units, the volatility of the
trading price for the Units and the amount of time before the Warrants expire.
See "Underwriting."
POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCKS; POSSIBLE FAILURE
TO QUALIFY FOR BOSTON STOCK EXCHANGE OR NASDAQ SMALLCAP MARKET LISTING
The Commission has adopted regulations which generally define a "penny
stock" to be any equity security that has a market price (as defined) of less
than $5.00 per share, subject to certain exceptions. While the price at which
the Units offered to the public pursuant to this Offering will be equal to
$5.125, there can be no assurance that the Company will be able to satisfy the
listing criteria of the Boston Stock Exchange or that the
15
<PAGE> 16
Units, the Common Stock or the Warrants will trade for $5.00 or more after the
Offering. Consequently, the "penny stock" rules may restrict the ability of
broker/dealers to sell the Company's Securities and may affect the ability of
purchasers in this Offering to sell the Company's Securities in a secondary
market.
Although the Company has applied for listing of the Units, the Common
Stock and the Warrants on the Boston Stock Exchange and the Nasdaq SmallCap
Market, there can be no assurance that such application will be approved or
that a trading market for the Units, the Common Stock and the Warrants will
develop or, if developed, will be sustained. Furthermore, there can be no
assurance that the Securities purchased by the public hereunder may be resold
at their original offering price or at any other price.
In order to qualify for initial listing on the Boston Stock Exchange,
a company must, among other things, have at least $3,000,000 in total assets,
$2,000,000 of net tangible assets, $100,000 of net income in two of the past
three years or $2,000,000 net tangible assets, a 750,000 share "public float,"
with a $1,500,000 market value, 600 beneficial holders, a minimum $2.00 bid
price and $1,000,000 stockholders equity. For continued listing on the Boston
Stock Exchange, a company must maintain $1,000,000 of total assets, a 150,000
share public float with a $500,000 market value, 250 beneficial owners and a
minimum $500,000 of stockholders equity. The failure to meet these maintenance
criteria in the future may result in the discontinuance of the listing of the
Securities on the Boston Stock Exchange.
In order to qualify for initial listing on the Nasdaq SmallCap Market,
a company must, among other things, have at least $4,000,000 in net tangible
assets, $5.0 million "public float," and a minimum bid price for its securities
of $4.00 per share. For continued listing on the Nasdaq SmallCap Market, a
company must maintain $2,000,000 in net tangible assets and a $1,000,000 market
value of the public float. In addition, continued inclusion requires two
market-makers and a minimum bid of $1.00 per share. The failure to meet these
maintenance criteria in the future may result in the discontinuance of the
listing of the Common Stock and Warrants on the Nasdaq SmallCap Market.
If the Company is or becomes unable to meet the listing criteria
(either initially or on a continued basis) of the Boston Stock Exchange or the
Nasdaq SmallCap Market and is never traded or becomes delisted therefrom,
trading, if any, in the Common Stock and the Warrants would thereafter be
conducted in the over-the-counter market in the so-called "pink sheets" or, if
then available, "Electronic Bulletin Board" administered by the National
Association of Securities Dealers, Inc. (the "NASD"). In such an event, the
market price of the Common Stock and the Warrants may be adversely impacted. As
a result, an investor may find it difficult to dispose of or to obtain accurate
quotations as to the market value of the Common Stock and the Warrants.
16
<PAGE> 17
DILUTION
The net tangible book value of the Common Stock at March 31, 1998 was
$1,069,431 or $0.24 per share. "Net tangible book value per share" represents
the amount of total tangible assets less total liabilities, divided by the
number of total shares of Common Stock outstanding. After giving effect to the
sale of the 1,200,000 Units (1,200,000 shares of Common Stock and 1,200,000
Warrants) at an assumed initial public offering price per Unit of $5.125 or
$5.00 per Share and $.125 per Warrant, and the initial application of the
estimated net proceeds therefrom, pro forma net tangible book value of the
Company at March 31, 1998, would have been $5,846,335 or $1.04 per share ($1.15
per share if the Over-allotment Option is exercised), representing an immediate
increase in net tangible book value of $0.80 per share to existing shareholders
and an immediate dilution of $3.96 per share (or approximately 79% dilution) to
purchasers of shares of Common Stock in this Offering as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share . . . . . . . . . . . . . $ 5.00
Net tangible book value per share before Offering . . . . . . . . . . $ 0.24
Increase in value per share attributable to new investors . . . . . . $ 0.80
--------
Pro forma net tangible book value per share after Offering . . . . . . . $ 1.04
--------
Dilution per share to new investors . . . . . . . . . . . . . . . . . . . $ 3.96
========
Percentage dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . 79%
</TABLE>
The following table sets forth as of March 31, 1998, (i) the number of
shares of Common Stock purchased from the Company by the existing shareholders,
the total consideration paid and the average price per share paid for such
shares by the existing shareholders and (ii) the number of shares of Common
Stock to be sold by the Company in this Offering, the total consideration to be
paid and the average price per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------ ------------------------- Average Price
Number Percent Amount Percent Per Share
---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Existing shareholders 4,400,000 79% $ 685,824 10% $ 0.16
New investors 1,200,000 21% 6,000,000 90% $ 5.00
--------- --------- ---------- ----------
Total 5,600,000 100.0% $6,685,824 100%
========= ========= ========== ==========
</TABLE>
17
<PAGE> 18
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,200,000 Units offered hereby are estimated to be approximately $5,035,000
($5,846,800 if the Representative's Over-allotment Option is exercised in full)
assuming an initial public offering price of $5.125 per Unit and after
deducting the estimated underwriting discounts and offering expenses and a
non-accountable expense allowance payable to the Representative equal to 2% of
the gross proceeds.
The following table reflects the application of the estimated net
proceeds by the Company:
<TABLE>
<CAPTION>
USE DOLLAR PERCENT OF
--- AMOUNT NET PROCEEDS
------------ ------------
<S> <C> <C>
Reduce outstanding balance on revolving credit line with $ 2,021,786 40.16%
Repay 1996 debentures 248,820 4.94%
Repay 1997 debentures 185,666 3.69%
Repurchase outstanding warrants 139,074 2.76%
Working capital 2,439,654 48.45%
------------ ------------
Total $ 5,035,000 100.0%
============ ============
</TABLE>
At March 31, 1998, the Company's outstanding balance under the
revolving credit note issued to its senior lender was $2,021,786. The advances
under this note have been used by the Company to provide working capital. The
outstanding indebtedness under this note bears interest at a rate equal to the
prime rate plus 1.0% and is repayable on December 31, 1998.
In July 1996, the Company borrowed $350,000 from certain of its
shareholders and other individuals and issued debentures to the lenders. The
proceeds were used to meet working capital needs of the Company. The 1996
debentures are payable in equal installments of principal and interest, based
on a 60 month amortization schedule with interest at 14% per annum, and with a
balloon payment of the outstanding principal in July, 1999. The balance owed
on the 1996 debentures at the time of the Offering will be approximately
$248,820. The balance at March 31, 1998 was $261,998.
In December 1997, the Company borrowed an additional $200,000 from
certain of its officers, directors and their family members, and issued
debentures for said loans. The proceeds were used to fund $200,000 of the
remaining amount due to John T. White, President of the Company, under a 1992
debenture, with the balance of the repayment coming from internally generated
cash flow. The 1997 debentures are payable in equal installments of principal
and interest, based on a 60 month amortization schedule with interest at 14%
per annum, and with a balloon payment of the outstanding principal in December,
2000. The balance which will be owed on the 1997 debentures at the time of the
Offering will be approximately $185,666. The balance at March 31, 1998 was
$190,507.
The Company issued warrants to each of the lenders of the 1996 and
1997 debentures, and has the right to redeem the warrants for $139,074. The
redemption prices were established at the time the debentures were issued in
1996 and 1997.
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<PAGE> 19
The balance of the net proceeds will be used for general working
capital, including a reduction of accounts payable to take advantage of
available discounts and possible acquisitions of additional printing
operations. The Company does not have any present agreements or understandings
regarding any such acquisitions.
Pending application of the net proceeds of this Offering, the Company
may invest such net proceeds in interest- bearing accounts, United States
government obligations, certificates of deposit or short-term interest bearing
securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common
Stock since its inception except for Subchapter S distributions to the
shareholders proportional to their Subchapter S tax liabilities. The Company
currently intends to retain all earnings for the operation and expansion of its
business and does not anticipate paying any dividends in the foreseeable
future, except for the Subchapter S tax liabilities on taxable earnings for
fiscal 1998 occurring prior to June 1, 1998, the date of the termination of
Subchapter S status. The Company's current revolving credit line prohibits the
payment of dividends under certain conditions.
CAPITALIZATION
The following table sets forth the capitalization of the Company (i)
as of March 31, 1998, and (ii) as adjusted to reflect the sale by the Company
of 1,200,000 Units offered hereby at an assumed initial public offering price
of $5.125 per Unit (after deduction of the underwriting discount and estimated
offering expenses) and the application of the net proceeds therefrom as
described under "Use of Proceeds."
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------
Actual As Adjusted
------------ ------------
<S> <C> <C>
Current portion of long-term debt $ 611,166 $ 516,555
Long-term debt, less current portion 2,973,938 2,735,066
Shareholders' equity
Preferred stock: 3,000,000 share of $1.00 par value authorized, no 0 0
Common stock: 20,000,000 share of $.01 par value authorized, 44,000 56,000
Common stock purchase warrants 0 150,000
Additional paid-in capital 641,824 5,375,750
Accumulated earnings 383,607 264,585
------------ ------------
Total shareholders' equity 1,069,431 5,846,335
------------ ------------
Total capitalization $ 4,654,535 $ 9,097,956
============ ============
</TABLE>
- ----------
(1) Excludes the issuance of (i) 1,200,000 shares of Common Stock upon exercise
of the Warrants; (ii) up to 360,000 shares of Common Stock issuable
pursuant to the Representative's Over-allotment Option and shares
19
<PAGE> 20
underlying the Warrants included therein; (iii) 240,000 shares of Common
Stock issuable upon exercise of the Representatives Warrants and the
Underlying Warrants included therein; and (iv) 300,000 shares of Common
Stock reserved for issuance under the Company's Stock Option Plan, of which
no shares of Common Stock are currently subject to outstanding options.
See "Underwriting", "Management-Stock Option Plan" and "Description of
Securities."
20
<PAGE> 21
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The data for the years ended December
31, 1997 and 1996 are derived from the audited financial statements included
elsewhere in this Prospectus. The data for the three months ended March 31,
1998 and 1997 are derived from unaudited financial statements that are included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS YEAR ENDED YEAR ENDED
ENDED ENDED DECEMBER 31, DECEMBER 31,
STATEMENTS OF OPERATIONS DATA: MARCH 31, 1998 MARCH 31, 1997 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue $ 4,629,824 $ 3,939,448 $ 20,114,549 $ 15,715,395
Costs of goods sold 3,694,190 3,058,955 15,466,484 12,101,986
Gross profit 935,634 880,493 4,648,065 3,613,409
Selling, general and administrative expenses 752,731 720,056 3,269,575 2,872,913
Income from operations 110,903 89,937 984,375 518,174
Other expense, net (27,780) (93,754) (432,910) (346,564)
Pre-tax income (loss) 83,123 (3,817) 551,465 213,360
============== ============== ============== ==============
Income tax provision (1) (29,554) -- (189,638) (81,354)
Net income (Loss) (1) $ 53,569 $ (3,817) $ 361,827 $ 132,006
============== ============== ============== ==============
PRO FORMA EARNINGS PER SHARE (1):
Basic and diluted $ 0.01 $ 0.00 $ 0.08 $ 0.03
Weighted average outstanding shares 4,400,000 4,400,000 4,400,000 4,400,000
OTHER DATA:
EBITDA (2) $ 413,930 $ 336,995 $ 1,884,060 $ 1,629,012
Net cash provided by (used in) operating activities (27,016) 508,065 568,543 485,755
============== ============== ============== ==============
Net cash provided by (used in) investing activities (124,104) 173,422 656,081 236,506
============== ============== ============== ==============
Net cash provided by (used in) financing activities (573,943) (1,413,213) (1,270,200) 85,816
============== ============== ============== ==============
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
March 31, 1998
------------------------------
Actual As Adjusted (3)
============ ==============
<S> <C> <C>
BALANCE SHEET DATA:
Working capital ($ 269,506) $ 4,268,526
============ ============
Total assets 9,698,195 12,140,000
============ ============
Long-term debt and capitalized lease
Shareholders' equity $ 1,069,431 $ 5,846,335
============ ============
</TABLE>
(1) Adjusted to reflect the conversion from "S" Corporation status to
"C" Corporation status upon consummation of the Offering.
(2) EBITDA represents operating income excluding interest, taxes,
depreciation, amortization of goodwill and other intangible assets (as
presented on the face of the income statement). EBITDA is not a
substitute for net cash provided by operating income in accordance with
generally accepted accounting principles. EBITDA is presented because
management believes that it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness, maintain current
operating levels of fixed assets and acquire additional operations and
businesses. Accordingly, significant uses of EBITDA include, but are not
limited to, interest and principal payments on long-term debt, including
indebtedness under the Company's revolving credit agreement. Items
excluded from EBITDA, such as interest, taxes, depreciation and
amortization, are significant components of the Company's operations and
should be considered in evaluating the Company's financial performance.
(3) The as adjusted summary balance sheet data has been prepared as if the
Offering had occurred as of March 31, 1998 and reflects the issuance of
the Securities offered by the Company hereby and the application by the
Company of the net proceeds therefrom. See "Use of Proceeds."
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<PAGE> 23
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
information contained in the financial statements, including the notes thereto,
and the other financial information appearing elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The following is a summary of the revenues and expenses of the Company
for the periods indicated, with the expenses and profits as a percentage of
revenue and with the percentage increase or decrease from March, 1997 to March,
1998.
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS % INCREASE
YEAR ENDED YEAR ENDED ENDED ENDED (DECREASE)
DECEMBER 31, % OF DECEMBER 31, % OF MARCH 31, % OF MARCH 31, % OF 1998 FROM
1997 SALES 1996 SALES 1998 SALES 1997 SALES 1997
------------ ----- ------------ ----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $20,114,549 100% $15,715,395 100% $4,629,824 100% $3,939,448 100% 17.5%
Costs of goods sold 15,466,484 76.9% 12,101,986 77.0% 3,694,190 79.8% 3,058,955 77.6% 20.8%
Gross profit 4,648,065 23.1% 3,613,409 23.0% 935,634 20.2% 880,493 22.4% 6.3%
Selling, general and
administrative expenses 3,269,575 16.3% 2,872,913 18.3% 752,731 16.3% 720,056 18.3% 4.5%
Income from operations 984,375 4.9% 518,174 3.3% 110,903 2.4% 89,937 2.3% 23.3%
Other expense, net (432,910) (2.2)% (346,564) (2.2)% (27,781) (0.6)% (93,754) (2.4)% (70.4)%
----------- ----------- ---------- ----------
Pre-tax income (loss) 551,465 2.7% 213,360 1.4% 83,123 1.8% (3,817) (0.1)%
=========== =========== ========== ==========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues for the three months ended March 31, 1998, increased 17.5% to
$4.6 million compared to $3.9 million for the three months ended March 31,
1997, reflecting continuing strong sales to existing customers during the first
quarter which has been typically weak for the Company for several years.
The costs of goods sold include materials, outside services, labor and
other factory costs. The costs of materials and outside services increased to
$1.7 million in the first quarter of 1998 from $1.5 million in the first
quarter of 1997, with a slight increase in the percentage of revenue spent on
materials and outside services.
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<PAGE> 24
The cost of labor increased to $1.2 million in the first quarter of
1998 from $0.9 million in the first quarter of 1997, and the cost of labor as a
percentage of sales increased to 25.1% from 22.9%. This increase in the cost
of labor resulted from a higher level of hand work for the jobs sold in the
first quarter of 1998 in comparison to jobs sold in the first quarter of 1997.
The other factory costs of the Company also increased, to $0.8 million
in the first quarter of 1998 from $0.7 million in the first quarter of 1997,
though these costs, as a percentage of sales, decreased to 16.7% from 17.7% as
the fixed costs of operations were more efficiently utilized in the quarter.
The higher labor costs were only partially offset by the better plant
utilization, but when combined with the increase in revenues, the gross profit
of the Company increased to $935,634 in the first quarter of 1998 from $880,493
in the first quarter of 1997.
Selling, general and administrative expenses increased by $32,675 in
the first quarter of 1998 to $752,731 from $720,056 in the first quarter of
1997. However, as a percentage of revenue the costs decreased to 17.8% in the
first quarter of 1998 from 20.1% in the first quarter of 1997.
Other expense (net) includes interest expense and other gains and
losses. Interest expense was approximately the same in the first quarters of
1998 and 1997. Other gains and losses moved favorably to a gain of $114,126 in
the first quarter of 1998 from a gain of $44,544 in the first quarter of 1997.
This change was primarily the result of profits at Performance Packaging which
completed the move of its packaging plant to its current facility in the summer
of 1997. In the first quarter of 1998, 94.7% of total revenues at Performance
Packaging were from Pinnacle.
As a result of the foregoing, pre-tax net income rose to $83,123 in
the first quarter of 1998 from a loss of $3,817 in the first quarter of 1997.
The Company makes no provisions for income tax since it is an S corporation for
federal income tax purposes, though it will convert to a C corporation for
federal income tax purposes at the time of the Offering.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues for the year ended December 31, 1997, increased 28% to $20.1
million compared to $15.7 million for the year ended December 31, 1996. The
increase was primarily attributable to increases in sales to existing
customers, as improvements in plant operations begun in 1996 and continued in
the first three quarters of 1997 increased customer confidence. Large format
offset printing, a service added in 1996, began to add customers in 1997, and
business developed by new sales persons added in 1996 increased both the
point-of-purchase advertising materials and commercial printing sold by the
Company in 1997. Revenues for the fourth quarter of 1997 increased by 37% over
the revenues for the fourth quarter of 1996, as strengthening sales throughout
the year showed greatest improvement in the fourth quarter.
The costs of materials and outside services increased to $7.6 million
in 1997 from $5.7 million in 1996, with an increase of 1.7% in the percentage
of revenue spent on materials and outside services. These expenses can vary
substantially as a percentage of revenue from year to year, depending on the
amount of materials furnished by customers on large jobs and the extent to
which services are performed by sub-contractors of the Company. The costs of
materials and outside services in 1997 were in line with those in 1996.
While additional labor was required in 1997 to perform the work
necessary to increase the revenues in 1997 over those in 1996, with the cost of
labor increasing to $4.1 million in 1997 from $3.5 million in 1996, the cost of
labor as a percentage of sales decreased to 20.3% from 22.0%. Labor can be a
variable expense reflecting the amount of work performed by the Company, but a
substantial portion of factory labor is a fixed expense, reflecting the
necessity that the Company has available capacity for new business. With the
increases in revenues in 1997 the labor force of the Company was better
utilized than in 1996.
The other factory costs of the Company also increased, to $2.4 million
in 1997 from $1.8 million in 1996, with scheduled increases in equipment leases
as negotiated at the time of equipment installations and increases to repair
costs as press warranties expired. The increase in revenues kept the fixed
factory costs, as a percentage of revenue relatively flat, at 19.0% in 1997
compared to 18.7% in 1996. As a result of these efficiencies in the use of
24
<PAGE> 25
labor and the maintenance of other factory costs as a percentage of revenue,
the gross profit of the Company increased to $4.6 million in 1997 from $3.6
million in 1996.
Selling, general and administrative expenses increased by $.4 million
in 1997 to $3.3 million from $2.9 million in 1996. However, as a percentage of
revenue the costs decreased to 16% in 1997 from 18% in 1996. The Company
decided to spend more money on its selling efforts in 1997 than in 1996, and it
took a larger reserve for doubtful accounts, increasing the administrative
costs for 1997, but these increases were more than offset by the increases in
revenues for 1997, resulting in lower costs as a percentage of revenue.
Interest expense decreased to $587,548 in 1997 from $610,310 in 1996,
primarily as a result of the Company's move to a new lender with a lower
interest rate for its revolving working capital loan in 1997. Other gains and
losses moved unfavorably to a gain of $154,638 in 1997 from a gain of $263,746
in 1996. This change was primarily the result of losses suffered at
Performance Packaging which suffered operating losses in connection with the
move of the packaging plant to its current facility in the summer of 1997. In
1997, 96.4% of total revenues at Performance Packaging were from Pinnacle.
Gains from cash sales of property and equipment increased to $191,423 in 1997
from $90,727 in 1996.
As a result of the foregoing, pre-tax net income rose to $551,465 in
1997 from $213,360 in 1996. The Company makes no provisions for income tax
since it is an S corporation for federal income tax purposes, though it will
convert to a C corporation for federal income tax purposes at the time of the
Offering.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its cash flow requirements from
funds generated from operations and credit facilities provided by financial
institutions, other lenders and shareholders. Cash flow provided by operations
was ($27,016) and $508,065 for the three months ended March 31, 1998 and 1997
respectively, and $568,543 and $485,755 the years ended 1997 and 1996
respectively. The Company intends to apply approximately $2.5 million of the
net proceeds of the Offering to the repayment of certain indebtedness and
reduction of certain indebtedness, including the Company's line of credit and
certain term indebtedness. See "Use of Proceeds."
Trade accounts receivable outstanding December 31, 1997 increased by
42% over amounts outstanding December 31, 1996, primarily as a result of
increases in fourth quarter sales in 1997 over 1996. Substantially all of the
amounts receivable at the end of 1997 have been collected except for one
invoice on which approximately $625,000 is owed. The Company delivered the
goods on which that invoice was based, and the buyer successfully resold the
goods as part of a successful advertising campaign. The customer has disputed
the quality and quantity of product shipped, claiming that only 80% of the
quantity of printed sheets invoiced was good product. The Company believes that
it met its obligations to the customer and that the customer is making the
claims in an effort to increase its profits on the project. The Company has
accrued 24% of the amount due as a reserve against this account, and based on
its history of collecting from this customer in a previously disputed claim by
the same customer for which 100% of the balance invoiced was collected, the
Company believes it has adequately reserved for the contingency of non-payment
from this customer. However, the amount due from the customer is not secured
by any collateral. The Company is pursuing collection of the invoice through
litigation. See "Note 1 to Financial Statements."
The Company has a revolving credit facility with a senior lender which
permits borrowings of up to $3.5 million, subject to borrowing base
requirements. This credit facility, which bears interest at the prime rate
plus 1% (for a total of 9.5% as of December 20, 1997), is secured by a lien on
substantially all of the Company's assets. In addition, John T. White, an
executive officer and director of the Company, has personally guaranteed the
Company obligations under this credit facility. The Company pays a 0.25%
unused facility fee on the unused portion of this credit facility which matures
on December 19, 1998. At March 31, 1998, the Company had borrowings of
approximately $2,021,786 outstanding under this credit facility. The Company
intends to reduce the outstanding balance of this credit facility with the net
proceeds from this Offering. See "Use of Proceeds."
Heller Financial, Inc. ("Heller") provided bridge financing for the
purchase of the printing division building in the original principal amount of
$1,260,000 on April 5, 1995. In 1997 this loan was replaced with three long
term loans held by Heller, having outstanding balances as of March 31, 1998, of
$683,882, $567,747 and $54,464 and annual payments of $83,868, $54,960 and
$16,764 respectively.
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<PAGE> 26
In December 1997, the Company issued unsecured notes in the aggregate
principal amount of $200,000 to certain of its officers, directors, and their
family members. These notes are due in December 2000 and bear interest at 14%.
The Company will repay these notes with the net proceeds from this Offering.
See "Use of Proceeds" and "Certain Transactions."
In July, 1996, the Company issued promissory notes secured by the
Company's interest in Performance Packaging promissory notes in the aggregate
principal amount of $350,000 to certain officers, directors and their family
members. These notes are due in July 1999 and bear interest at 14%. The
Company will repay these notes with the net proceeds from this Offering. See
"Use of Proceeds" and "Certain Transactions."
The Company has financed its purchases of equipment through term
financing and equipment leases from several equipment lenders. Interest rates
average approximately 9.5% per annum, with payment terms ranging from 48 months
to 96 months. The total outstanding obligations under these financings on
March 31, 1998 was $1,909,794.
The Company has previously leased printing equipment from certain
related companies. Effective March 31, 1998, most of the equipment owned by
the lessors was sold back to the equipment manufacturer, and the manufacturer
agreed to lease the equipment directly to the Company on terms more favorable
than the original lease. The balance of the equipment was transferred to the
Company from one of the lessors in exchange for the assumption by the Company
of the debt owed by the lessors to the equipment manufacturer. As a result of
the transaction, the Company's lease payments will be approximately $65,000 per
year greater in 1998 than in 1997, but the new lease will eliminate a large
balloon payment, reduce the escalation of lease payments over the next five
years and grant the Company options to purchase the equipment at fair market
value after four years. See "Certain Transactions".
The Company has no significant commitments at this time which would
require that it expend capital and believes its current facilities and capital
equipment are adequate for the Company as currently structured.
26
<PAGE> 27
BUSINESS
Performance Printing is a printing and display manufacturing company
primarily engaged in the business of serving the point-of-purchase advertising
industry. In addition to its Display and Printing divisions which are operated
from separate plants, the Company owns a majority interest in Performance
Packaging, which packages trading cards and related products. All three plants
are in close proximity to one another in Dallas, Texas. The sales and
administrative offices are located in a corporate office separate from any of
the plants.
The Company's business has been built around a core specialty of
printing with inks and coatings which are cured with ultra violet light ("UV").
This UV printing technology enables the Company to print on Substrates other
than paper, such as vinyl, styrene and PETG. Over the past few years, the
Company has added UV screen printing to compliment the UV offset printing,
allowing it to print on more diverse materials such as metal and very thick
materials and to use special inks and coatings.
BUSINESS STRATEGY
Historically, the Company has grown and profited by increasing its
capacity and adding services complimentary to its existing specialties. The
Company has a two-point growth strategy for the future:
# Internal Growth The Company will continue to build its existing business
in Dallas, Texas, adding new specialties and related services when
appropriate. Much of its existing equipment has more than twice the
capacity utilized in 1997. By utilizing its strong local sales force,
local market share can be increased. By using the national marketing and
sales effort which have been developed over the past five years, the
Company expects to continue to realize a substantial portion of its
revenues from customers located outside of the North Texas area. The
Company believes that it can achieve substantial growth from its existing
business.
# Acquisitions The Company plans to acquire small commercial printers and
screen printers in several key markets around the United States and convert
these plants to shops similar to its Dallas operations. Small UV offset
and screen presses and large format digital presses would be installed in
these regional plants which would be operated under the Performance trade
name. The sales force at each would be increased and trained to sell
point-of-purchase advertising and related materials. Jobs requiring the
use of the multi-million dollar presses such as the Company's equipment in
Dallas would be transferred to Dallas for production. The regional plants
would facilitate the development of close relationships with major users of
point-of-purchase advertising and related materials, with primary emphasis
on sales, pre-press and short run work in the regional plants. The Company
believes that it can develop three to five such regional centers over the
next three years, achieving substantial additional growth and profits from
these new regional centers.
The Company expects, over the four fiscal years ending December 31,
2002, that its growth will be divided approximately equally between internal
growth and acquisitions. The Company believes that it will continue its
internal historic growth over the next four years. In the event the Company is
not successfull in locating suitable acquisition candidates at the rate of two
per year, it will depend primarily on its internal growth rate to increase its
revenues. The Company will seek to acquire other printing companies with
annual revenues in the $5 to $10 million range. If the Company acquires one or
more printing companies with revenues greater than its targeted range, the
increase in sales could be weighted more toward acquisition than internal
growth.
INDUSTRY BACKGROUND
Although the Company is built around specialty printing, it is
considered a commercial printer by industry classification. The commercial
printing industry is one of the largest and most fragmented manufacturing
industries in the United States. According to the Printing Industries of
America, Inc. ("PIA"), the main national trade organization for the industry,
there were approximately 52,000 printing firms with total annual revenues of
$132 billion in 1996. Of the 27,600 commercial, screen and specialty printers,
only 621 had more than 100 employees in 1996, but these firms sold 42% of the
$72.8 billion in revenues sold by the commercial, screen and specialty
printers. The printing industry is experiencing considerable consolidation at
this time. Several printing companies are in the business of acquiring other
printing companies.
The point-of-purchase advertising industry was a $12 billion industry
in 1995 according to the Point-of-
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<PAGE> 28
Purchase Advertising Institute, an industry trade organization. The Institute
reported a growth of 8% for the industry from 1994 to 1995.
COMPANY OPERATIONS
The Company has used its core specialties involving offset and screen
printing of UV cured materials to attract customers, and, once relationships
are established, the Company often sells commercial printing services to them
as well. Moreover, the Company has added many other complimentary services to
go with its UV printing and its commercial printing, such as complete pre-press
services, large format printing which is used for large point-of-purchase
displays, folding and gluing of decorative cartons for in-store use, die
cutting of printing and display materials, thermoforming of plastics for
displays, large format digital printing for short run banners and posters, and
kitting and fulfillment of advertising materials for in-store use.
The equipment used for these specialties is expensive in comparison to
much of the equipment used in commercial printing. Not only is it necessary to
have large presses with multiple colors and finishing equipment to match the
presses, but the curing equipment is also expensive. In addition, customers
require very fast turn time as advertising campaigns are commonly late in the
creative and approval phase, shortening the available time for manufacturing.
Thus the Company is required to have a great deal of ready capacity to meet
these requirements. However, hourly rates and material markups are also
relatively high for this type of work.
The Company fills in the idle time for its specialty capacity by
selling commercial printing services and trading card printing. While the
prices for these types of work are not as high as for the specialty services,
revenues from these activities help cover the cost of the necessary capacity.
EQUIPMENT
The Company owns or leases seven sheetfed offset presses ranging from
two colors to eight colors and from 20" to 63" in print width. In addition the
Company has five large format flat bed and cylinder screen presses and an off
line UV coater. The Company's finishing equipment includes a variety of
guillotine cutters, die cutters, folders, gluing machines and wrappers. The
Display Division has three thermoforming machines for plastic molding and large
format digital printers. Almost all of the Company's pre-press services are
performed on its extensive high-end pre-press systems, including scanners and
film output devices.
COMPANY SERVICES
The Company builds relationships with its customers by offering
turnkey services for point-of-purchase advertising materials and related
products. Some of the manufacturing capacity not absorbed with those
activities is sold in the commercial printing market. Products and services
offered by the Company include the following:
# Plastic In-store Materials. Typical products of this core specialty include
static clings, plastic shelf strips, danglers, wobblers, counter mats,
mouse pads, floor graphics and translights, all of which are common to
point-of- purchase advertising.
# Special Inks and Coatings. Using UV curing technology for both offset and
screen printing, inks and coatings with special properties are offered,
including materials with are light fast for outdoor usage and which have
other unusual properties such as sealed scents, glow-in-the-dark
capabilities and temperature sensitive inks which change colors as
temperatures change.
# Large Format Printing. Offset printing up to 63" by 44", digital printing
up to 54" by 36', and screen printing up to 84" by 48". Typical products
include decorative labels for corrugated boxes, posters, banners and
temporary in- store displays.
# Promotional Advertising Materials. Trading cards and other giveaway items
for advertising campaigns by food and beverage companies are manufactured
using UV printing, UV coating and other specialty inks and coatings.
# Kitting and Fulfillment. The Company compiles materials manufactured by it
and other vendors on behalf of its customers and ships the packages
directly to stores for in-store display.
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<PAGE> 29
# Commercial Printing. Using conventional printing, UV printing and a variety
of types of finishing, the Company manufactures brochures, small catalogs,
trading cards, calendars, manuals and other typical commercial printing
products.
# Folding Cartons. Decorative cartons used for in-store sales and direct
marketing sales are printed, coated, die-cut, folded and glued in-house by
the Company.
# Plastic Displays. The Company builds molds, heat forms and finishes a
variety of plastics for in-store displays and for packaging components.
# Design and Advertising. Under the trade name "Performance Marketing", the
Company provides creative and design services for advertising and for
in-store displays. These services include media purchasing, prototype
development, public relations and printing design.
# Trading Card Packaging. Through Performance Packaging, the Company cuts,
collates, over-wraps, shrink-wraps, boxes and ships millions of trading
card packs and similar products each month. Pinnacle is the primary
customer of Performance Packaging. In 1997, 96.4% of total revenues at
Performance Packaging were from Pinnacle.
MARKETING AND SALES
The Company has three primary means of marketing and selling its
services. It has a sales staff of 16 sales persons who sell mainly to customers
located in the North Texas area, although seven of these salespersons also have
accounts in other parts of the United States. In addition, the Company
advertises in national trade magazines for the point-of-purchase and printing
industries, with a marketing staff of four persons responsible for designing
and placement of advertising, public relations and handling inquiries from
customers. The Company also uses telephone marketing through its national
sales department to contact and sell to customers located outside of the North
Texas area. With a staff of four, this department contacts potential buyers by
phone, sends samples and advertising materials to interested prospects and
sells to customers by telephone.
A team of customer service representatives supports the local and
national sales departments. Eight representatives are located in the offset
and display plants to handle order entry, proofing, communications with
customers and production management once sales are made by the salespersons.
This lets the salespersons concentrate on generating new sales while
maintaining a close working relationship with the customers.
CUSTOMERS
Since many of the services rendered by the Company relate to large
projects for customers, sales to particular customers may very significantly
from year to year depending on the number and size of projects required.
During 1997, five customers together represented more than 34% of the
Company's sales. For 1997 only one customer accounted for as much as 10% of
sales (12.5%). The Company had 306 total customers in 1997 with an average
of approximately $65,700, per customer. The average order sizes in 1997 was
approximately $6,200.
PURCHASING RAW MATERIALS
The Company purchases plastics, paper, ink, plates, film, pressroom
supplies and other materials from a number of suppliers. Large orders for
paper and plastics are often placed directly with mills, and routine purchases
are made from product distributors. For large trading card projects and
production of large giveaway premiums, the customers normally furnish the
required paper or plastic. Paper and plastic represent the majority of the
materials purchased by the Company. Though the Company has not found that
price increases and decreases for paper and plastic directly decrease or
increase the orders it receives for printing services, these prices can be
volatile in some years. Substantial increases in the costs of material could
reduce the feasibility of some projects. The Company has not experienced any
significant difficulty in obtaining raw materials necessary to produce orders
for its customers.
FACILITIES AND CAPABILITIES
The Company operates three manufacturing plants. All three plants are
within 10 minutes of driving time
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<PAGE> 30
from one another, and none are more than 15 minutes from the corporate office.
The Performance Display division is in a leased facility of 44,000
square feet. The primary lease term expires December 21, 2000. Performance
Packaging is in a leased facility of 75,000 square feet. The primary lease term
expires April 30, 2002. The Company does not expect any difficulty in
negotiating a lease renewal for either facility if it desires to do so. The
offices and manufacturing areas of both are air-conditioned and have adequate
power.
The Printing division is in a 50,000 square foot facility owned by the
Company. It is located on Interstate Highway 35 near downtown Dallas, which is
an excellent location due to its visibility and accessibility to the highway.
One senior lender has mortgages on the building securing indebtedness
in the aggregate amount of $1,305,593. The equipment lenders and other
financing sources have liens on substantially all of the Company's equipment
and machinery.
The sales, estimating, marketing, advertising agency and administrative
functions of the Company are conducted from the corporate office of the Company
located near downtown Dallas in a 9,200 single tenant office building. The
building is on a month-to-month rental basis from a partnership between John T.
White and Richard D. Cox. Messrs. White and Cox are directors of the Company,
and Mr. White is the Company's Chief Executive Officer.
The Company has substantial capacity available for growth of its
business. With proper staffing of pressmen and assistant pressmen, each
printing press has a potential of four 40-hour shifts per week. With six
sheetfed offset presses currently running only nine shifts at the printing
plant, and with the five screen presses, two digital and one off-line UV coater
currently running only eight shifts, there are a potentially fifteen and
twenty-four shifts available at the printing and display plants, respectively.
Currently a portion of these shifts is filled through overtime work by existing
shifts, but the majority of these available shifts represent additional
capacity for the Company. The existing finishing and pre-press equipment has
adequate capacity to compliment the available capacity on the printing presses.
While the employment market in Dallas, Texas, is tighter now than in recent
years, the Company has not incurred any substantial difficulty in attracting,
training and retaining qualified personnel.
INTELLECTUAL PROPERTY
The Company markets its services in the United States under the names,
"Performance Printing," "Performance Display," "Performance Marketing," and
"Performance Packaging." "Performance Printing," together with its logo, is a
federally registered service mark in the name of the Company.
EMPLOYEES
As of December 31, 1997, the Company had a total of 160 regular
employees, 17 of whom were administrative personnel, 52 of whom were salaried
or commissioned employees and 108 of whom were hourly employees. In addition,
the Company employs up to 50 temporary employees as work requires, with almost
all of such temporary employees providing hand labor services. The Company
does not have any employees engaged in research and development. Performance
Packaging employs 18 regular employees and up to 350 temporary employees for
hand labor services as needed. None of its employees are represented by a
collective bargaining agreement. The Company believes its relations with its
employees are good.
GOVERNMENT REGULATIONS AND ENVIRONMENTAL MATTERS
The Company is subject to the environmental laws and regulations of
the United States and the state of Texas concerning emissions into the air,
discharges into waterways and the generation, handling and disposal of waste
materials. Responsible agencies include, but are not limited to, the U.S.
Environmental Protection Agency, the Texas Natural Resource Conservation
Commission and regulatory agencies at the county and local level. The
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<PAGE> 31
printing and display business generate substantial quantities or inks, solvents
and other waste products requiring disposal under the numerous federal, state
and local laws and regulations relating to the environment. The Company
typically recycles waste paper and plastic, returns salvageable waste ink to
its supplier and contracts for the removal of other waste products. The
Company believes it is in substantial compliance with all applicable air
quality, waste disposal and other environmental-related rules and regulations
as well as with other general employee health and safety laws and regulations.
However, there can be no assurance that future changes in such laws and
regulations will not have a material effect on the Company's operations.
AFFILIATED COMPANIES
Although the Company has no subsidiaries, it owns 51% of Performance
Packaging. The remaining 49% is owned by Pinnacle, which is the primary
customer of Performance Packaging under the terms of the Packaging Agreement,
which terminates on March 31, 2002. The Packaging Agreement provides, in part,
that Pinnacle will have first call on 100% of the packaging capacity of
Performance Packaging in exchange for certain fixed cost payments. For the
fiscal year ended December 31, 1997, Pinnacle accounted for 96.4% of
Performance Packaging sales. Through its 49% stock ownership of Performance
Packaging and three of five members of the management committee (board of
directors), Pinnacle has legal control of Performance Packaging. However,
pursuant to an Organizational Agreement, the Company is responsible for the
management of Performance Packaging and John T. White, President of the
Company, is President of Performance Packaging. The Company believes that the
Packaging Agreement will be renewed at the end of its current term.
The Company also has three sister companies, Performance Label
Corporation, Tejas Label Corporation and Southwest UV Corporation (the
"Equipment Companies"), which are owned by shareholders with identical
ownership to that of the Company. All three of these companies were formed and
have existed for the sole purpose of owning printing equipment purchased from
and financed by a printing press manufacturer. Except for a limited guarantee
for approximately $158,000 of payments due between January and June of 1998,
none of the obligations of the Equipment Companies are guaranteed by or the
responsibility of the Company, though all of the presses owned by the Equipment
Companies are leased to the Company.
Effective March 31, 1998, most of the equipment owned by the Equipment
Companies was sold back to the equipment manufacturer, and the manufacturer
agreed to lease the equipment directly to the Company. The balance of the the
equipment was transferred to the Company from one of the Equipment Companies in
exchange for the assumption by the Company of the debt owed by the Equipment
Company to the equipment manufacturer. Prior to the date of the Offering, the
Equipment Companies will be dissolved.
COMPETITION
The Company competes with a number of other commercial printers, some
of which are subsidiaries or divisions of companies having greater financial
resources than those of the Company. Because of the nature of the Company's
business, most of the Company's competition is in the local printing market.
The major competitive factors in the Company's commercial printing business are
ongoing customer service, quality of finished products and price. Customer
service often is dependent on production and distribution capabilities and
availability of printing time on equipment which is appropriate in size and
function for a given project. In addition, competition in the commercial
printing area is based upon the ability to perform the services described with
speed and accuracy. Price and the quality of supporting services are also
important in this regard. Performance Printing believes it competes effectively
on all of these bases. The Company intends to participate in the consolidation
taking place in the printing industry by acquiring printing companies in
several markets throughout the United States. See "-Business Strategy" and
"-Industry Background."
LEGAL PROCEEDINGS
From time to time the Company is involved in litigation relating to
claims arising out of its operations in the normal course of business. There
are no pending suits or threatened suits against the Company at this time,
though the Company is the plaintiff in four suits for collection of past due
accounts. The Company is not aware
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<PAGE> 32
of any pending litigation that is likely to have a significant negative impact
on the business, income, assets or operation of the Company.
While the Company maintains insurance coverage against potential
claims in an amount which it believes to be adequate, there can be no assurance
that the Company's insurance coverage will be adequate to cover all liabilities
arising out of such claims or that any such claims will be covered by the
Company's insurance. While the outcome of lawsuits or other proceedings
against the Company cannot be predicted with certainty, the Company does not
believe these matters will have a material adverse effect on its business or
financial position.
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<PAGE> 33
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
W. Chris Pumpelly 60 Chairman of the Board; Vice President - Business Development;
and Director.
John T. White 46 Chief Executive Officer; President; and Director
Gary H. Homsey 52 Vice President - Marketing
Michael Short 36 Vice President - Operations
Russell V. Oesch 34 Chief Financial Officer; Vice President - Finance; and
Secretary
Greg White 30 Vice President - Sales
Stephen M. Lilly 39 Director
C. Thomas Daulton 43 Director
Richard D. Cox 47 Director
Joseph E. Pate 55 Director
</TABLE>
John T. White has served as President and Chief Executive Officer of the
Company since 1991.
W. Chris Pumpelly has served as Chairman of the Company since 1991. Mr.
Pumpelly founded Performance Printing in 1981, and served as president for the
next ten years. He has 25 years experience in both production and sales and
has extensive knowledge of all types of printing, including UV, specialty and
packaging.
Michael Short has served as Vice-President-Operations since April, 1996. Mr.
Short previously was the general manager of Performance Display for four years.
Russell V. Oesch has served as the Vice President-Finance of the Company since
August, 1995. From February to August 1995, he was a consultant for Business
Records Corporation. From November, 1990 to February, 1995, he was the Vice
President of Finance and Accounting for Great American Clubs, Inc., a
hospitality company, and an accounting manager for the international public
accounting firm of KPMG Peat Marwick from August, 1985 to December, 1990. He
is a certified public accountant with 12 years of accounting and finance
experience and two years of printing experience.
Gary H. Homsey has served as Vice President-Marketing for the Company's three
divisions since January, 1993. Mr. Homsey also manages national phone sales
and operates Performance Marketing, an in-house advertising and public
relations agency. From 1977 through 1992, he served as president and creative
director of Homsey Advertising & Public Relations, Inc.
Greg White has served as Vice President-Sales for the Company since August,
1997. Mr. White joined the Company in 1991 and has been the top sales producer
at the Company for the past three years. Mr. White is the brother of John T.
White.
Richard D. Cox has served as a director since 1991. Mr. Cox has been an
attorney and partner with Brown McCarroll & Oaks Hartline in Dallas since
1989.
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<PAGE> 34
C. Tom Daulton has been a director since 1991. Mr. Daulton is self-employed in
venture capital. From 1989 through 1995, he served as chief financial officer
of the Company.
Steven M. Lilly has served as a director of the Company since 1996. Since
August, 1991, Mr. Lilly has been the President and Chief Executive Officer of
Promotional Services International, Inc., a promotional advertising agency, in
Atlanta, Georgia. He has ten years of printing industry experience.
Joseph E. Pate has been a director of the Company since 1991. Mr. Pate was the
operations manager at VidPro International, Inc, a point-of-purchase display
company from August 30, 1996 until April 3, 1998 when he rejoined the Company
as a sales representative. Mr. Pate was a founding partner and vice president
of the Company from 1981 to 1996.
BOARD OF DIRECTORS
The Board of Directors of the Company consists of six members. Each
director will hold office until the annual meeting of the shareholders of the
Company next following his election or until his successor is elected and
qualified.
Directors of the Company do not receive compensation for serving as
directors. All directors of the Company are reimbursed for out-of-pocket
expenses incurred in attending meetings of the Board of Directors or committees
thereof, and for other expenses incurred in their capacities as directors of
the Company. Directors will also be eligible to participate in the Company's
stock option plan. See "Stock Option Plan."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established two committees: a Compensation
Committee and an Audit Committee. The Compensation Committee, currently
comprised of Messrs. Daulton, Lilly and Cox, is responsible for reviewing and
making recommendations to the Board of Directors with respect to compensation
of executive officers, other compensation matters and awards under the
Company's Stock Option Plan. The Audit Committee, currently comprised of
Messrs. Cox, Daulton and Pate, is responsible for reviewing the Company's
financial statements, audit reports, internal controls and the services
performed by the Company's independent public accountants, and for making
recommendations with respect to those matters to the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by,
or paid by the Company to executive officers who earned over $100,000 for
services during each of the fiscal years ended December 31, 1997 and 1996, and
1995:
<TABLE>
<CAPTION>
Annual Compensation
Fiscal All Other
Name and Principal Position Year Salary Bonus Compensation (1)
- --------------------------- ---- -------- ----- ----------------
<S> <C> <C> <C> <C>
John T. White 1997 $228,000 $0 $ 950
President and CEO 1996 227,932 0 0
1995 185,092 0 0
W. Chris Pumpelly 1997 $142,800 $0 $ 950
Vice President - Business Development 1996 148,957 0 0
and Chairman of the Board 1995 157,373 0 0
Gary Homsey 1997 $131,461 $0 $ 950
Vice President - Marketing 1996 132,336 0 0
1995 128,654 0 0
Greg White 1997 $199,999 $0 $ 950
Vice President - Sales 1996 126,890 0 0
1995 114,838 0 0
</TABLE>
34
<PAGE> 35
(1) Amount consists of matching 401 (k) contributions of $950.
STOCK OPTION PLAN
The Board of Directors adopted the Stock Option Plan which provides
for the grant of options to eligible employees and directors for the purchase
of Common Stock of the Company. The Option Plan covers, in the aggregate, a
maximum of 300,000 shares of Common Stock. The Stock Option Plan provides for
the granting of both incentive stock options (as defined in Section 422 of the
Internal Revenue Code of 1986) (the "Incentive Options") and nonqualified
stock options (options which do not meet the requirements of Section 422) (the
"Nonqualified Options").
The Compensation Committee of the Board of Directors ("the Committee")
administers and interprets the Option Plan and is authorized to grant options
thereunder to all eligible employees of the Company, including officers. The
Committee designates the optionees, the number of shares subject to the options
and the terms and conditions of each option. Certain changes in control of the
Company will cause the options to vest immediately. Each option granted under
the Option Plan must be exercised, if at all, during a period established in
the grant which may not exceed 10 years from the date of grant. An optionee
may not transfer or assign any option granted and may not exercise any options
after a specified period subsequent to the termination of the optionee's
employment with the Company.
The Stock Option Plan provides for the grant of Incentive Options to
employees of the Company or a subsidiary who, in the judgment of the Committee
are responsible for, or contribute to, the management or success of the Company
or a subsidiary. Nonqualified Options may be granted to officers, directors,
employees and advisors of the Company or a subsidiary who, in the judgment of
the Committee are responsible for or contribute to the management or success of
the Company or subsidiary. The exercise price of Incentive Options shall not
be less than 100% of the market price of the Company's stock on the date of
grant. The exercise of Nonqualified Options shall be not less than 85% of the
market price of the Company's stock on the date of grant.
None of the named Executive Officers were granted options during the
year ended December 31, 1997. The Company has no outstanding options to
purchase shares of its capital stock.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation limit the liability of
directors of the Company to the Company or its shareholders to the fullest
extent permitted by Texas Business Corporations Act.
The Company's Bylaws provide that it shall indemnify each of its
directors and officers, acting in such capacity, so long as such person acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Company. Such indemnification may be made
only upon a determination by the Board of Directors that such indemnification
is proper in the circumstances because the person to be indemnified has met the
applicable standard of conduct to permit indemnification under the law. The
Company is also required to advance to such persons payment for their expenses
incurred in defending a proceeding to which indemnification might apply,
provided the recipient provides an undertaking agreeing to repay all such
advanced amounts if it is ultimately determined that he is not entitled to be
indemnified.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
35
<PAGE> 36
As of this date hereof, there is no pending litigation or proceeding
involving a director, officer, employee or agent of the Company where
indemnification will be required or permitted, and the Company is not aware of
any threatened litigation or proceeding which may result in a claim for such
indemnification.
36
<PAGE> 37
CERTAIN TRANSACTIONS
In 1997, Messrs. White and Pumpelly, executive officers and directors
of the Company, guaranteed two printing press equipment lease agreements for
the Company. The leases provide for level rental payments for 84 months with
an option to purchase the equipment at the end of the lease terms for the fair
market value of the equipment. While the Company has an option to purchase the
presses for their fair market value at the end of the 84 month lease terms, the
guaranty agreements provide that Messrs. White and Pumpelly are obligated to
buy, and an equipment manufacturer is obligated to sell, the presses for 25% of
the initial cost of the presses. It is anticipated that prior to the Offering,
the Company will convert the press leases to outright purchases under option
agreements currently in place, in which event the obligations of Messrs. White
and Pumpelly and an equipment manufacturer relating to the mandatory press
purchases after 84 months will lapse. In the event the Company does not elect
to convert the leases to purchases, the Company and Messrs. White and Pumpelly
expect that the Company will purchase the presses at the same price from either
an equipment manufacturer or Messrs. White and Pumpelly at the end of the 84
month lease term.
The Equipment Companies, which are owned by shareholders with
identical ownership to that of the Company, have existed for the sole purpose
of owning printing equipment purchased from and financed by a printing press
manufacturer. Except for a limited guarantee for approximately $158,000 of
payments due between January and June of 1998, none of the obligations of the
Equipment Companies are guaranteed by, or the responsibility of, the Company
though all of the presses owned by the Equipment Companies are leased to the
Company.
Effective March 31, 1998, most of the equipment owned by the Equipment
Companies was sold back to the equipment manufacturer, and the manufacturer
agreed to lease the equipment directly to the Company. The balance of the the
equipment was transferred to the Company from one of the Equipment Companies in
exchange for the assumption by the Company of the debt owed by the Equipment
Company, to the equipment manufacturer. Prior to the date of the Offering, the
Equipment Companies will be dissolved.
Messrs. White and Pumpelly have guaranteed substantially all of the
Company's debt and equipment lease obligations.
The Company rents its corporate office from a partnership between
Messrs. White and Cox. The 9,200 square foot single tenant office building has
been rented under a verbal tenancy at will. Rental payments to the partnership
by the Company were $85,487 in 1995, $82,536 in 1996 and $83,392 in 1997.
On December 1, 1997, the Company issued an aggregate of $200,000
principal amount of unsecured notes (the "1997 Notes") which are due December
1, 2000 and bear interest at 14%. The 1997 Notes were used to retire $200,000
of indebtedness of the Company to John T. White which was incurred in 1992 to
provide working capital to the Company. The following persons purchased the
1997 Notes for the amounts indicated: John T. White $78,196; Mrs. Diana
Peterson, a shareholder, $30,075; C. Thomas Daulton, director, $19,549; Mrs.
Lucy Cox, mother of Richard D. Cox, $22,180; and Richard D. Cox, a director,
$50,000.
In connection with the issuance of the 1997 Notes, the Company entered
into a Warrant for Stock Purchase (the "1997 Note Warrants") with each
purchaser of the 1997 Notes which entitles the note purchasers to purchase a
specified percentage of the Company's outstanding stock, unless the Company
pays a cancellation fee to the note purchaser. The Company will use a portion
of the net proceeds from this Offering to retire the 1997 Notes and to cancel
the 1997 Note Warrants. The Company will pay to the following persons the
amounts indicated to redeem the 1997 Warrants: John T. White, $15,115, Mrs.
Peterson, $5,813, Mr. Daulton, $3,779, and Mr. Cox, $13,952. See "Use of
Proceeds."
In July, 1996, the Company issued promissory notes (the "1996 Notes")
in the aggregate principal amount of $350,000 secured by the Company's 51%
interest in Performance Packaging. The 1996 Notes are due June, 1999 and the
outstanding principal amount of the 1996 Notes bears interest at 14%. The 1996
Notes were used to provide working capital to the Company. The following
persons purchased the 1996 Notes for the amounts indicated: White, Cox, Larson,
P.C., Retirement Trust (on behalf of John T. White, Chief Executive
37
<PAGE> 38
Officer and a director) $100,000; Richard D. Cox $50,000; Mrs. Lucy Cox, mother
of Richard D. Cox, $50,000; Thomas P. White, Jr., father of John T. White,
$100,000; and Russell V. Oesch, Chief Financial Officer, $50,000.
In connection with the issuance of the 1996 Notes, the Company entered
into a Warrant for Stock Purchase (the "1996 Note Warrants") which entitled the
note purchasers to purchase a specified percentage of the Company's outstanding
stock, unless the Company pays a cancellation fee to the note purchaser. The
Company will use a portion of the net proceeds from this Offering to retire the
1996 Notes and to cancel the 1996 Note Warrants. The Company will pay the
following persons the amounts indicated to redeem the 1996 Warrants: John T.
White, $28,690; Richard D. Cox, $14,345; Mrs. Cox, $14,345; Mr. Thomas P. White
$28,690; and Russell V. Oesch $14,345. See "Use of Proceeds."
During the periods ended March 31, 1998 and 1997 and the fiscal years
1997 and 1996, the Company sold goods and services to Promotional Services
International, Inc., ("PSI"), in the amounts of $300,242, $151,305, $444,235,
and $6,484, respectively. The Company continues to provide services to PSI.
Stephen M. Lilly, a director of the Company, is a principal shareholder of PSI.
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company that could have been obtained
from unaffiliated parties. All future transactions, including loans and
compensation between the Company and its officers, directors, principal
shareholders and affiliates, will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested outside
directors, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
38
<PAGE> 39
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 31, 1998 and as
adjusted to reflect the sale of Common Stock being offered by the Company
hereby, for (i) each person known by the Company to own beneficially 5% or more
of the Common Stock, (ii) each director and executive officer of the Company,
and (iii) all directors and executive officers of the Company as a group.
Except pursuant to applicable community property laws and except as otherwise
indicated, each shareholder identified in the table possesses sole voting and
investment power with respect to his or her shares.
<TABLE>
<CAPTION>
SHARES OWNED
Prior to Offering After Offering
--------------------------- ---------------------------
Number of Percent Number of Percent
Name of Beneficial Owner Shares Owned Owned Shares Owned Owned
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
John T. White (1) 1,144,000 26.00% 1,144,000 20.43%
Richard D. Cox (2) 1,056,000 24.00% 1,056,000 18.86%
W. Chris Pumpelly (1) 847,000 19.25% 847,000 15.13%
Joey E. Pate (3) 627,000 14.25% 627,000 11.20%
Diana Peterson (4) 440,000 10.00% 440,000 7.86%
C. Thomas Daulton (5) 286,000 6.50% 286,000 5.11%
Gary H. Homsey (1) -- -- -- --
Michael Short (1) -- -- -- --
Russell V. Oesch (1) -- -- -- --
Greg White (1) -- -- -- --
Stephen M. Lilly (6) -- -- -- --
All directors, and executive officers
as a group (ten persons) 3,960,000 88.59% 3,960,000 70.71%
</TABLE>
- -----------
(1) The address of Messrs. John T. White, Pumpelly, Homsey, Short, Oesch and
Greg White is 3012 Fairmount, Dallas, Texas 75201.
(2) The address of Mr. Cox is 300 Crescent Court, Suite 1400, Dallas, Texas
75201.
(3) The address of Mr. Pate is 1409 San Rafael Dallas, Texas 75218.
(4) The address of Mrs. Peterson is 111 E. Broadway, #1080, Salt Lake City,
Utah 84111.
(5) The address of Mr. Daulton is 1901 N. Akard, Dallas, Texas 75201.
(6) The address of Mr. Lilly is 1000 Holcomb Woods Parkway, Suite 4408,
Roswell, Georgia 30076.
39
<PAGE> 40
DESCRIPTION OF SECURITIES
CAPITAL STOCK OF THE COMPANY
Performance Printing's authorized capital stock consists of 20,000,000
shares of Common Stock, $.01 par value, and 3,000,000 shares of preferred
stock, $1.00 par value per share ("Preferred Stock").
UNITS
Each Unit consists of one share of Common Stock and one Warrant. The
Shares and Warrants included in the Units may be not be traded separately until
________, 1998 (180 days from the date of this Prospectus) unless earlier
separated upon three days notice from the Representative to the Company. The
Warrants may not be exercised until they are separated from the Units.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders, including the election of
directors. The Common Stock does not have cumulative voting rights, which
means that the holders of a plurality of the shares voting for election of
directors can elect all members of the Board of Directors. Dividends may be
paid ratably to holders of Common Stock when and if declared by the Board of
Directors out of funds legally available therefor. Upon liquidation or
dissolution of the Company, the holders of Common Stock will be entitled to
share ratably in the assets of the Company legally available for distribution
to shareholders after payment of all liabilities and the liquidation
preferences of any outstanding Preferred Stock.
The holders of Common Stock have no preemptive or conversion rights or
other subscription rights and are not subject to redemption or sinking fund
provisions or to calls or assessments by the Company. The shares of Common
Stock offered hereby will be, when issued and paid for, fully paid and not
liable for call or assessment.
At March 31, 1998, the Company had six shareholders.
PREFERRED STOCK
The Company may issue Preferred Stock in one or more series and the
Board of Directors may designate the dividend rate, voting rights and other
rights, preferences and restrictions of each series. It is not possible to
state the actual effect of the issuance of any shares of Preferred Stock upon
the rights of holders of the Common Stock until the Board of Directors
determines the specific rights of the holders of such Preferred Stock.
However, the effects might include, among other things, restricting dividends
on the Common Stock, diluting the voting power of the Common Stock, impairing
the liquidation rights of the Common Stock and delaying or preventing a change
in control of the Company without further action by the shareholders. The
Company presently has no plans to issue any shares of Preferred Stock.
WARRANTS
The Warrants will be issued in registered form pursuant to an
agreement dated the date of this Prospectus (the "Warrant Agreement"), between
the Company and Securities Transfer Corporation, Dallas, Texas, as Warrant
Agent (the "Warrant Agent"). The following discussion of certain terms and
provisions of the Warrants is qualified in its entirety by reference to the
Warrant Agreement. A form of the certificate representing the Warrants which
forms a part of the Warrant Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Each Warrant entitles the registered holder to purchase one share of
Common Stock. The Warrants are exercisable at a price of $7.50, which exercise
price has been arbitrarily determined by the Company and the Representative,
subject to certain adjustments. The Warrants are entitled to the benefit of
adjustments in their
40
<PAGE> 41
exercise prices and in the number of shares of Common Stock or other securities
deliverable upon the exercise thereof in the event of a stock dividend, stock
split, reclassification, reorganization, consolidation or merger.
The Warrants may be exercised at any time after separation from the
Units until the close of business five years from the date hereof, unless such
period is extended by the Company. After the expiration date, Warrant holders
shall have no further rights. Warrants may be exercised by surrendering the
certificate evidencing such Warrant, with the form of election to purchase on
the reverse side of such certificate properly completed and executed, together
with payment of the exercise price and any transfer tax, to the Warrant Agent.
If less than all of the Warrants evidenced by a warrant certificate are
exercised, a new certificate will be issued for the remaining number of
Warrants. Payment of the exercise price may be made by cash, bank draft or
official bank or certified check equal to the exercise price.
Warrant holders do not have any voting or any other rights as
shareholders of the Company. The Company has the right at any time beginning
six months from the date hereof to redeem the Warrants, at a price of $.05 per
Warrant, by written notice to the registered holders thereof, mailed not less
than 30 nor more than 60 days prior to the Redemption Date. The Company may
exercise this right only if the closing bid price for the Common Stock for
seven trading days during a 10 consecutive trading day period ending no more
than 15 days prior to the date that the notice of redemption is given, equals
or exceeds $10, subject to adjustment. If the Company exercises its right to
call the Warrants for redemption, such Warrants may still be exercised until
the close of business on the day immediately preceding the Redemption Date. If
any Warrant called for redemption is not exercised by such time, it will cease
to be exercisable, and the holder thereof will be entitled only to the
repurchase price. Notice of redemption will be mailed to all holders of
Warrants of record at least 30 days, but not more than 60 days, before the
Redemption Date. The foregoing notwithstanding, the Company may not call the
Warrants at any time that a current registration statement under the Act is not
then in effect. Any redemption of the Warrants during the one-year period
commencing on the date of this Prospectus shall require the written consent of
the Representative.
The Warrant Agreement permits the Company and the Warrant Agent
without the consent of Warrant holders, to supplement or amend the Warrant
Agreement in order to cure any ambiguity, manifest error or other mistake, or
to address other matters or questions arising thereafter that the Company and
the Warrant Agent deem necessary or desirable and that do not adversely affect
the interest of any Warrant holder. The Company and the Warrant Agent may also
supplement or amend the Warrant Agreement in any other respect with the written
consent of holders of not less than a majority in the number of the Warrants
then outstanding; however, no such supplement or amendment may (i) make any
modification of the terms upon which the Warrants are exercisable or may be
redeemed; or (ii) reduce the percentage interest of the holders of the Warrants
without the consent of each Warrant holder affected thereby.
In order for the holder to exercise a Warrant, there must be an
effective registration statement, with a current prospectus on file with the
Commission covering the shares of Common Stock underlying the Warrants, and the
issuance of such shares to the holder must be registered, qualified or exempt
under the laws of the state in which the holder resides. If required, the
Company will file a new registration statement with the Commission with respect
to the securities underlying the Warrants prior to the exercise of such
Warrants and will deliver a prospectus with respect to such securities to all
holders thereof as required by Section 10(a)(3) of the Act. See "Risk
Factors-Necessity to Maintain Current Prospectus."
TRANSFER AGENT AND REGISTRAR; WARRANT AGENT
The Transfer Agent and Registrar and Warrant Agent for the Company's
Units, Common Stock and Warrants is Securities Transfer Corporation, Dallas,
Texas.
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<PAGE> 42
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 5,600,000
shares of Common Stock outstanding. Of these shares, the 1,200,000 shares sold
to the public hereby will be freely tradable without restrictions or
registration under the Act (1,380,000 if the Representative's Over-allotment
Option is exercised in full), except that any shares purchased by "affiliates"
of the Company, as that term is defined in Rule 144 ("Rule 144") under the Act
("Affiliates") may generally be sold only within the limitations of Rule 144
described below. An aggregate of 1,200,000 shares will be issued upon the
exercise of the Warrants. The Company has agreed to register these shares
under the Act in order to permit the resale of such shares in the open market
from time to time and has agreed to maintain the effectiveness of such
registration. Following the sale of such shares pursuant to an effective
registration statement filed in connection with such registration, these shares
shall be freely tradable. The Company, the Company's executive officers and
directors, and shareholders of the Company prior to the Offering have agreed
not to offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities exercisable for or convertible into Common Stock
for a period of one year after the date of this Prospectus without the prior
written consent of the Representative, except that the Representative has
agreed to permit the sale of 18,000 shares prior to such one year period by the
donee of a charitable gift of a director of the Company.
A total of 4,400,000 shares owned by the Company's shareholders prior
to this Offering (the "Restricted Shares") will be "restricted shares" within
the meaning of the Act and may be publicly sold only if registered under the
Act or sold in accordance with an applicable exemption from registration, such
as those provided by Rule 144 under the Act. In general, under Rule 144, as
currently in effect, a person (or persons whose shares are aggregated) is
entitled to sell restricted shares if at least one year has passed since the
later of the date such shares were acquired from the Company or any affiliate
of the Company. Rule 144 provides that within any three-month period such
person may sell only up to the greater of one percent (1%) of the then
outstanding shares of the Company's Common Stock (approximately 56,000 shares
following completion of this Offering) or the average weekly trading volume in
the Company's Common Stock during the four calendar weeks immediately preceding
the date on which the notice of the sale is filed with the Securities and
Exchange Commission. Sales pursuant to Rule 144 are subject to certain other
requirements relating to manner of sale, notice of sale and availability of
current public information. Any person who has not been an affiliate of the
Company for a period of three months preceding a sale of restricted shares is
entitled to sell such shares under Rule 144 without regard to such limitations
if at least two years have passed since the later of the date such shares were
acquired from the Company or any affiliate of the Company. Shares held by
persons who are deemed to be affiliates of the Company are subject to such
volume limitations regardless of how long they have been owned or how they were
acquired. The foregoing is a brief summary of certain provisions of Rule 144
and is not intended to be a complete description thereof. The "restricted
shares" held by the current shareholders of the Company have been held longer
than two years and are qualified for sale pursuant to Rule 144 beginning 90
days after the date of this Prospectus.
The Company intends to file a registration statement under the Act to
register all shares of Common Stock issuable pursuant to the Company's Stock
Option Plan. See "Management -- Stock Option Plan." Subject to the completion
of the one-year period described above, shares of Common Stock issued after the
effective date of such registration statement upon the exercise of awards
issued under such plan generally will be eligible for sale in the public
market.
The Company cannot predict the effect, if any, that sales of
restricted securities or the availability of such securities for sale could
have on the market price, if any, prevailing from time to time. Nevertheless,
sales of substantial amounts of the Company's securities, including the
securities offered hereby, could adversely affect prevailing market prices of
the Company's securities and the Company's ability to raise additional capital
by occurring at a time when it would be beneficial for the Company to sell
securities.
42
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom First London Securities Corporation is
acting as Representative, have severally agreed to purchase from the Company an
aggregate of 1,200,000 Units. The number of Units which each Underwriter has
agreed to purchase is set forth opposite its name.
<TABLE>
<CAPTION>
NUMBER OF
NAME UNITS
---- ----------
<S> <C>
First London Securities Corporation . . . . . . . . . 1,200,000
---------
TOTAL 1,200,000
=========
</TABLE>
The Units are offered by the Underwriters subject to prior sale, when,
as and if delivered to and accepted by the Underwriters and subject to approval
of certain legal matters by counsel and certain other conditions. The
Underwriters are committed to purchase all Units offered by this Prospectus, if
any are purchased.
The Company has been advised by the Representative that the
Underwriters propose initially to offer the Units offered hereby to the public
at the offering price set forth on the cover page of this Prospectus. The
Representative has advised the Company that the Underwriters propose to offer
the Units through members of the NASD, and may allow a concession, in their
discretion, to certain dealers who are members of the NASD and who agree to
sell the Units in conformity with the NASD Conduct Rules. Such concessions
shall not exceed the amount of the underwriting discount that the Underwriters
are to receive. The public offering price, concession and reallowance to
dealers will not be reduced by the Representative until after the Offering is
complete. No such reduction shall change the amount of proceeds to be received
by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Representative an option, exercisable
for 30 days from the date of this Prospectus, to purchase up to an additional
180,000 Units at the public offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Representative may exercise
the Over-allotment Option solely to cover over-allotments in the sale of the
Units being offered by this Prospectus.
Officers and directors of the Company may introduce the Representative
to persons to consider the Offering and purchase Units either through the
Representative, other Underwriters, or through participating dealers. The
Underwriters have not reserved any Units for sale to persons introduced to the
Underwriters by officers and directors. In this connection, officers and
directors will not receive any commissions or any other compensation.
The Company has agreed to pay the Representative a commission of 10%
of the gross proceeds of the offering (the "Underwriting Discount"), including
the gross proceeds from the sale of the Over-allotment Option, if exercised. In
addition, the Company has agreed to pay to the Representative a non-accountable
expense allowance of two percent (2%) of the gross proceeds of this Offering,
including proceeds from any Units purchased pursuant to the Over-allotment
Option. The Representative's expenses in excess of the non-accountable expense
allowance will be paid by the Representative. To the extent that the expenses
of the Representative are less than the amount of the non-accountable expense
allowance received, such excess shall be deemed to be additional compensation
to the Representative. The Company has also agreed to pay the Representative a
fee of equal to 5% of the gross proceeds received by the Company from the
exercise of the Warrants and 5% of the aggregate redemption price for Warrants
redeemed. Such fee will be paid to the Representative no earlier than 12 months
after the effective date of this Offering. Additionally, the Representative or
its designees must be
43
<PAGE> 44
designated in writing by the Warrant holders as having solicited the Warrant in
order to receive the fee and such fee shall not be paid with respect to
Warrants held in a discretionary account without prior specific written
approval of such exercise by the discretionary account holder. See
"Description of Securities." The Representative has informed the Company that
it does not expect sales to discretionary accounts to exceed 5% of the total
number of securities offered by the Company hereby.
The Representative shall have the right to nominate an Advisory
Director to the Company's Board of Directors. The Advisory Director will have
the same privileges as a normal Director, including equal compensation, but
will not have the right to vote on Board issues.
Prior to the Offering, there has been no public market for the Shares
of Common Stock or Warrants of the Company. Consequently, the initial public
offering price for the Units, and the terms of the Warrants (including the
exercise price of the Warrants), have been determined by negotiation between
the Company and the Representative. Among the factors considered in determining
the public offering price were the history of, and the prospect for, the
Company's business, an assessment of the Company's management, its past and
present operations, the Company's development and the general condition of the
securities market at the time of the Offering. The initial public offering
price does not necessarily bear any relationship to the Company's assets, book
value, earnings or other established criteria of value. Such price is subject
to change as a result of market conditions and other factors, and no assurance
can be given that a public market for the Shares or Warrants will develop after
the close of the Offering, or if a public market in fact develops, that such
public market will be sustained, or that the Shares or Warrants can be resold
at any time at the offering or any other price. See "Risk Factors."
At the closing of this Offering, the Company will issue to the
Representative or persons related to the Representative, for nominal
consideration, a Representative's Warrant to purchase up to 120,000 Shares and
120,000 Warrants (the "Underlying Warrants"). The Representative's Warrant
will be exercisable for a four-year period commencing one year from the date of
this Prospectus at an exercise price of $6.15 per Unit, subject to adjustment.
Each Underlying Warrant will be exercisable for a four year period commencing
one year from the date of this Prospectus at an exercise price of $7.50 per
share of Common Stock. The number of Units subject to the Representative's
Warrant will not exceed 10% of the Units offered hereby to the public,
excluding the securities subject to the Representative's Warrant. The
Representative's Warrants will not be transferable for one year from the date
of this Prospectus, except (i) to officers of the Representative or to officers
and partners of the other Underwriters, or selected dealers participating in
this Offering; thereof; (ii) by will; or (iii) by operation of law.
The Representative's Warrants contain provisions providing for
appropriate adjustment in the event of any merger, consolidation,
recapitalization, reclassification, stock dividend, stock split or similar
transaction. The Representative's Warrants contain net issuance provisions
permitting the holders thereof to elect to exercise the Representative's
Warrants in whole or in part and instruct the Company to withhold from the
securities issuable upon exercise, a number of securities, valued at the
current fair market value on the date of exercise, to pay the exercise price.
Such net exercise provision has the effect of requiring the Company to issue
shares of Common Stock without a corresponding increase in capital. A net
exercise of the Representative's Warrants will have the same dilutive effect on
the interests of the Company's shareholders as will a cash exercise. The
Representative's Warrants do not entitle the holders thereof to any rights as a
shareholder of the Company until such Representative's Warrant is exercised and
shares of Common Stock are purchased thereunder.
The Company has granted to the holders of the Representative's
Warrants certain rights with respect to registration of the Shares, the
Underlying Warrants and the Common Stock issuable upon exercise of the
Representative's Warrants (the "Registrable Securities") under the Securities
Act. For a period of four years commencing one year following the date of this
Prospectus, the holders representing more than 50% of the Registrable
Securities also have the right at the Representative's or holders' expense to
require the Company to prepare and file one registration statement with respect
to the Registrable Securities. In addition, subject to certain limitations, in
the event the Company proposes to register any of its securities under the Act
during the seven year period following the date of this Prospectus, the holders
of the Registrable Securities are entitled to
44
<PAGE> 45
notice of such registration and may elect to include the Registrable Securities
held by them in such registration statement at the sole expense of the Company.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to
copies of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
Legal matters in connection with the Common Stock and Warrants being
offered hereby will be passed upon for the Company by Garza & Staples, P.C.,
Dallas, Texas. Certain legal matters will be passed upon for the Underwriters
by Crouch & Hallett, L.L.P.
EXPERTS
The financial statements of the Company as of December 31, 1997, and
1996 and for each of the two years in the periods then ended, included in this
Prospectus have been audited by Travis Wolff & Company, 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.
45
<PAGE> 46
GLOSSARY
The following terms used in this Prospectus have the specialized
meanings in the printing industry set forth below:
"Conventional Sheetfed Offset Printing": Offset printing of sheets of
paper using inks and coatings that cure when exposed through
oxidation.
"Large-Format Digital Printing": Digital printing of large sheets (in
excess of 28" x 40") of paper, plastics and other Substrates. Digital
printing is printing by plateless imaging systems that are imaged by
digital data from prepress systems.
"Large-Format Screen Printing": Screen printing of large sheets (in
excess of 28" x 40") of paper, plastics and other Substrates. Screen
printing is printing by use of fine-meshed screens through which ink
is squeezed onto the printing substrate.
"Off-line Special Coatings": Applying coatings to printed sheets on a
coating machine after the sheets have been printed on a printed press.
Special coatings are those which are not commonly applied by a
printing press, such as coatings which are: UV (applied to sheets
printed using conventional offset printing), glow-in- the-dark, sealed
scent and "thermochromatic" (change colors when exposed to heat).
"UV Sheetfed Offset Printing": Offset printing of sheets of paper,
plastics and other Substrates using inks and coatings which cure when
exposed to ultraviolet light. Offset printing is printing by use of a
blanket cylinder to transfer an image from the image carrier to the
substrate.
"Offset Printing": Printing by use of a blanket cylinder to transfer
an image from the image carrier to the Substrate.
"PETG": Polyethelene terephtalate-glycol a petroleum based Substrates.
"Plastic Forming": Forming of plastic Substrates (both printed and
unprinted) using heat and vacuums.
"Substrates": The material on which the printing is placed.
"UV Curing of Inks and Coatings": Curing of inks and coatings on
sheets of paper, plastics and other Substrates using inks and coatings
which cure when exposed to ultraviolet light.
"UV sheetfed Offset Printing": Offset printing of sheets of paper,
plastics and other Substrates using inks and coatings which cure when
exposed to ultraviolet light.
46
<PAGE> 47
PERFORMANCE PRINTING CORPORATION
Table of Contents
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets F-3
Statements of Operations F-4 to F-5
Statements of Changes in Stockholders' Equity F-6
Statements of Cash Flows F-7 to F-8
Notes to Financial Statements F-9 to F-17
</TABLE>
F-1
<PAGE> 48
{PREFACE} We expect to be in a position to issue this report in the form
presented upon effectiveness of the offering and the occurrence of the stock
split.
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Performance Printing Corporation
We have audited the accompanying balance sheets of Performance Printing
Corporation (the "Company") as of December 31, 1997 and 1996, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the years then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Performance Printing
Corporation as of December 31, 1997 and 1996, and the results of its operations
and cash flows for the years then ended in conformity with generally accepted
accounting principles.
Travis Wolff & Company, L.L.P.
Dallas, Texas
January 16, 1998
F-2
<PAGE> 49
PERFORMANCE PRINTING CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31, December 31,
1998 1997 1996
(Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 37,438 $ 762,501 $ 808,077
Accounts receivable, net 4,208,649 4,387,407 3,086,984
Notes receivable 22,157 55,091 189,573
Inventories 1,029,492 613,598 515,715
Prepaid and other current assets 87,584 71,002 84,310
------------ ------------ ------------
Total current assets 5,385,320 5,889,599 4,684,659
------------ ------------ ------------
Property and equipment, net 3,916,505 3,643,937 3,933,257
------------ ------------ ------------
Other assets:
Deferred offering costs 128,223 75,000 --
Notes receivable-long term 70,220 73,395 240,591
Equity method investment 108,629 18,333 65,206
Deposits and other assets 89,298 122,091 121,734
------------ ------------ ------------
396,370 288,819 427,531
------------ ------------ ------------
Total assets $ 9,698,195 $ 9,822,355 $ 9,045,447
============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term note payable $ 2,021,786 $ 2,001,610 $ 2,419,670
Current portion of long-term debt and
debenture notes 611,166 594,465 622,685
Accounts payable 1,669,769 2,067,438 1,641,260
Accrued liabilities 1,138,812 729,618 480,996
Deferred income 213,293 201,433 39,096
------------ ------------ ------------
Total current liabilities 5,654,826 5,594,564 5,203,707
------------ ------------ ------------
Long-term liabilities:
Long-term debt 2,735,066 2,597,002 2,738,256
Debenture notes payable (net of discount for
the issuance of stock warrants of $119,022,
$139,074 and $100,415, respectively) 238,872 244,481 244,481
------------ ------------ ------------
Total long-term liabilities 2,973,938 2,841,483 2,914,860
Commitments and contingencies (Notes 5, 6, 9, 10
and 11)
Stockholders' equity (Note 1):
Common stock; 20,000,000 shares authorized;
4,400,000 issued and outstanding; par value
of $.01 per share 44,000 44,000 44,000
Additional paid-in capital 641,824 641,824 603,165
Retained earnings 383,607 700,484 279,715
------------ ------------ ------------
1,069,431 1,386,308 926,880
------------ ------------ ------------
Total liabilities and stockholders' equity $ 9,698,195 $ 9,822,355 $ 9,045,447
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 50
PERFORMANCE PRINTING CORPORATION
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended Year Ended Year Ended
March 31, 1998 March 31, 1997 December 31, December 31,
(Unaudited) (Unaudited) 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue:
Printing sales, net of returns and
allowances of $59,273 and
$51,838 in 1997 and 1996,
respectively $ 4,629,824 $ 3,939,448 $ 20,114,549 $ 15,715,395
Cost of goods sold:
Materials and outside services 1,748,662 1,459,581 7,639,665 5,701,008
Other costs 1,945,528 1,599,374 7,826,819 6,400,978
-------------- -------------- -------------- --------------
3,694,190 3,058,955 15,466,484 12,101,986
-------------- -------------- -------------- --------------
Gross profit 935,634 880,493 4,648,065 3,613,409
Selling, general and administrative
expenses 752,731 720,056 3,269,575 2,872,913
Provision for doubtful accounts 72,000 70,500 394,115 222,322
-------------- -------------- -------------- --------------
Income from operations 110,903 89,937 984,375 518,174
-------------- -------------- -------------- --------------
Other income (expense):
Gain (loss) on equity method
investment 90,296 44,544 (46,873) 141,024
Interest expense (163,826) (144,256) (587,548) (610,310)
Interest and other income 36,414 5,958 10,088 31,995
Gain on sale of property and
equipment 9,336 -- 191,423 90,727
-------------- -------------- -------------- --------------
(27,780) (93,754) (432,910) (346,564)
-------------- -------------- -------------- --------------
Income (loss) before extraordinary gain 83,123 (3,817) 551,465 171,610
Extraordinary gain from
extinguishment of debt -- -- -- 41,750
-------------- -------------- -------------- --------------
Net income (loss) $ 83,123 $ (3,817) $ 551,465 $ 213,360
============== ============== ============== ==============
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 51
PERFORMANCE PRINTING CORPORATION
Statements of Operations
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended Year Ended Year Ended
March 31, 1998 March 31, 1997 December 31, December 31,
(Unaudited) (Unaudited) 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Pro forma unaudited income tax
information (Note 1):
Income (loss) before extraordinary gain $ 83,123 $ (3,817) $ 551,465 $ 171,610
Pro forma provision for federal
income taxes 29,554 -- 189,638 67,159
-------------- -------------- -------------- --------------
Pro forma income (loss) before
extraordinary gain 53,569 (3,817) 361,827 104,451
Pro forma extraordinary gain
from extinguishment of debt
(net of federal income taxes
of $14,195 for 1996) -- -- -- 27,555
-------------- -------------- -------------- --------------
Pro forma net income (loss) $ 53,569 $ (3,817) $ 361,827 $ 132,006
============== ============== ============== ==============
Pro forma earnings per share information
(Note 1):
Basic earnings per common share:
Income before extraordinary gain $ 0.01 $ 0.00 $ 0.08 $ 0.02
Extraordinary gain from
extinguishment of debt -- -- -- 0.01
-------------- -------------- -------------- --------------
Net income $ 0.01 $ 0.00 $ 0.08 $ 0.03
============== ============== ============== ==============
Diluted earnings per common
share:
Income before extraordinary gain $ 0.01 $ 0.00 $ 0.08 $ 0.02
Extraordinary gain from
extinguishment of debt -- -- -- 0.01
-------------- -------------- -------------- --------------
Net income $ 0.01 $ 0.00 $ 0.08 $ 0.03
============== ============== ============== ==============
Weighted-average common shares:
Basic 4,400,000 4,400,000 4,400,000 4,400,000
Adjusted common shares effect
of dilutive warrants 161,480 77,000 161,480 77,000
-------------- -------------- -------------- --------------
Diluted 4,561,480 4,477,000 4,561,480 4,477,000
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 52
PERFORMANCE PRINTING CORPORATION
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Additional Retained
Stock Paid-In Capital Earnings Total
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ 44,000 $ 502,750 $ 66,355 $ 613,105
Issuance of stock warrants -- 100,415 -- 100,415
Net Income -- -- 213,360 213,360
--------------- --------------- --------------- ---------------
Balance, December 31, 1996 $ 44,000 $ 603,165 $ 279,715 $ 926,880
Issuance of stock warrants -- 38,659 -- 38,659
Net Income -- -- 551,465 551,465
Stockholders' Distributions -- -- (130,696) (130,696)
--------------- --------------- --------------- ---------------
Balance, December 31, 1997 $ 44,000 $ 641,824 $ 700,484 $ 1,386,308
Net Income (Unaudited) -- -- 83,123 83,123
Stockholders' distributions
(Unaudited) -- -- (400,000) (400,000)
--------------- --------------- --------------- ---------------
Balance, March 31, 1998
(Unaudited) $ 44,000 $ 641,824 $ 383,607 $ 1,069,431
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 53
PERFORMANCE PRINTING CORPORATION
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended Year Ended Year Ended
March 31, March 31, December 31, December 31,
1998 1997 1997 1996
(Unaudited) (Unaudited)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 83,123 $ (3,817) $ 551,465 $ 213,360
--------------- --------------- --------------- ---------------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 166,981 196,556 745,047 805,342
Amortization of discount on debentures 20,052 -- -- --
Provision for doubtful accounts 72,000 70,500 394,115 222,322
Gain on sale of property and equipment (9,336) -- (191,423) (90,727)
(Gain) loss on equity method investment (90,296) (44,544) 46,873 (141,024)
Gain on extinguishment of debt -- -- -- (41,750)
Changes in operating assets and
liabilities:
(Increase) decrease in accounts receivable 106,758 (21,453) (1,716,989) (338,081)
(Increase) decrease in inventories (415,894) (107,966) (97,883) 84,201
(Increase) decrease in prepaid and
other current assets (16,582) (16,552) 14,627 (72,544)
(Increase) decrease in deposits 32,793 8,293 (14,426) 9,455
Increase (decrease) in accounts payable (397,669) 428,397 426,178 (144,975)
Increase (decrease) in accrued liabilities 409,194 (12,795) 248,622 2,472
Increase (decrease) in deferred income 11,860 11,446 162,337 (22,296)
--------------- --------------- --------------- ---------------
(110,139) 511,882 17,078 272,395
--------------- --------------- --------------- ---------------
Net cash provided by (used in) operating
activities (27,016) 508,065 568,543 485,755
--------------- --------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from sale of property and
equipment 16,000 -- 550,000 150,000
Purchases of property and equipment (176,213) (22,839) (195,597) (78,121)
Collections of notes receivable 3,175 296,032 441,509 303,083
(Increase) decrease in notes receivable 32,934 (99,771) (139,831) (138,456)
--------------- --------------- --------------- ---------------
Net cash provided by (used in) investing
activities (124,104) 173,422 656,081 236,506
--------------- --------------- --------------- ---------------
Cash flows from financing activities:
Increase in deferred offering costs (53,223) -- (75,000) --
Proceeds from (payments on) short-term
note payable 20,176 (1,263,370) (418,060) 342,924
Proceeds from issuance of long-term debt -- -- 242,623 590,323
Principal payments on long-term debt (118,647) (136,722) (1,032,078) (1,131,380)
Payments made on debt issue costs -- -- -- (47,794)
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements
F-7
<PAGE> 54
PERFORMANCE PRINTING CORPORATION
Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended Year Ended Year Ended
March 31, March 31, December 31, December 31,
1998 1997 1997 1996
(Unaudited) (Unaudited)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Proceeds on issuance of debenture notes
payable -- -- 200,000 350,000
Principal payments on debenture notes
payable (22,249) (13,121) (56,989) (18,257)
Stockholders' distributions (400,000) -- (130,696) --
--------------- --------------- --------------- ---------------
Net cash provided by (used in)
financing activities (573,943) (1,413,213) (1,270,200) 85,816
--------------- --------------- --------------- ---------------
Increase (decrease) in cash $ (725,063) $ (731,726) $ (45,576) $ 808,077
Cash, beginning of period 762,501 808,077 808,077 --
--------------- --------------- --------------- ---------------
Cash, end of period $ 37,438 $ 76,361 $ 762,501 $ 808,077
=============== =============== =============== ===============
Supplemental disclosure of cash flow
information:
Interest paid $ 155,572 $ 138,568 $ 575,559 $ 633,809
Supplemental schedule of noncash investing
and financing activities:
Equipment purchases financed by notes
payable $ 270,000 $ -- $ 605,957 $ 154,625
Notes receivable paid through issuance of
of debenture note $ -- $ -- $ 22,451 $ --
Debt paid off through refinancing $ -- $ -- $ 1,787,668 $ 973,147
Building improvements acquired to satisfy
note receivable $ -- $ -- $ -- $ 339,115
Equipment sold on accounts receivable $ -- $ -- $ -- $ 30,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE> 55
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 1 - Summary of Significant Accounting Policies
Organization
Performance Printing Corporation (the "Company") was incorporated under the
laws of the State of Texas on February 12, 1992. The Company prints state of
the art advertising on various types of paper, plastics and clear films for
customers located throughout the United States.
Cash and cash equivalents
The Company maintains its cash in bank deposit accounts, which at times may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant risk
on cash. Cash in banks, based on the bank balances exceeded the federally
insured limits by $1,250,000 and $1,130,000 at December 31, 1997 and 1996,
respectively.
The Company considers all investments with an original maturity of three months
or less on their acquisition date to be cash equivalents.
Allowance for doubtful accounts
The allowance for doubtful accounts is based on historical bad debt experience
and an evaluation of the aging of the accounts receivable. For the years ended
December 31, 1997 and 1996, respectively, the allowance for doubtful accounts
totaled $229,818 and $183,135.
Inventories
Inventories are comprised of raw materials and work-in-process and are valued
at the lower of cost (cost being determined by the first-in, first-out method)
or market.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. Leasehold improvements
are amortized using the straight-line method over their useful lives or their
respective lease term, whichever is shorter. Depreciation expense was $732,297
and $781,800, for the years ended December 31, 1997 and 1996, respectively.
The Company continually reviews property and equipment to determine that the
carrying values have not been impaired. As of December 31, 1997 and 1996, the
Company expects these assets to be fully recoverable.
Deferred offering costs
If the offering is not completed, such costs will be expensed. If the offering
is completed, such costs will be recorded as a reduction of the net proceeds of
the offering.
Deferred income
Deferred income consists primarily of payments received in advance from
customers. The Company recognizes revenue as the goods and services are
provided.
F-9
<PAGE> 56
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 1 - Summary of Significant Accounting Policies (Continued)
Federal income taxes
The shareholders of the Company have elected to be taxed under the provisions
of Subchapter S of the Internal Revenue Code, whereby they are to include their
respective shares of the Company's income or loss in their individual income
tax returns. Therefore, no provision for Federal income taxes has been
provided in the financial statements.
Pro forma income taxes and earnings per share
The unaudited pro forma effects of income tax expense are calculated as if the
Company had been a C corporation with an effective tax rate of 34% for the
years ended December 31, 1997 and 1996.
The pro forma earnings per share shows the effect of a 440 to 1 stock split.
The stock split will occur upon completion of the offering to maintain the
current stockholders proportionate share of ownership. All common stock
information has been retroactively adjusted for the effect of the stock split.
Concentrations of risk
The Company's customers are not concentrated in any geographic location.
However, during 1997, thirty-four percent of the Company's revenue was
attributable to five customers. Of these five, sales to one customer accounted
for 12.5% of total revenue. These customers have balances included in accounts
receivable of approximately $1,865,000. The Company does not require collateral
or other security to support the accounts receivable subject to credit risk.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the financial statements at, and during the reporting periods.
Actual results could differ from these estimates.
Fair value of financial instruments
The carrying value of cash, accounts receivable and payable, notes receivable,
and accrued liabilities approximate fair value due to the short-term maturities
of these assets and liabilities. The fair value of the short-term note payable,
the long-term debt, including the current portion, and the debenture notes
payable approximates carrying value and is estimated based on quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same maturities.
Reclassification
Certain reclassifications have been made to 1996 balances to conform to the
1997 presentation.
F-10
<PAGE> 57
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interim financial data (Unaudited)
The balance sheet as of March 31, 1998, the accompanying statements of
operations for the three months ended March 31, 1998 and 1997, statements of
stockholders' equity for the three months ended March 31, 1998 and statements
of cash flows for the three months ended March 31, 1998 and 1997, have been
prepared by the Company without an audit. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, considered
necessary in order to make the financial statements not misleading have been
made. Results for interim periods should not be considered as indicative of
results for a full year.
Note 2 - Inventories
The principal components of inventories are as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Raw materials $ 363,461 $ 392,316
Work-in-process 250,137 123,399
------------- -------------
Total inventories $ 613,598 $ 515,715
============= =============
</TABLE>
Note 3 - Property and Equipment
The principal components of property and equipment are as follows at December
31:
<TABLE>
<CAPTION>
1997 1996
--------------------------- -------------------------
Estimated Estimated
Service Service
Amounts Lives Amounts Lives
-------------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Machinery and equipment $ 3,959,512 1-10 years $ 4,528,553 1-10 years
Furniture and fixtures 615,994 1-7 years 603,332 1-7 years
Leasehold improvements 575,928 1-6 years 565,579 1-6 years
Vehicles 204,163 3-4 years 170,889 3-4 years
Building and improvements 1,514,948 31 years 1,414,442 31 years
Land 400,000 400,000
-------------- ------------
7,270,545 7,682,795
Less accumulated depreciation
and amortization (3,626,608) (3,749,538)
-------------- ------------
$ 3,643,937 $ 3,933,257
============== ============
</TABLE>
F-11
<PAGE> 58
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 4 - Short-term Note Payable
Amounts drawn on a $3,500,000 revolving line of credit totaled $2,001,610 and
$2,419,670 at December 31, 1997 and 1996, respectively, bearing interest at the
bank's prime rate (8.5%) plus 1%. The revolving line of credit is guaranteed by
a stockholder and is collateralized by all of the Company's assets. The credit
arrangement obligates the Company to certain positive and negative covenants
such as the maintenance of financial ratios, defined equity levels and
limitations on capital expenditures and officers' salaries. At December 31,
1997 and 1996, the Company was in compliance with positive and negative
covenants.
Note 5 - Long-term Debt
During the year ended December 31, 1997, the Company refinanced its $1,260,000
interim note payable for its building with permanent financing. The permanent
financing consists of three notes issued by the original lender totaling
$1,344,000. The repayment terms are noted below.
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Note payable maturing March 2017, payable in monthly
installments of principal and interest of $6,989, bearing
interest at 10.25%, collateralized by the deed of trust
for the building $ 688,135 $ --
Note payable maturing June 2017, payable in monthly
installments of principal and interest of $4,580, bearing
interest at 7.267%, collateralized by the deed of trust
for the building $ 571,133 $ --
Note payable maturing April 2002, payable in monthly
installments of principal and interest of $1,397, bearing
interest at prime (8.5%) plus 2%, collateralized by the
deed of trust for the building 57,757 --
Note payable maturing in October 2016, payable in monthly
installments of principal and interest of $12,368,
commencing in 1997, bearing interest at prime (8.5%) plus
2%, collateralized by the deed of trust for the building
and guaranteed by certain stockholders. Note was
refinanced during 1997 -- 1,260,000
Note payable maturing in April 2002, payable in monthly
installments of principal and interest of $17,118, bearing
interest at 10.25%, collateralized by machinery and
equipment 719,896 --
Note payable maturing in August 2002, payable in monthly
installments of principal and interest of $4,781, bearing
interest at 10%, collateralized by machinery and
equipment 213,786 --
</TABLE>
F-12
<PAGE> 59
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 5 - Long-term Debt (Continued)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Note payable maturing in July 2002, payable in monthly
installments of principal and interest of $6,325, bearing
interest at 9.75%, collateralized by machinery and
equipment 243,402 --
Note payable maturing in 2001, payable in monthly
installments of principal and interest of $19,728, bearing
interest at 9.5%, collateralized by machinery and
equipment 303,394 844,933
Note payable maturing in 1999, payable in monthly
installments of principal and interest of $11,631, bearing
interest at 11%, collateralized by machinery and
equipment 263,660 394,147
Notes payable maturing at various dates through 2002,
payable in monthly installments of principal and interest of
$1,405, bearing interest between 8.5% and 9.65%,
collateralized by vehicles 39,105 69,552
Notes payable maturing in 1998, payable in monthly
installments of principal and interest of $3,429, bearing
interest at 9.75%, collateralized by machinery and
equipment. Notes were refinanced during 1997 $ -- $ 51,521
Notes payable maturing various dates through 1998, payable
in monthly installments of principal and interest of $4,176,
bearing interest at 11%, collateralized by machinery and
equipment and guaranteed by certain stockholders. Notes
were refinanced during 1997 -- 63,937
Notes payable maturing at various dates through 1999,
payable in monthly installments of principal and interest of
$14,950, bearing interest at rates ranging from 9.25%
through 10.875%, collateralized by machinery and equipment
Notes were refinanced during 1997 -- 417,127
Unsecured subordinated debt to stockholder maturing in 1997,
interest only payments at 10%. Principal and any remaining
unpaid interest was paid through the issuance of a debenture
note payable during 1997 -- 205,000
------------ ------------
3,100,268 3,306,217
Less current maturities of long-term debt 503,266 567,961
------------ ------------
$ 2,597,002 $ 2,738,256
============ ============
</TABLE>
F-13
<PAGE> 60
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 5 - Long-term Debt (Continued)
Aggregate principal maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Years ended December 31:
------------------------
<S> <C>
1998 $ 503,266
1999 $ 531,178
2000 $ 439,856
2001 $ 408,860
2002 $ 176,529
</TABLE>
Note 6 - Debenture Notes Payable
In December 1997 and July 1996, respectively, the Company issued debenture
notes payable to certain officers, directors and other related parties totaling
$200,000 and $350,000. The debentures bear interest at 14.0% per annum and
provide for monthly payments of principal and interest of $12,800, commencing
in August 1996 and continuing through December 2000. The Company has pledged as
collateral its 51% ownership interest in Performance Packaging, L.C. (see Note
10) together with all future profits therefrom for the 1996 issued debenture
notes payable. The 1997 issued debenture notes payable are unsecured.
Aggregate principal maturities of debenture notes payable are as follows:
<TABLE>
<CAPTION>
Years ended December 31:
------------------------
<S> <C>
1998 $ 91,199
1999 $ 250,439
2000 $ 133,116
</TABLE>
The Company issued stock warrants to the debenture holders as additional
consideration. The warrants issued in relation to the 1996 debentures make
available 3.5% of the then outstanding stock of the Company and become
exercisable in June 1999. The warrants issued in relation to the 1997
debentures make available 2.0% of the then outstanding stock of the Company and
become exercisable in December 2000. The Company may cancel the debenture
holders' rights to purchase the warrant stock at any time prior to June 1999
and December 2000 for debentures issued in 1996 and 1997, respectively. The
cancellation fees are recorded at the fair value of the warrants and are
reflected as a discount on the debenture notes payable. The discount will be
amortized to interest expense over the life of the debenture notes payable. The
cancellation fees under these agreements would be assessed as follows:
<TABLE>
<S> <C>
May 1998 $ 139,074
May 1999 $ 215,892
May 2000 $ 90,579
</TABLE>
F-14
<PAGE> 61
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 7 - 401(k) Retirement Plan
During 1997, the Company adopted a 401(k) retirement plan (the "Plan"). The
Plan covers all full-time employees with at least one year of service.
Employees can contribute a portion of their salary to the Plan within the
limits set in the Internal Revenue Code. The Company matches employee
contributions at ten cents per dollar contributed. In addition to the matching
contribution, the Company may make a discretionary contribution to the Plan.
Employees are fully vested in their contributions and become fully vested in
the employer contributions on a seven-year vesting schedule.
Employer matching contributions to the Plan for the year ended December 31,
1997 of $19,500 were charged to expense. No discretionary contribution was made
to the Plan.
Note 8 - Related Party Transaction
Notes receivable includes an $87,150 note from an employee due in monthly
installments of $880. The employee had previously been a customer of the
Company and upon employment, the related account receivable was converted to a
note receivable.
Note 9 - Operating Leases
The Company conducts its display division operations in office and
manufacturing space leased through December 2000 for $10,540 monthly. The
Company also leases its office facility from a stockholder for $6,100 monthly.
There is no set lease term for this facility; the Company anticipates it will
occupy the space indefinitely. The approximate future minimum rental
commitments for the facilities leases for the years ended December 31 are as
follows:
<TABLE>
<S> <C>
1998 $ 199,692
1999 199,692
2000 199,692
2001 73,200
2002 73,200
-----------
Total $ 745,476
===========
</TABLE>
During 1997, the Company entered into five equipment leases for printing
presses with the manufacturer. The leases are subject to cancellation from time
to time during the term of the lease. The leases provide for monthly payments
ranging from $16,000 to $24,000 and expire from 2000 to 2004. Lease expense for
the years ended December 31, 1997 and 1996, was $765,816 and $433,151,
respectively.
F-15
<PAGE> 62
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 9 - Operating Leases (Continued)
Minimum future rentals for years ending December 31 under these equipment
leases are as follows:
<TABLE>
<S> <C>
1998 $ 1,317,071
1999 1,453,627
2000 1,396,210
2001 511,428
2002 511,428
--------------
Total $ 5,189,764
==============
</TABLE>
Note 10 - Equity Method Investment
The Company and an unrelated investor formed a Texas limited liability company
on December 31, 1993 called Performance Packaging, L.C. ("Packaging"). The
Company contributed 51% of the capital of Packaging and uses the equity method
to account for the investment. Packaging is managed by a committee, on which,
the Company holds two positions and the other stockholder holds three positions.
The Company exercises no effective control over the operations of Packaging;
therefore, the financial information is not consolidated. The investment is
carried at 51% of net equity plus organizational costs contributed by the
Company. At December 31, 1997 and 1996 respectively, notes receivable includes
$13,482 and $188,185 from Packaging.
Condensed financial information at and for the years ended December 31 is as
follows:
<TABLE>
<CAPTION>
1997 1996
Unaudited Unaudited
--------------- ---------------
<S> <C> <C>
Current assets $ 934,283 $ 698,096
Non-current assets 1,916,587 1,235,967
--------------- ---------------
Total assets $ 2,850,870 $ 1,934,063
=============== ===============
Current liabilities $ 693,193 $ 515,125
Non-current liabilities 2,121,730 1,291,083
--------------- ---------------
Total liabilities $ 2,814,923 $ 1,806,208
=============== ===============
Total revenues $ 6,306,031 $ 3,700,049
=============== ===============
Net income (loss) $ (91,907) $ 245,572
=============== ===============
</TABLE>
Note 11 - Litigation and Contingencies
The Company is from time to time subject to routine litigation incidental to
its business. The Company believes that the results of any pending legal
proceedings will not have a materially adverse effect on the Company's
financial condition.
F-16
<PAGE> 63
{Description of pictures and text on inside of the back cover of the
prospectus}
Solo page of inside cover:
Picture #1: Products manufactured by the Company.
Picture #2: Products manufactured by the Company.
Picture #3: Products manufactured by the Company.
Text:
(Logo)
Performance offers a wide range of products and services to companies all over
the country. Our customers include, among others, food and beverage companies,
promotional and media advertising agencies, sports marketing companies, hi-
tech manufacturers and software developers, office-product retailers, airlines
and other printers and display companies.
<PAGE> 64
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. 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.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information . . . . . . . . . . 5
Prospectus Summary . . . . . . . . . . . 6
Risk Factors . . . . . . . . . . . . . . 11
Dilution . . . . . . . . . . . . . . . . 17
Use of Proceeds . . . . . . . . . . . . . 18
Dividend Policy . . . . . . . . . . . . . 19
Capitalization . . . . . . . . . . . . . 19
Selected Financial Data . . . . . . . . . 20
Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . . . . . . 22
Business . . . . . . . . . . . . . . . . 26
Management . . . . . . . . . . . . . . . 32
Certain Transactions . . . . . . . . . . 35
Principal Shareholders . . . . . . . . . 32
Description of Capital
Stock . . . . . . . . . . . . . . . . . 38
Shares Eligible For
Future Sale . . . . . . . . . . . . . . 40
Underwriting . . . . . . . . . . . . . . 41
Legal Matters . . . . . . . . . . . . . . 43
Experts . . . . . . . . . . . . . . . . . 43
Index to Financial Statements . . . . . . F-1
</TABLE>
------------------
UNTIL _____________, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES OFFERED HEREBY,
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.
================================================================================
================================================================================
1,2000,000 UNITS CONSISTING OF 1,200,000 SHARES OF
COMMON STOCK AND
1,200,000 REDEEMABLE COMMON
STOCK WARRANTS
PERFORMANCE PRINTING
CORPORATION
-----------------------------
PROSPECTUS
________, 1998
-----------------------------
FIRST LONDON SECURITIES CORPORATION
================================================================================
<PAGE> 65
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act provides
generally and in pertinent part that a Texas corporation may indemnify its
directors and officers against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by them in connection with any suit
or proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) if, in connection with
the matters in issue, 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, in connection with any criminal suit or proceeding, if in connection with
the matters in issue, they had no reasonable cause to believe their conduct was
unlawful.
The registrant's Articles of Incorporation provide that a director of
the registrant shall not be liable to the registrant or its shareholders for
any act or omission in such director's capacity as a director to the fullest
extent permitted by Texas statutory or decisional law.
The Company's Bylaws provide that the Company shall indemnify each of
its directors and officers, acting in such capacity, so long as such person
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Company. Such indemnification may be
made only upon a determination that such indemnification is proper in the
circumstances because the person to be indemnified has met the applicable
standard of conduct to permit indemnification under the law. The Company is
also required to advance to such persons payment for their expenses incurred in
defending a proceeding to which indemnification might apply, provided the
recipient provides an undertaking agreeing to repay all such advanced amounts
if it is ultimately determined that he is not entitled to be indemnified.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with
the sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration and NASD filing
fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee . . . . . $ 5,777
NASD filing fee . . . . . . . . . . . . . . . . . . . . . . . 2,387
Boston Stock Exchange . . . . . . . . . . . . . . . . . . . . 15,000
Nasdaq SmallCap Market listing fee . . . . . . . . . . . . . . 10,000
Underwriters' non-accountable expense allowance . . . . . . . 123,000
Legal fees and expenses . . . . . . . . . . . . . . . . . . . 175,000
Accounting fees and expenses . . . . . . . . . . . . . . . . . 35,000
Printing and engraving expenses . . . . . . . . . . . . . . . 85,000
Transfer agent and registrar fees and expenses . . . . . . . . 4,000
Blue Sky fees and expenses . . . . . . . . . . . . . . . . . . 30,000
Miscellaneous expenses . . . . . . . . . . . . . . . . . . . 14,836
------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 500,000
</TABLE>
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Registrant during
the last three years involving the sale of securities which were not registered
under the Securities Act:
In July, 1996, the Company issued promissory notes secured by the
Company's interest in Performance Packaging (the "1996 Notes") in the aggregate
principal amount of $350,000. The 1996 Notes are due June, 1999 and the
outstanding principal amount of the 1996 Notes bears interest at 14%. The 1996
Notes were used to provide working capital to the Company. The 1996 Notes were
issued to six persons, all of whom were officers or directors of the Company or
family members. In connection with the issuance of the 1996 Notes, the Company
entered into a Warrant for Stock Purchase (the "1996 Note Warrants") which
entitled the note
II-1
<PAGE> 66
purchasers to purchase a specified percentage of the Company's outstanding
stock, unless the Company pays a cancellation fee to the note purchaser.
The transaction was exempt from registration pursuant to Section 4 (2)
of the Act for transactions not involving a public offering. Each of the
purchasers was a sophisticated investor as that term is recognized under the
Act and had access to corporate information through their positions with the
Company or through their family member who was an officer or director of the
Company. No underwriter was involved in the transaction and no compensation
was paid to an underwriter.
On December 1, 1997, the Company issued an aggregate of $200,000
principal amount of unsecured notes (the "1997 Notes") which are due December
1, 2000 and bear interest at 14%. The 1997 Notes were used to retire $200,000
of indebtedness of the Company to Mr. John White which was incurred in 1992 to
provide working capital to the Company. The 1997 Notes were issued to five
persons, all of whom were officers or directors of the Company or family
members. In connection with the issuance of the 1997 Notes, the Company
entered into a Warrant for Stock Purchase (the "1997 Note Warrants") with each
purchaser of the 1997 Notes which entitles the note purchasers to purchase a
specified percentage of the Company's outstanding stock, unless the Company
pays a cancellation fee to the note purchaser.
The transaction was exempt from registration pursuant to Section 4 (2)
of the Act for transactions not involving a public offering. Each of the
purchasers was a sophisticated investor and had access to corporate information
through their positions with the Company or through their family member who was
an officer or director of the Company. No underwriter was involved in the
transaction and no compensation was paid to an underwriter.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit
Number Description
<TABLE>
<S> <C>
1.1 Revised Form of Underwriting Agreement. (3)
3.1 Articles of Incorporation of Performance Printing Corporation, as amended. (1)
3.2 Bylaws, as amended and restated, of Performance Printing Corporation (1)
4.1 Revised Warrant Agreement(3)
5.1 Opinion of Garza & Staples, P.C. (3)
10.1 Performance Printing Corporation Stock Option Plan. (1)
10.2 Loan and Security Agreement by and among the Company and Finova Capital
Corporation, dated December 19, 1996. (3)
10.3 Representative's Warrant Agreement (3)
10.4 Commercial Lease Agreement between The Sigma Joint Venture and Performance Printing Corporation (3)
10.5 Standard Commercial Lease between Beltline Quaker Limited Partnership and Performance Printing
Corporation (3)
10.6 First Renewal of Packaging Services Agreement dated April 1, 1997 (3)
10.7 Organization Agreement (3)
10.8 Release of Guaranty (1)
23.1 Consent of Travis Wolff, L.L.P. (3)
23.2 Consent of Garza & Staples, P.C. (included in Exhibit 5.1). (3)
24.1 Power of Attorney (included on page II-4). (1)
27.1 Financial Data Schedule (1)
</TABLE>
- ----------------------
(1) Filed herewith
(2) To be filed by amendment
(3) Previously filed
II-2
<PAGE> 67
ITEM 28. UNDERTAKINGS
(a) 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.
(b) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Act, the information omitted from the form of
prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
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
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.
(c) The registrant hereby undertakes (1) to file, during
any period in which it offers or sells securities, a
post-effective amendment to this Registration
Statement, to include any prospectus required by
section 10(a)(3) of the Securities Act, to reflect in
the prospectus any facts or events which, individually
or together, represent a fundamental change in the
information in the Registration Statements, and to
include any additional or changed material information
on the plan of distribution; (2) that, for the purpose
of determining any liability under the Act of 1933,
to treat each post-effective amendment as a new
Registration Statement relating to the securities
offered herein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof; and (3) to file a post- effective
amendment to remove from registration any of the
securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising from the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, 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 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, 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 whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
In accordance with the requirement of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Dallas,
State of Texas on May 15, 1998.
II-3
<PAGE> 68
PERFORMANCE PRINTING CORPORATION
BY: /s/ John T. White
--------------------------------------
John T. White, Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Performance Printing
Corporation hereby severally constitute and appoint John T. White and Russell
V. Oesch, and each of them singly, our true and lawful attorneys, with full
power to them and each of them singly, to sign for us in our names in the
capacities indicated below, all pre-effective and post-effective amendments to
this Registration Statement, including any filings pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and generally to do all things in
our names and on our behalf in such capacities to enable Performance Printing
Corporation to comply with the provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission.
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities on May 15, 1998.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ W. Chris Pumpelly Chairman of the Board and Director
- -------------------------------------------
W. Chris Pumpelly
/s/ John T. White Chief Executive Officer and Director
- ------------------------------------------- (Principal Executive Officer)
John T. White
/s/ Russell V. Oesch Vice President of Finance and Chief Financial Officer
- ------------------------------------------- (Principal Financial Officer)
Russell V. Oesch Officer)
/s/ C. Thomas Daulton * Director
- -------------------------------------------
C. Thomas Daulton
/s/ Richard D. Cox * Director
- -------------------------------------------
Richard D. Cox
/s/ Joseph E. Pate Director
- -------------------------------------------
Joseph E. Pate
/s/ Stephen M. Lilly * Director
- -------------------------------------------
Stephen M. Lilly
* By: John T. White
As Attorney in-Fact
/s/ John T. White
- -------------------------------------------
</TABLE>
II-4
<PAGE> 69
EXHIBIT INDEX
<TABLE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
1.1 Revised Form of Underwriting Agreement. (3)
3.1 Articles of Incorporation of Performance Printing Corporation, as amended. (1)
3.2 Bylaws, as amended and restated, of Performance Printing Corporation (1)
4.1 Revised Warrant Agreement(3)
5.1 Opinion of Garza & Staples, P.C. (3)
10.1 Performance Printing Corporation Stock Option Plan. (1)
10.2 Loan and Security Agreement by and among the Company and Finova Capital
Corporation, dated December 19, 1996. (3)
10.3 Representative's Warrant Agreement (3)
10.4 Commercial Lease Agreement between The Sigma Joint Venture and Performance Printing Corporation (3)
10.5 Standard Commercial Lease between Beltline Quaker Limited Partnership and Performance Printing
Corporation (3)
10.6 First Renewal of Packaging Services Agreement dated April 1, 1997 (3)
10.7 Organization Agreement (3)
10.8 Release of Guaranty (1)
23.1 Consent of Travis Wolff, L.L.P. (3)
23.2 Consent of Garza & Staples, P.C. (included in Exhibit 5.1). (3)
24.1 Power of Attorney (included on page II-4). (1)
27.1 Financial Data Schedule (1)
</TABLE>
- ---------------
(1) Filed herewith
(2) To be filed by amendment
(3) Previously filed
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF PERFORMANCE PRINTING CORPORATION
Performance Printing Corporation, pursuant to the provisions of
Articles 4.04 and 4.07 of the Texas Business Corporation Act (the "Act"),
adopts these Amended and Restated Articles of Incorporation that accurately
copy the original Articles of Incorporation of the Corporation and all
amendments thereto that are in effect to date, and these Amended and Restated
Articles of Incorporation contain no other change in any provisions thereof.
Each of the Amendments set forth below has been effected in conformity with the
provisions of the Act.
I.
The name of the Corporation is PERFORMANCE PRINTING CORPORATION, and
its principal place of business is at 3012 Fairmount, Dallas, Texas 75201.
II.
The following amendments to the Articles of Incorporation were adopted
by the shareholders of the Corporation on April 27, 1998.
III.
ARTICLE FOUR OF THE ARTICLES OF INCORPORATION IS HEREBY AMENDED IN
ITS ENTIRETY TO READ AS FOLLOWS:
"ARTICLE FOUR:
SHARE STRUCTURE, PREFERENCES, PRIVILEGES, RESTRICTIONS, AND RIGHTS
SECTION ONE: Common Shares with $.01 Par Value: The Corporation is
authorized to issue Common Shares. The total number of Common Shares which the
Corporation is authorized to issue is Twenty Million (20,000,000) shares at
$0.01 par value per share.
SECTION TWO: Voting Rights to Common, Cumulative Voting Prohibited,
Common Stock Shall Have No Liquidation Preference: The holders of the Common
Shares shall have voting rights and powers, including the right to notice of
shareholder's meetings. Upon any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, the holders of Common Shares
shall not be paid until the holders of any Serial Preferred Shares have been
paid in full the amounts to which they shall be entitled.
SECTION THREE: Preferred Shares with $1.00 Par Value: The Corporation
is authorized to issue three million (3,000,000) shares of Serial Preferred
Stock, par value of one dollar ($1.00) per share. The Serial Preferred Stock
may be issued in one or more series, from time to time, at the discretion of
the Board of Directors without the necessity of stockholder approval, with
each such series to consist of such number of shares and to have such voting
powers (whether full or limited, or no voting powers or more than one vote per
share) and such designations, powers, preferences and relative, participating
optional, redemption, conversion, exchange or other special rights, and such
qualifications, limitations or restrictions thereof, as shall be stated in the
resolution or resolutions providing for the issuance of such series adopted by
the Board of Directors. The Board of Directors is hereby expressly vested with
the authority, to the full extent now or hereafter provided by law, to adopt
any such resolution or resolutions. Each share of any series of Serial
Preferred Stock shall be identical with all other shares of such series, except
as to the date from which dividends, if any, shall accrue. The Board of
Directors shall have the power and authority at any time and from time to time
without the necessity of stockholders approval to issue, sell, or otherwise
dispose of any authorized and unissued shares of any class of stock of the
Corporation to such persons or parties, including the holders of any class of
stock, for such consideration (not less than the par value thereof) and upon
such terms and conditions as the Board of Directors in its discretion may deem
are in the best interests of the Corporation.
SECTION FOUR: Amendment: This Article Four can be amended only by the
affirmative vote or concurrence of shareholders holding at least 66 2/3 percent
of the issued and outstanding shares of Common Stock, plus (if any Serial
Preferred Stock is issued and outstanding and entitled to vote) that percentage
of the affirmative vote of such Serial Preferred Stock as the Board of
Directors has designated.
SECTION FIVE: Pre-emptive Rights: No shareholder or other person
shall have any pre-emptive rights whatsoever."
IV.
The manner in which any exchange, reclassification, or cancellation of
issued shares provided for in the foregoing Amendment shall be effected is as
follows:
Each outstanding share of no par value Common Stock will be exchanged
for 440 shares of $0.01 par value Common Shares. Each share of no par value
Common Stock received by the Corporation shall be canceled.
V.
ARTICLE SIX OF THE ARTICLES OF INCORPORATION
IS HEREBY AMENDED IN ITS ENTIRETY TO READ AS FOLLOWS:
"ARTICLE SIX:
REGISTERED OFFICE AND AGENT
The post office address of the initial registered office is 3012
Fairmount, Dallas, Texas 75201, and the name of its initial registered agent at
such address is John T. White."
VI.
ARTICLE SEVEN OF THE ARTICLES OF INCORPORATION
IS HEREBY AMENDED IN ITS ENTIRETY TO READ AS FOLLOWS:
"ARTICLE SEVEN:
DIRECTORS
The number of directors constituting the initial Board of Directors is
one (1), and the name and address of the person who is to serve as the initial
director is:
John T. White
3012 Fairmount
Dallas, Texas 75201
<PAGE> 2
VII.
ARTICLE EIGHT OF THE ARTICLES OF INCORPORATION
IS HEREBY AMENDED IN ITS ENTIRETY TO READ AS FOLLOWS:
"ARTICLE EIGHT:
INTERESTED DIRECTORS, OFFICERS AND SHAREHOLDERS
SECTION ONE: Validity. If Section Two is satisfied, no contract or
other transaction between the Corporation and any of its officers or
shareholders (or any corporation or firm which any of them are directly or
indirectly interested) shall be invalid solely because of this relationship or
because of the presence of such director, officer or shareholder at the meeting
authorizing such contract or transaction, or his participation in such meeting
or authorization.
SECTION TWO: Disclosure, Approval, Fairness: Section One shall apply
only if:
(1) The material facts of the relationship or interest of each
such director, officer or shareholder are known or disclosed
to the Board of Directors and it nevertheless authorizes or
ratifies the contract or transaction by a majority of the
directors present, each such interested director to be counted
in determining whether a quorum is present but not in
calculating the majority necessary to carry the vote.
(2) The Contract or transaction is fair to the Corporation as of
the time it is authorized or ratified by the Board of
Directors, a committee of the Board, or the shareholders.
SECTION THREE: Non-Exclusive: This provision shall not be construed
to invalidate a contract or transaction which would be valid in the absence of
this provision."
VIII.
ARTICLE NINE OF THE ARTICLES OF INCORPORATION
IS HEREBY AMENDED IN ITS ENTIRETY TO READ AS FOLLOWS:
"ARTICLE NINE:
INDEMNIFICATION
To the fullest extent permitted by Texas statutory or decisional law,
as the same exists or may hereafter be amended or interpreted, a director of
the Corporation shall not be liable to the Corporation or its shareholders for
any act or omission in such director's capacity as a director. Any repeal or
amendment of this Article, or adoption of any other provision of these Articles
of Incorporation inconsistent with this Article, by the Shareholders of the
Corporation shall be prospective only and shall not adversely affect any
limitation on the liability to the Corporation or its shareholders of a client
or of the Corporation existing at the time of such repeal, amendment or
adoption at an inconsistent provision."
IX.
ARTICLE TEN OF THE ARTICLES OF INCORPORATION
IS HEREBY AMENDED IN ITS ENTIRETY TO READ AS FOLLOWS:
"ARTICLE TEN:
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting, without prior notice, and without
a vote, if a written consent or consents, setting forth the action so taken, is
signed by the holders of shares having not less than the minimum number of
votes necessary to take such action at a meeting at which the holders of all
shares entitled to vote on the action were present and voted."
X.
ARTICLE ELEVEN OF THE ARTICLES OF INCORPORATION
IS HEREBY DELETED.
XI.
ARTICLE TWELVE OF THE ARTICLES OF INCORPORATION
IS HEREBY DELETED.
XII.
Each of the foregoing Amendments has been effected in conformity with
the provisions of the Texas Business Corporation Act. The number of shares of
the Corporation outstanding at the time of adoption of these Amendments was
10,000, and the number of shares entitled to vote thereon was 10,000. The
number of shares voting for and against the Amendments were as follows:
Class Number of Shares
------- ----------------
Common 10,000
Voted For Voted Against
--------- -------------
10,000 - 0 -
XIII.
The Articles of Incorporation and all amendments to them are
superseded by the following Amended and Restated Articles of Incorporation,
which accurately copy the entire text of the Articles of Incorporation and all
amendments thereto in effect to date and as further amended by the foregoing
Amendments. This instrument contains no other change to the Articles of
Incorporation.
"ARTICLE ONE:
The name of the Corporation is PERFORMANCE PRINTING CORPORATION.
ARTICLE TWO:
The period of its duration is perpetual.
ARTICLE THREE:
The purposes for which the Corporation is organized are to transact any and
all lawful business for which Corporation s may be organized under the Act.
ARTICLE FOUR:
SHARE STRUCTURE, PREFERENCES, PRIVILEGES, RESTRICTIONS, AND RIGHTS
SECTION ONE: Common Shares with $.01 Par Value: The Corporation is
authorized to issue Common Shares. The total number of Common shares which the
Corporation is authorized to issue is Twenty Million (20,000,000) shares at
$0.01 par value per share.
SECTION TWO: Voting Rights to Common, Cumulative Voting Prohibited,
Common Stock Shall Have No Liquidation Preference: The holders of the Common
Shares shall have voting rights and powers, including the right to notice of
shareholder's meetings. Upon any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, the holders of Common Shares
shall not be paid until the holders of any Serial Preferred Shares have been
paid in full the amounts to which they shall be entitled.
SECTION THREE: Preferred Shares with $1.00 Par Value: The Corporation
is authorized to issue three million (3,000,000) shares of Serial Preferred
Stock, par value of one dollar ($1.00) per share. The Serial Preferred Stock
may be issued in one or more series, from time to
<PAGE> 3
time, at the discretion of the Board of Directors without the necessity of
stockholder approval, with each such series to consist of such number of shares
and to have such voting powers (whether full or limited, or no voting powers or
more than one vote per share) and such designations, powers, preferences and
relative, participating optional, redemption, conversion, exchange or other
special rights, and such qualifications, limitations or restrictions thereof,
as shall be stated in the resolution or resolutions providing for the issuance
of such series adopted by the Board of Directors. The Board of Directors is
hereby expressly vested with the authority, to the full extent now or hereafter
provided by law, to adopt any such resolution or resolutions. Each share of any
series of Serial Preferred Stock shall be identical with all other shares of
such series, except as to the date from which dividends, if any, shall accrue.
The Board of Directors shall have the power and authority at any time and from
time to time without the necessity of stockholders approval to issue, sell, or
otherwise dispose of any authorized and unissued shares of any class of stock
of the Corporation to such persons or parties, including the holders of any
class of stock, for such consideration (not less than the par value thereof)
and upon such terms and conditions as the Board of Directors in its discretion
may deem are in the best interests of the Corporation.
SECTION FOUR: Amendment: This Article Four can be amended only by the
affirmative vote or concurrence of shareholders holding at least 66 2/3 percent
of the issued and outstanding shares of Common Stock, plus (if any Serial
Preferred Stock is issued and outstanding and entitled to vote) that percentage
of the affirmative vote of such Serial Preferred Stock as the Board of
Directors has designated.
SECTION FIVE: Pre-emptive Rights: No shareholder or other person
shall have any pre-emptive rights whatsoever.
ARTICLE FIVE:
COMMENCEMENT OF BUSINESS
The Corporation will not commence business until it has received for
the issuance of shares consideration of the value of One Thousand Dollars
($1,000.00) consisting of money, labor done or property actually received.
ARTICLE SIX:
REGISTERED OFFICE AND AGENT
The post office address of the initial registered office is 3012
Fairmount, Dallas, Texas 75201, and the name of its initial registered agent at
such address is John T. White.
ARTICLE SEVEN:
DIRECTORS
The number of directors constituting the initial Board of Directors is
one (1), and the name and address of the person who is to serve as the initial
director is:
John T. White
3012 Fairmount
Dallas, Texas 75201
ARTICLE EIGHT:
INTERESTED DIRECTORS, OFFICERS AND SHAREHOLDERS
SECTION ONE: Validity: If Section Two is satisfied, no contract or
other transaction between the Corporation and any of its officers or
shareholders (or any corporation or firm which any of them are directly or
indirectly interested) shall be invalid solely because of this relationship or
because of the presence of such director, officer or shareholder at the meeting
authorizing such contract or transaction, or his participation in such meeting
or authorization.
SECTION TWO: Disclosure, Approval, Fairness: Section One shall apply
only if:
(1) The material facts of the relationship or interest of each
such director, officer or shareholder are known or disclosed to the
Board of Directors and it nevertheless authorizes or ratifies the
contract or transaction by a majority of the directors present, each
such interested director to be counted in determining whether a quorum
is present but not in calculating the majority necessary to carry the
vote.
(2) The Contract or transaction is fair to the Corporation as of
the time it is authorized or ratified by the Board of Directors, a
committee of the Board, or the shareholders.
SECTION THREE: Non-Exclusive:: This provision shall not be
construed to invalidate a contract or transaction which would be valid in the
absence of this provision.
ARTICLE NINE:
INDEMNIFICATION
To the fullest extent permitted by Texas statutory or decisional law,
as the same exists or may hereafter be amended or interpreted, a director of
the Corporation shall not be liable to the Corporation or its shareholders for
any act or omission in such director's capacity as a director. Any repeal or
amendment of this Article, or adoption of any other provision of these Articles
of Incorporation inconsistent with this Article, by the shareholders of the
Corporation shall be prospective only and shall not adversely affect any
limitation on the liability to the Corporation or its shareholders of a client
or of the Corporation existing at the time of such repeal, amendment or
adoption at an inconsistent provision.
ARTICLE TEN:
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting, without prior notice, and without
a vote, if a written consent or consents, setting forth the action so taken, is
signed by the holders of shares having not less than the minimum number of
votes necessary to take such action at a meeting at which the holders of all
shares entitled to vote on the action were present and voted."
PERFORMANCE PRINTING CORPORATION
By:
-------------------------------
JOHN T. WHITE, President
and Chief Executive Officer
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
PERFORMANCE PRINTING CORPORATION
PREAMBLE. This is a Corporation organized and operated under the applicable
laws of the State of Texas, including the Texas Business Corporation Act and
the Texas Miscellaneous Corporation Act.
ARTICLE I. OFFICES
SECTION 1.01. REGISTERED OFFICE AND AGENT.
The registered office of the Corporation shall be at 3012 Fairmount,
Dallas, Texas 75201. The name of the registered agent at such address is JOHN
T. WHITE.
SECTION 1.02. OTHER OFFICES.
The Corporation may also have offices at such other places both within
and without the State of Texas as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II. SHAREHOLDERS
SECTION 2.01. TIME AND PLACE OF MEETINGS.
Meetings of the shareholders shall be held at such time and at such
place, within or without the State of Texas, as shall be determined by the
Board of Directors.
SECTION 2.02. ANNUAL MEETINGS.
Annual meetings of shareholders shall be held on such date and at such
time as shall be determined by the Board of Directors. At each annual meeting
the shareholders shall elect a Board of Directors and transact such other
business as may properly be brought before the meeting.
SECTION 2.03. SPECIAL MEETINGS.
Special meetings of the shareholders may be called at any time by the
Chief Executive Officer, President or the Board of Directors, and shall be
called by the Chief Executive Officer, President or the Secretary at the
request in writing of the holders of not less than 10% of the voting power
represented by all the shares issued, outstanding and entitled to be voted at
the proposed special meeting. Such request shall state the purpose or purposes
of the proposed meeting. Business transacted at special meetings shall be
confined to the purposes stated in the notice of the meeting.
SECTION 2.04. NOTICE.
Written or printed notice stating the place, day and hour of any
shareholders' meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the Chief Executive Officer,
President, Secretary or the officer or person calling the meeting, to each
shareholder entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, postage
prepaid, addressed to the shareholder at his address as it appears on the share
transfer records of the Corporation.
SECTION 2.05. CLOSING OF SHARE TRANSFER RECORDS AND FIXING RECORD
DATES FOR MATTERS OTHER THAN CONSENTS TO ACTION.
For the purpose of determining shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment thereof, or entitled
to receive payment of any distribution or share dividend, or in order to make a
determination of shareholders for any other proper purpose (other than
determining shareholders entitled to consent to action by shareholders proposed
to be taken without a meeting of shareholders), the Board of Directors of the
Corporation may provide that the share transfer records shall be closed for a
stated period but not to exceed, in any case, sixty (60) days. If the share
transfer records shall be closed for the purpose of determining shareholders,
such records shall be closed for at least ten days immediately preceding such
meeting. In lieu of closing the share transfer records, the Board of Directors
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than sixty (60) days and, in
the case of a meeting of shareholders, not less than ten (10) days prior to the
date on which the particular action requiring such determination of
shareholders is to be taken. If the share transfer records are not closed and
no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or shareholders entitled to
receive payment of a distribution (other than a distribution involving a
purchase or redemption by the Corporation of any of its own shares) or share
dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such distribution or
share dividend is adopted, as the case may be, shall be the record date for
such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this Section, such determination shall apply to any adjournment thereof except
where the determination has been made through the closing of share transfer
records and the stated period of closing has expired.
SECTION 2.06. FIXING RECORD DATES FOR CONSENTS TO ACTION.
Unless a record date shall have previously been fixed or determined
pursuant to this Section 2.06, whenever action by shareholders is proposed to
be taken by consent in writing without a meeting of shareholders, the Board of
Directors may fix a record date for the purpose of determining shareholders
entitled to consent to that action, which record date shall not precede, and
shall not be more than ten (10) days after, the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors and the prior action of the Board of
Directors is not required by the Texas Business Corporation Act (herein called
the "Act"), the record date for determining shareholders entitled to consent to
action in writing without a meeting shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office, its
principal place of business, or an officer or agent of the Corporation having
custody of the records in which proceedings of meetings of shareholders are
recorded. Delivery shall be by hand or by certified or registered mail, return
receipt requested. Delivery to the Corporation's principal place of business
shall be addressed to the President or the Chief Executive Officer of the
Corporation. If no record date shall have been fixed by the Board of Directors
and prior action of the Board of Directors is required by the act, the record
date for determining shareholders entitled to consent to action in writing
without a meeting shall be at the close of business on the date on which the
Board of Directors adopts a resolution taking such prior action.
SECTION 2.07. LIST OF SHAREHOLDERS.
The officer or agent of the Corporation having charge of the share
transfer records for shares of the Corporation shall make, at least ten (10)
days before each meeting of the shareholders, a complete list of the
shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of voting
shares held by each, which list, for a period of ten (10) days prior to
<PAGE> 2
such meeting, shall be kept on file at the registered office or principal place
of business of the Corporation and shall be subject to inspection by any
shareholder at any time during the usual business hours of the Corporation.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting. The original share transfer records shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
transfer records or to vote at any meeting of shareholders. Failure to comply
with the requirements of this Section shall not affect the validity of any
action taken at such meeting.
SECTION 2.08. QUORUM.
A quorum shall be present at a meeting of shareholders if the holders
of shares having a majority of the voting power represented by all issued and
outstanding shares entitled to vote at the meeting are present in person or
represented by proxy at such meeting, unless otherwise provided by the Articles
of Incorporation in accordance with the act. Once a quorum is present at a
meeting of shareholders, the shareholders represented in person or by proxy at
the meeting may conduct such business as may properly be brought before the
meeting until it is adjourned, and the subsequent withdrawal from the meeting
of any shareholder or the refusal of any shareholder represented in person or
by proxy to vote shall not affect the presence of a quorum at the meeting. If,
however, a quorum shall not be present at any meeting of shareholders, the
shareholders entitled to vote, present in person or represented by proxy, shall
have power to adjourn the meeting, without notice (other than announcement at
the meeting at which the adjournment is taken of the time and place of the
adjourned meeting), until such time and to such place as may be determined by a
vote of the holders of a majority of the shares represented in person or by
proxy at such meeting until a quorum shall be present. At such adjourned
meeting at which a quorum is present, any business may be transacted which
might have been transacted at the meeting as originally noticed.
SECTION 2.09. VOTING.
When a quorum is present at any meeting, the vote of the holders of a
majority of the shares entitled to vote, present in person or represented by
proxy at such meeting, shall decide any matter brought before such meeting,
other than the election of directors or a matter for which the affirmative vote
of the holders of a specified portion of the shares entitled to vote is
required by the Act, and shall be the act of the shareholders, unless otherwise
provided by the Articles of Incorporation, these Bylaws or by resolution of the
Board of Directors in accordance with the Act.
Unless otherwise provided in the Articles of Incorporation or these
Bylaws in accordance with the Act, directors of the Corporation shall be
elected by a plurality of the votes cast by the holders of shares entitled to
vote in the election of directors at a meeting of shareholders at which a
quorum is present.
At every meeting of the shareholders, each shareholder shall be
entitled to such number of votes, in person or by proxy, for each share having
voting power held by such shareholder, as is specified in the Articles of
Incorporation (including the resolution of the Board of Directors (or a
committee thereof) creating such shares), except to the extent that the voting
rights of the shares of any class or series are limited or denied by the
Articles of Incorporation. At each election of directors, every shareholder
shall be entitled to cast, in person or by proxy, the number of votes to which
the shares owned by him are entitled for as many persons as there are directors
to be elected and for whose election he has a right to vote. Cumulative voting
is prohibited by the Articles of Incorporation. Every proxy shall be in
writing and be executed by the shareholder. A telegram, telex, cablegram, or
similar transmission by the shareholder, or a photographic, photostatic,
facsimile, or similar reproduction of a writing executed by the shareholder,
shall be treated as an execution in writing for the purposes of this Section
2.09. No proxy shall be valid after eleven (11) months from the date of its
execution unless otherwise provided therein. Each proxy shall be revocable
unless (i) the proxy form conspicuously states that the proxy is irrevocable,
and (ii) the proxy is coupled with an interest, as defined in the act and other
Texas law.
Shares standing in the name of another corporation may be voted by
such officer, agent or proxy as the bylaws of such corporation may prescribe
or, in the absence of such provision, as the Board of Directors of such
corporation may determine.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such
shares into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares into his name as trustee.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without being transferred into his name, if such authority is
contained in an appropriate order of the court that appointed the receiver.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Treasury shares, shares of the Corporation's stock owned by another
corporation the majority of the voting stock of which is owned or controlled by
the Corporation, and shares of its own stock held by the Corporation in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
Votes submitted as abstentions on matters to be voted on at any
meeting will be counted as votes against such matters. Broker non-votes will
not count for or against the matters to be voted on at any meeting.
SECTION 2.10. ACTION BY CONSENT.
Any action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting, without prior notice, and without
a vote if a consent in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to the action
that is the subject of the consent.
In addition, if the Articles of Incorporation so provide, any action
required or permitted to be taken at a meeting of the shareholders may be taken
without a meeting, without prior notice, and without a vote if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting at which the holders
of all shares entitled to vote on the action were present and voted. Prompt
notice of the taking of any action by shareholders without a meeting by less
than unanimous written consent shall be given to those shareholders who did not
consent in writing to the action.
Every written consent shall bear the date of signature of each
shareholder who signs the consent. No written consent shall be effective to
take the action that is the subject of the consent unless, within sixty (60)
days after the date of the earliest dated consent delivered to the Corporation
as set forth below in this Section 2.10, the consent or consents signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take the action that is the subject of the consent
are delivered to the Corporation by delivery to its registered office, its
principal place of business, or an officer or agent of the Corporation having
custody of the records in which proceedings
<PAGE> 3
of meetings of shareholders are recorded. Delivery shall be by hand or
certified or registered mail, return receipt requested. Delivery to the
Corporation's principal place of business shall be addressed to the President
or the Chief Executive Officer of the Corporation. A telegram, telex,
cablegram, or similar transmission by a shareholder, or a photographic,
photostatic, facsimile, or similar reproduction of a writing signed by a
shareholder, shall be regarded as signed by the shareholder for the purposes of
this Section 2.10.
SECTION 2.11. PRESENCE AT MEETINGS BY MEANS OF COMMUNICATIONS
EQUIPMENT.
Shareholders may participate in and hold a meeting of the shareholders
by means of conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 2.11 shall constitute
presence in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
ARTICLE III. DIRECTORS
SECTION 3.01. NUMBER OF DIRECTORS.
The number of directors of the Corporation shall be fixed from time to
time by resolution of the Board of Directors, but in no case shall the number
of directors be less than one. Until otherwise fixed by resolution of the
Board of Directors, the number of directors shall be the number stated in the
Articles of Incorporation. No decrease in the number of directors shall have
the effect of reducing the term of any incumbent director. Directors shall be
elected at each annual meeting of the shareholders by the holders of shares
entitled to vote in the election of directors, except as provided in Section
3.02 of this Article III, and each director shall hold office until the annual
meeting of shareholders following his election or until his successor is
elected and qualified. Directors need not be residents of the state of Texas
or shareholders of the Corporation.
SECTION 3.02. VACANCIES.
Subject to other provisions of this Section 3.02, any vacancy
occurring in the Board of Directors may be filled by election at an annual or
special meeting of the shareholders called for that purpose or by the
affirmative vote of a majority of the remaining directors, though the remaining
directors may constitute less than a quorum of the Board of Directors as fixed
by Section 3.08 of this Article III. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office. Any
directorship to be filled by reason of an increase in the number of directors
shall be filled by election at an annual meeting or at a special meeting of
shareholders called for that purpose or may be filled by the Board of Directors
for a term of office continuing only until the next election of one or more
directors by the shareholders; provided that the Board of Directors may not
fill more than two such directorships during the period between any two
successive annual meetings of shareholders. Shareholders holding a majority of
shares then entitled to vote at an election of directors may, at any time and
with or without cause, terminate the term of office of all or any of the
directors by a vote at any annual or special meeting called for that purpose.
Such removal shall be effective immediately upon such shareholder action even
if successors are not elected simultaneously, and the vacancies on the Board of
Directors caused by such action shall be filled only by election by the
shareholders.
Notwithstanding the foregoing, whenever the holders of any class or
series of shares are entitled to elect one or more directors by the provisions
of the Articles of Incorporation, only the holders of shares of that class or
series shall be entitled to vote for or against the removal of any director
elected by the holders of shares of that class or series; and any vacancies in
such directorships and any newly created directorships of such class or series
to be filled by reason of an increase in the number of such directors may be
filled by the affirmative vote of a majority of the directors elected by such
class or series then in office or by a sole remaining director so elected, or
by the vote of the holders of the outstanding shares of such class or series,
and such directorships shall not in any case be filled by the vote of the
remaining directors or the holders of the outstanding shares as a whole unless
otherwise provided in the Articles of Incorporation.
SECTION 3.03. GENERAL POWERS.
The powers of the Corporation shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall be managed
under the direction of, its Board of Directors, which may do or cause to be
done all such lawful acts and things, as are not by the act, the Articles of
Incorporation or these Bylaws directed or required to be exercised or done by
the shareholders.
SECTION 3.04. PLACE OF MEETINGS.
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or without the state of Texas.
SECTION 3.05. ANNUAL MEETINGS.
The first meeting of each newly elected Board of Directors shall be
held, without further notice, immediately following the annual meeting of
shareholders at the same place, unless by the majority vote or unanimous
consent of the directors then elected and serving, such time or place shall be
changed.
SECTION 3.06. REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held with or without
notice at such time and place as the Board of Directors may determine by
resolution.
SECTION 3.07. SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by or at the
request of the chief executive officer and shall be called by the secretary on
the written request of a majority of the incumbent directors. The person or
persons authorized to call special meetings of the Board of Directors may fix
the place for holding any special meeting of the Board of Directors called by
such person or persons. Notice of any special meeting shall be given at least
twenty-four (24) hours previous thereto if given either personally (including
written notice delivered personally or telephone notice) or by telex, telecopy,
telegram or other means of immediate communication, and at least seventy-two
(72) hours previous thereto if given by written notice mailed or otherwise
transmitted to each director at the address of his business or residence.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting. Any director may waive notice of any
meeting, as provided in Section 4.02 of Article IV of these Bylaws. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened.
SECTION 3.08. QUORUM AND VOTING.
At all meetings of the Board of Directors, the presence of a majority
of the number of directors fixed in the manner provided in Section 3.01 of this
Article III shall constitute a quorum for the transaction of business. At all
meetings of committees of the Board of Directors (if one or more be designated
in the manner described in Section 3.09 of this Article III), the presence of a
majority of the number of directors fixed from time to time by resolution of
the Board of Directors to serve as members of such committees shall constitute
a quorum for the transaction of business. The affirmative vote of at least a
majority of the directors present and entitled to vote at any meeting of the
Board of Directors or a committee of
<PAGE> 4
the Board of Directors at which there is a quorum shall be the act of the Board
of Directors or the committee, except as may be otherwise specifically provided
by the act, the Articles of Incorporation or these Bylaws. Directors may not
vote by proxy at any meeting of the Board of Directors. Directors with an
interest in a business transaction of the Corporation and directors who are
directors or officers or have a financial interest in any other Corporation,
partnership, association or other organization with which the Corporation is
transacting business may be counted in determining the presence of a quorum at
a meeting of the Board of Directors or of a committee of the Board of Directors
to authorize such business transaction. If a quorum shall not be present at
any meeting of the Board of Directors or a committee thereof, a majority of the
directors present thereat may adjourn the meeting, without notice other than
announcement at the meeting, until such time and to such place as may be
determined by such majority of directors, until a quorum shall be present.
SECTION 3.09. COMMITTEES OF THE BOARD OF DIRECTORS.
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate from among its members one or more
committees, each of which shall be composed of one or more of its members, and
may designate one or more of its members as alternate members of any committee,
who may, subject to any limitations imposed by the Board of Directors, replace
absent or disqualified members at any meeting of that committee. Any such
committee, to the extent provided in the resolution of the Board of Directors
designating the committee or in the Articles of Incorporation or these Bylaws,
shall have and may exercise all of the authority of the Board of Directors of
the Corporation, except where action of the Board of Directors is required by
the act or by the Articles of Incorporation. Any member of a committee of the
Board of Directors may be removed, for or without cause, by the affirmative
vote of a majority of the whole Board of Directors. If any vacancy or
vacancies occur in a committee of the Board of Directors caused by death,
resignation, retirement, disqualification, removal from office or otherwise,
the vacancy or vacancies shall be filled by the affirmative vote of a majority
of the whole Board of Directors. Such committee or committees shall have such
name or names as may be designated by the Board of Directors and shall keep
regular minutes of their proceedings and report the same to the Board of
Directors when required.
SECTION 3.10. COMPENSATION OF DIRECTORS.
Directors, as members of the Board of Directors or of any committee
thereof, shall be entitled to receive compensation for their services on such
terms and conditions as may be determined from time to time by the Board of
Directors. Nothing herein contained, however, shall be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
SECTION 3.11. ACTION BY UNANIMOUS CONSENT.
Any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting
if a written consent, setting forth the action so taken, is signed by all the
members of the Board of Directors or the committee, as the case may be, and
such written consent shall have the same force and effect as a unanimous vote
at a meeting of the Board of Directors.
SECTION 3.12. PRESENCE AT MEETINGS BY MEANS OF COMMUNICATIONS EQUIPMENT.
Members of the Board of Directors of the Corporation or any committee
designated by the Board of Directors, may participate in and hold a meeting of
such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 3.12 shall constitute presence in person at such meeting, except where
a person participates in the meeting for the express purpose of objecting to
the transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE IV. NOTICES
SECTION 4.01. FORM OF NOTICE.
Whenever under the provisions of the act, the Articles of
Incorporation or these Bylaws, notice is required to be given to any director
or shareholder, and no provision is made as to how such notice shall be given,
it shall not be construed to mean personal notice exclusively, but any such
notice may be given in writing, by mail, postage prepaid, or by telex,
telecopy, or telegram, or other means of immediate communication, addressed or
transmitted to such director or shareholder at such address as appears on the
books of the Corporation. Any notice required or permitted to be given by mail
shall be deemed to be given at the time when the same be thus deposited,
postage prepaid, in the united states mail as aforesaid. Any notice required
or permitted to be given by telex, telecopy, telegram, or other means of
immediate communication shall be deemed to be given at the time of actual
delivery.
SECTION 4.02. WAIVER.
Whenever under the provisions of the act, the Articles of
Incorporation or these Bylaws, any notice is required to be given to any
director or shareholder of the Corporation, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time stated in such notice, shall be equivalent to the giving of such notice.
SECTION 4.03. WHEN NOTICE UNNECESSARY.
Whenever, under the provisions of the act, the Articles of
Incorporation or these Bylaws, any notice is required to be given to any
shareholder, such notice need not be given to the shareholder if:
(A) notice of two (2) consecutive annual meetings and all notices
of meetings held during the period between those annual
meetings, if any, or
(B) all (but in no event less than two) payments (if sent by first
class mail) of distributions or interest on securities during
a 12-month period, have been mailed to that person, addressed
at his address as shown on the records of the Corporation, and
have been returned undeliverable. Any action or meeting taken
or held without notice to such a person shall have the same
force and effect as if the notice had been duly given. If
such a person delivers to the Corporation a written notice
setting forth his then current address, the requirement that
notice be given to that person shall be reinstated.
ARTICLE V. EXECUTIVE COMMITTEE
SECTION 5.01. DESIGNATION.
The Board of Directors may, by resolution adopted by a majority of the
whole board, designate an executive committee.
SECTION 5.02. NUMBER; QUALIFICATION; TERM.
The executive committee shall consist of two or more persons, one of
whom shall be the President. The executive committee shall serve at the
pleasure of the Board of Directors.
SECTION 5.03. AUTHORITY.
The executive committee, to the extent provided in such resolution,
shall have and may exercise all of the authority of the Board of Directors in
the management of the business and affairs of the Corporation, except where
action of the full Board of Directors is required by
<PAGE> 5
statute or by the Articles of Incorporation, and shall have power to authorize
the seal of the Corporation to be affixed to all papers which may require it.
SECTION 5.04. CHANGE IN NUMBER.
The number of executive committee members may be increased or
decreased (but not below two) from time to time by resolution adopted by a
majority of the whole Board of Directors.
SECTION 5.05. REMOVAL.
Any member of the executive may be removed by the Board of Directors
by the affirmative vote of a majority of the whole Board, whenever in its
judgment the best interests of the Corporation will be served thereby.
SECTION 5.06. VACANCIES.
A vacancy occurring in the executive committee (by death, resignation,
removal or otherwise) may be filled by the Board of Directors in the manner
provided for original designation in Section 3.01.
SECTION 5.07. MEETINGS.
Time, place, and notice (if any) of executive committee meetings shall
be determined by the executive committee.
SECTION 5.08. QUORUM; MAJORITY VOTE.
At meetings of the executive committee, a majority of the number of
members designated by the Board of Directors shall constitute a quorum for the
transaction of business. The act of a majority of the members present at any
meeting at which a quorum is present shall be the act of the executive
committee, except as otherwise specifically provided by statute or by the
Articles of Incorporation or by these By- Laws. If a quorum is not present at
a meeting of the executive committee, the members present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
SECTION 5.09. COMPENSATION.
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board.
SECTION 5.10. PROCEDURE.
The executive committee shall keep regular minutes of its proceedings
and report the same to the Board of Directors when required. The minutes of
the proceedings of the executive committee shall be placed in the minute book
of the Corporation.
SECTION 5.11. ACTION WITHOUT MEETING.
Any action required or permitted to be taken at a meeting of the
executive committee may be taken without a meeting if a consent in writing,
setting forth the action so taken, is signed by all the members of the
executive committee. Such consent shall have the same force and effect as a
unanimous vote at a meeting. The signed consent, or a signed copy, shall be
placed in the minute book.
SECTION 5.12. RESPONSIBILITY.
The designation of an executive committee and the delegation of
authority to it shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility imposed upon it to him by law.
ARTICLE VI. OFFICERS AND AGENTS
SECTION 6.01. GENERAL.
The elected officers of the Corporation shall include a President and
a Secretary. The Board of Directors may also elect or appoint a Chairman of
the Board, Chief Executive Officer, one or more Vice Presidents, with or
without such descriptive titles as the Board of Directors shall deem
appropriate, one or more Assistant Vice Presidents, one or more Assistant
Secretaries, a Treasurer, one or more Assistant Treasurers, and such other
officers as may be deemed necessary, all of whom shall also be officers. Two
or more offices may be held by the same person.
SECTION 6.02. ELECTION.
The Board of Directors shall elect the officers of the Corporation who
shall serve at the discretion of the Board of Directors until such time as
their successors are chosen and qualified. The Board of Directors may appoint
such other officers and agents as it shall deem necessary and shall determine
the salaries of all officers and agents from time to time. No officer need be
a member of the Board of Directors except the Chairman of the Board, if one be
elected. Any officer elected or appointed by the Board of Directors may be
removed, with or without cause, at any time by a majority vote of the whole
Board. Election or appointment of an officer or agent shall not of itself
create contract rights.
SECTION 6.03. CHAIRMAN OF THE BOARD; CHIEF EXECUTIVE OFFICER.
The Chairman of the Board, if one be elected, shall preside when
present at all meetings of the Board of Directors and, with the approval of the
Chief Executive Officer or President, may preside at meetings of the
shareholders. He shall advise and counsel the Chief Executive Officer or
President and other officers of the Corporation, and shall exercise such powers
and perform such duties as shall be assigned to or required of him from time to
time by the Board of Directors.
SECTION 6.04. CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer to the extent appointed by the Board of
Directors shall be the Chief Executive Officer of the Corporation and, subject
to the provisions of these Bylaws, shall have general supervision of the
affairs of the Corporation and shall have general and active control of all its
business. In the absence of a Chairman of the Board, the Chief Executive
Officer shall preside, when present, at all meetings of shareholders and at all
meetings of the Board of Directors and shall see that all orders and
resolutions of the Board of Directors and the shareholders are carried into
effect. The Chief Executive Offer shall have general authority to execute
bonds, deeds and contracts in the name of the Corporation and affix the
corporate seal thereto; to sign stock certificates; to cause the employment or
appointment of such employees and agents of the Corporation as the proper
conduct of operations may require, and to fix their compensation, subject to
the provisions of these Bylaws; to remove or suspend any employee or agent who
shall have been employed or appointed under his authority or under authority of
an officer subordinate to him; to suspend for cause, pending final action by
the authority which shall have elected or appointed him, any officer
subordinate to the Chief Executive Officer; and, in general, to exercise all
the powers and authority usually appertaining to the Chief Executive Officer of
a Corporation, except as otherwise provided in these Bylaws.
SECTION 6.05. PRESIDENT
In the absence of a Chief Executive Officer, the President shall be
the ranking and Chief Executive Officer of the Corporation, and shall have the
duties and responsibilities, and the authority and power, of the Chief
Executive Officer. The President shall be the Chief Operating Officer of the
Corporation and as such shall have, subject to review and approval of the Chief
Executive Officer, if one be elected, the responsibility for the operation of
the Corporation and the authority of the Chief Executive Officer.
<PAGE> 6
SECTION 6.06. VICE PRESIDENTS.
In the absence of the President or in the event of his inability or
refusal to act, the Vice President, if any (or in the event there be more than
one, the Vice Presidents in the order designated or, in the absence of any
designation, then in the order of their election), shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. The Vice President shall perform
such other duties and have such other powers as the Board of Directors, the
Chief Executive Officer or the Chief Operating Officer may from time to time
prescribe. The Vice President in charge of finance, if any, shall also perform
the duties and assume the responsibilities described in Section 6.10 of this
Article VI for the Treasurer, and shall report directly to the Chief Executive
Officer of the Corporation.
SECTION 6.07. ASSISTANT VICE PRESIDENTS.
In the absence of a Vice President or in the event of his inability or
refusal to act, the Assistant Vice President, if any (or, if there be more than
one, the Assistant Vice Presidents in the order designated or, in the absence
of any designation, then in the order of their election), shall perform the
duties and exercise the powers of that Vice President, and shall perform such
other duties and have such other powers as the Board of Directors, the Chief
Executive Officer, the Chief Operating Officer or the Vice President under
whose supervision he is appointed may from time to time prescribe.
SECTION 6.08. SECRETARY.
The Secretary shall attend and record minutes of the proceedings of
all meetings of the Board of Directors and any committees thereof and all
meetings of the shareholders. He shall file the records of such meetings in
one or more books to be kept by him for that purpose. Unless the Corporation
has appointed a transfer agent or other agent to keep such a record, the
Secretary shall also keep at the Corporation's registered office or principal
place of business a record of the original issuance of shares issued by the
Corporation and a record of each transfer of those shares that have been
presented to the Corporation for registration of transfer. Such records shall
contain the names and addresses of all past and current shareholders of the
Corporation and the number and class of shares issued by the Corporation held
by each of them. He shall give, or cause to be given, notice of all meetings
of the shareholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or the
Chief Executive Officer, under whose supervision he shall be. He shall have
custody of the corporate seal of the Corporation and he, or an Assistant
Secretary, shall have authority to affix the same to any instrument requiring
it, and when so affixed, it may be attested by his signature or by the
signature of such Assistant Secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his signature. The Secretary shall keep and account for
all books, documents, papers and records of the Corporation except those for
which some other officer or agent is properly accountable. He shall have
authority to sign stock certificates and shall generally perform all the duties
usually appertaining to the office of the secretary of a corporation.
SECTION 6.09. ASSISTANT SECRETARIES.
In the absence of the Secretary or in the event of his inability or
refusal to act, the Assistant Secretary, if any (or, if there be more than one,
the Assistant Secretaries in the order designated or, in the absence of any
designation, then in the order of their election), shall perform the duties and
exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the Board of Directors, the Chief Executive Officer
or the Secretary may from time to time prescribe.
SECTION 6.10. TREASURER.
The Treasurer, if any (or the Vice President in charge of finance, if
one be elected), shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation and shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors,
taking proper vouchers for such disbursements, and shall render to the Chief
Executive Officer and the Board of Directors, at its regular meetings, or when
the Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the Corporation. If required by
the Board of Directors, he shall give the Corporation a bond (which shall be
renewed every six years) in such sum and with such surety or sureties as shall
be satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration of the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation. The Treasurer shall be under the
supervision of the Vice President in charge of finance, if any, and he shall
perform such other duties as may be prescribed by the Board of Directors, the
Chief Executive Officer or any such Vice President in charge of finance.
SECTION 6.11. ASSISTANT TREASURERS.
In the absence of the Treasurer or in the event of his inability or
refusal to act, the Assistant Treasurer, if one be elected (or, if there shall
be more than one, the Assistant Treasurer in the order designated or, in the
absence of any designation, then in the order of their election), shall perform
the duties and exercise the powers of the Treasurer and shall perform such
other duties and have such other powers as the Board of Directors, the Chief
Executive Officer or the Treasurer may from time to time prescribe.
SECTION 6.12. BONDING.
If required by the Board of Directors, all or certain of the officers
shall give the Corporation a bond, in such form, in such sum and with such
surety or sureties as shall be satisfactory to the Board, for the faithful
performance of the duties of their office and for the restoration to the
Corporation, in case of their death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in their possession or under their control belonging to the Corporation.
ARTICLE VII. INTERESTED DIRECTORS, OFFICERS AND SHAREHOLDERS
SECTION 7.01. VALIDITY.
If Section 7.02 is satisfied, no contract or other transaction between
the Corporation and any of its officers or shareholders (or any corporation or
firm which any of them are directly or indirectly interested) shall be invalid
solely because of this relationship or because of the presence of such
director, officer or shareholder at the meeting authorizing such contract or
transaction, or his participation in such meeting or authorization.
<PAGE> 7
SECTION 7.02. DISCLOSURE, APPROVAL, FAIRNESS SECTION.
7.01 SHALL APPLY ONLY IF:
(1) The material facts of the relationship or interest of each
such director, officer or shareholder are known or disclosed to the Board of
Directors and it nevertheless authorizes or ratifies the contract or
transaction by a majority of the directors present, each such interested
director to be counted in determining whether a quorum is present but not in
calculating the majority necessary to carry the vote.
(2) The Contract or transaction is fair to the Corporation as of
the time it is authorized or ratified by the Board of Directors, a committee of
the Board, or the shareholders.
SECTION 7.03. NON-EXCLUSIVE.
This provision shall not be construed to invalidate a contract or
transaction which would be valid in the absence of this provision.
ARTICLE VIII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 8.01. GENERAL.
The Corporation shall indemnify persons who are or were a director or
officer of the Corporation both in their capacities as directors and officers
of the Corporation and, if serving at the request of the Corporation as a
director, officer, trustee, employee, agent or similar functionary of another
foreign or domestic corporation, trust, partnership, joint venture, sole
proprietorship, employee benefit plan or other enterprise, in each of those
capacities, against any and all liability and reasonable expense that may be
incurred by them in connection with or resulting from (a) any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, (b) an appeal in such an action,
suit or proceeding, or (c) any inquiry or investigation that could lead to such
an action, suit or proceeding, all to the full extent permitted by Article
2.02-1 of the Act. The Corporation shall indemnify persons who are or were an
employee or agent of the Corporation, or persons who are not or were not
employees or agents of the Corporate but who are or were serving at the request
of the Corporation as a director, officer, trustee, employee, agent or similar
functionary of another foreign or domestic corporation, trust partnership,
joint venture, sole proprietorship, employee benefit plan or other enterprise
(collectively, along with the directors and officers of the Corporation, such
persons are referred to herein as "Corporate Functionaries") against any and
all liability and reasonable expense that may be incurred by them in connection
with or resulting from (a) any threatened, pending of completed action, suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, (b) an appeal in such an action, suit or proceeding, or (c) any
inquiry or investigation that could lead to such an action, suit or proceeding,
all to the full extent permitted by Article 2.02-1 of the Act, and the
Corporation may indemnify such persons to the extent permitted by the Act. The
rights of indemnification provided for in this Article VIII shall be in
addition to all rights to which any Corporate Functionary may be entitled under
any agreement or vote of shareholders or as a matter of law or otherwise.
SECTION 8.02. INSURANCE.
The Corporation may purchase or maintain insurance on behalf of any
Corporate Functionary against any liability asserted against him and incurred
by him in such a capacity or arising out of his status as a Corporate
Functionary, whether or not the Corporation would have the power to indemnify
him or her against the liability under the Act or these Bylaws; provided,
however, that if the insurance or other arrangement is with a person or entity
that is not regularly engaged in the business of providing insurance coverage,
the insurance or arrangement may provide for payment of a liability with
respect to which the Corporation would not have the power to indemnify the
person only if including coverage for the additional liability has been
approved by the shareholders of the Corporation. Without limiting the power of
the Corporation to procure or maintain any kind of insurance or arrangement,
the Corporation may, for the benefit of persons indemnified by the Corporation,
(i) create a trust fund, (ii) establish any form of self-insurance, (iii)
secure its indemnification obligation by grant of any security interest or
other lien on the assets of the Corporation, or (iv) establish a letter of
credit, guaranty or surety arrangement. Any such insurance or other arrangement
may be procured, maintained or established within the Corporation or its
affiliates or with any insurer or other person deemed appropriate by the Board
of Directors of the Corporation regardless of whether all or part of the stock
or other securities thereof are owned in whole or in part by the Corporation.
In the absence of fraud, the judgment of the Board of Directors of the
Corporation as to the terms and conditions of such insurance or other
arrangement and the identity of the insurer or other person participating in an
arrangement shall be conclusive, and the insurance or arrangement shall not be
voidable and shall not subject the director's approving the insurance or
arrangement to liability, on any ground, regardless of whether directors
participating in approving such insurance or other arrangement shall be
beneficiaries thereof.
ARTICLE IX. EXECUTION OF INSTRUMENTS
The Board of Directors may, in its discretion, determine the method
and designate the signatory office or officers, or other person or persons, to
execute any Corporation instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the Corporation.
ARTICLE X. CERTIFICATES REPRESENTING SHARES
Section 10.01. FORM OF CERTIFICATES.
The Corporation shall deliver certificates representing all shares to
which shareholders are entitled. Certificates representing shares of the
Corporation shall be in such form as shall be approved and adopted by the Board
of Directors and shall be numbered consecutively and entered in the share
transfer records of the Corporation as they are issued. Each certificate shall
state on the face thereof that the Corporation is organized under the laws of
the State of Texas, the name of the registered holder, the number and class of
shares, and the designation of the series, if any, which said certificate
represents, and either the par value of the shares or a statement that the
shares are without par value. Each certificate shall also set forth on the back
thereof a full or summary statement of matters required by the Act or the
Articles of Incorporation to be described on certificates representing shares,
and shall contain a conspicuous statement on the face thereof referring to the
matters set forth on the back thereof. Certificates shall be signed by the
Chief Executive Officer, President or any Vice President and the Secretary or
any Assistant Secretary, and may be sealed with the seal of the Corporation.
Either the seal of the Corporation or the signatures of the Corporation's
officers or both may be facsimiles. In case any officer or officers who have
signed, or whose facsimile signature or signatures have been used on such
certificate or certificates, shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates have been delivered by the Corporation or its
agents, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed the certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the Corporation.
SECTION 10.02. LOST CERTIFICATES.
The Corporation may direct that a new certificate be issued in place
of any certificate theretofore issued by the Corporation alleged to have been
lost or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost or destroyed. When authorizing the issue
of a new certificate, the Board of Directors, in its discretion and as a
condition precedent to the issuance thereof, may require the owner of the lost
or destroyed certificate, or his legal representative, to advertise the same in
such manner as it shall require and/or give the
<PAGE> 8
Corporation a bond in such form, in such sum, and with such surety or sureties
as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen
or destroyed.
SECTION 10.03. TRANSFER OF SHARES.
Shares of stock shall be transferable only on the share transfer
records of the Corporation by the holder thereof in person or by his duly
authorized attorney. Subject to any restrictions on transfer set forth in the
Articles of Incorporation, these Bylaws or any agreement among shareholders to
which this Corporation is a party or has notice, upon surrender to the
Corporation or to the transfer agent of the Corporation of a certificate
representing shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation or the transfer agent of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 10.04. REGISTERED SHAREHOLDERS.
Except as otherwise provided in the Act or other Texas law, the
Corporation shall be entitled to regard the person in whose name any shares
issued by the Corporation are registered in the share transfer records of the
Corporation at any particular time (including, without limitation, as of the
record date fixed pursuant to Section 2.09 or 2.10 hereof) as the owner of
those shares and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof.
ARTICLE XI. GENERAL PROVISIONS
SECTION 11.01. DISTRIBUTIONS AND SHARE DIVIDENDS.
Distributions or share dividends to the shareholders of the
Corporation, subject to the provisions of the Act and the Articles of
Incorporation and any agreements or obligations of the Corporation, if any, may
be declared by the Board of Directors at any regular or special meeting.
Distributions may be declared and paid in cash or in property, provided that
all such declarations and payments of distributions, and all declarations and
issuances of share dividends, shall be in strict compliance with all applicable
laws and the Articles of Incorporation.
SECTION 11.02. RESERVES.
There may be created by resolution of the Board of Directors out of
the surplus of the Corporation such reserve or reserves as the Board of
Directors from time to time, in its discretion, deems proper to provide for
contingencies, or to equalize distributions or share dividends, or to repair or
maintain any property of the Corporation, or for such other proper purpose as
the Board shall deem beneficial to the Corporation, and the Board may increase,
decrease or abolish any reserve in the same manner in which it was created.
SECTION 11.03. FISCAL YEAR.
The fiscal year of the Corporation shall be determined by the Board of
Directors.
SECTION 11.04. SEAL.
The Corporation shall have a seal which may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced. Any
officer of the Corporation shall have authority to affix the seal to any
document requiring it.
SECTION 11.05. RESIGNATION.
Any director, officer or agent of the Corporation may resign by giving
written notice to the President or the Secretary. The resignation shall take
effect at the time specified therein, or immediately if no time is specified
therein. Unless specified in such notice, the acceptance of such resignation
shall not be necessary to make it effective.
ARTICLE XII. AMENDMENT OF BY-LAWS
Unless otherwise provided by the Articles of Incorporation or a Bylaw
adopted by the shareholders of the Corporation, these Bylaws may be amended or
repealed, or new Bylaws may be adopted, at any meeting of the shareholders of
the Corporation or the Board of Directors at which a quorum is present, by the
affirmative vote of the holders of a majority of the shares or the directors,
as the case may be, present at such meeting.
CERTIFICATION
I, Russell V. Oesch, Secretary of the Corporation, hereby certify that
the foregoing is true, accurate and complete copy of the Bylaws of Performance
Printing Corporation, adopted by its Board of Directors as of April _____,
1998.
Russell V. Oesch, Secretary
/s/RVO
<PAGE> 1
EXHIBIT 10.1
1998 STOCK COMPENSATION PLAN
OF
PERFORMANCE PRINTING CORPORATION
(A TEXAS CORPORATION)
1. Purpose of Plan. This 1998 Stock Compensation Plan ("Plan") is intended
to encourage ownership of the common stock of Performance Printing Corporation
("Company") by certain officers, directors, employees and advisors of the
Company or any Subsidiary or Subsidiaries of the Company (as hereinafter
defined) in order to provide additional incentive for such persons to promote
the success and the business of the Company or its Subsidiaries and to encourage
them to remain in the employ of the Company or its Subsidiaries by providing
such persons an opportunity to benefit from any appreciation of the common stock
of the Company through the issuance of stock options to such persons in
accordance with the terms of the Plan. It is further intended that options
granted pursuant to this Plan shall constitute either incentive stock options
("Incentive Options") within the meaning of Section 422 (formerly Section 422A)
of the Internal Revenue Code of 1986, as amended ("Code"), or options which do
not constitute Incentive Options ("Nonqualified Options") as determined by the
Committee (as hereinafter defined) at the time of issuance of such options.
Incentive Options and Nonqualified Options are herein sometimes referred to
collectively as "Options". As used herein, the term Subsidiary or Subsidiaries
shall mean any corporation (other than the employer corporation) in an unbroken
chain of corporations beginning with the employer corporation if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
2. Stock Subject to the Plan. Subject to adjustment as provided in Section
12 hereof, there will be reserved for the use upon the exercise of Options to be
granted from time to time under the Plan, an aggregate of three hundred seven
thousand (300,000) shares of the common stock, $.01 par value, of the Company
("Common Stock"), which shares in whole or in part shall be authorized, but
unissued, shares of the Common Stock or issued shares of Common Stock which
shall have been reacquired by the Company as determined from time to time by the
Board of Directors of the Company ("Board of Directors"). To determine the
number of shares of Common Stock available at any time for the granting of
Options under the Plan, there shall be deducted from the total number of
reserved shares of Common Stock, the number of shares of Common Stock in respect
of which Options have been granted pursuant to the Plan which remain outstanding
or which have been exercised. If and to the extent that any Option to purchase
reserved shares shall not be exercised by the optionee for any reason or if such
Option to purchase shall terminate as provided herein, such shares which have
not been so purchased hereunder shall again become available for the purposes of
the Plan unless the Plan shall have been terminated, but such unpurchased shares
shall not be deemed to increase the aggregate number of shares specified above
to be reserved for purposes of the Plan (subject to adjustment as provided in
Section 12 hereof).
3. Administration of the Plan.
(a) General. The Plan shall be administered by a Compensation
Committee ("Committee") appointed by the Board of Directors, which
Committee shall consist of not less than two (2) members of the Board of
Directors who are not eligible to participate in the Plan, and have not,
for a period of at least one (1) year prior thereto been eligible to
participate in the Plan, except that if at any time there shall be less
than two (2) directors who are qualified to serve on the Committee, then
the Plan shall be administered by the full Board of Directors. All
references in this Plan to the Committee shall be deemed to refer instead
to the full Board of Directors at any time there is not a committee of two
(2) members qualified to act hereunder. The Board of Directors may from
time to time appoint members of the Committee in substitution for or in
addition to members previously appointed and may fill vacancies, however
caused, in the Committee. If the Board of Directors does not designate a
Chairman of the Committee, the Committee shall select one of its members as
its Chairman. The Committee shall hold its meetings at such times and
places as it shall deem advisable. A majority of its members shall
constitute a quorum. Any action of the Committee shall be taken by a
majority vote of its members at a meeting at which a quorum is present.
Notwithstanding the preceding, any action of the Committee may be taken
without a meeting by a written consent signed by all of the members, and
any action so taken shall be deemed fully as effective as if it had been
taken by a vote of the members present in person at the meeting duly called
and held. The Committee may appoint a Secretary, shall keep minutes of its
meetings, and shall make such rules and regulations for the conduct of its
business as it shall deem advisable.
The Committee shall have the sole authority and power, subject to the
express provisions and limitations of the Plan, to construe the Plan and
option agreements granted hereunder, and to adopt, prescribe, amend, and
rescind rules and regulations relating to the Plan, and to make all
determinations necessary or advisable for administering the Plan,
including, but not limited to, (i) who shall be granted Options under the
Plan, (ii) the term of each Option, (iii) the number of shares covered by
such Option, (iv) whether the Option shall constitute an Incentive Option
or a Nonqualified Option, (v) the exercise price for the purchase of the
shares of the Common Stock covered by the Option, (vi) the period during
which the Option may be exercised, (vii) whether the right to purchase the
number of shares covered by the Option shall be fully vested on issuance of
the Option so that such shares may be purchased in full at one time or
whether the right to purchase such shares shall become vested over a period
of time so that such shares may only be purchased in installments, and
(viii) the time or times at which Options shall be granted. The Committee's
determinations under the Plan, including the above enumerated
determinations, need not be uniform and may be made by it selectively among
the persons who receive, or are eligible to receive, Options under the
Plan, whether or not such persons are similarly situated.
The interpretation by the Committee of any provision of the Plan or of
any option agreement entered into hereunder with respect to any Incentive
Option shall be in accordance with Section 422 of the Code and the
regulations issued thereunder, as such section or regulations may be
amended from time to time, in order that the rights granted hereunder and
under said option agreements shall constitute "Incentive Stock Options"
within the meaning of such section. The interpretation and construction by
the Committee of any provision of the Plan or of any Option granted
hereunder shall be final and conclusive, unless otherwise determined by the
Board of Directors. No member of the Board of Directors or the Committee
shall be liable for any action or determination made in good faith with
respect to the Plan or any Option granted under it. Upon issuing an Option
under the Plan, the Committee shall report to the Board of Directors the
name of the person granted the Option, whether the Option is an Incentive
Option or a Nonqualified Option, the number of shares of Common Stock
covered by the Option, and the terms and conditions of such Option.
<PAGE> 2
(b) Changes in Law Applicable. If the laws relating to Incentive
Options or Nonqualified Options are changed, altered or amended during the
term of the Plan, the Board of Directors shall have full authority and
power to alter or amend the Plan with respect to Incentive Options or
Nonqualified Options, respectively, to conform to such changes in the law
without the necessity of obtaining further shareholder approval, unless the
changes require such approval.
4. Types of Awards Under the Plan. Awards under the Plan may be in the form
of either Incentive Options or Nonqualified Options, or a combination thereof.
5. Persons to Whom Options Shall be Granted.
(a) Nonqualified Options. Nonqualified Options shall be granted only
to officers, directors, employees and advisors of the Company or a Subsidiary
who, in the judgment of the Committee, are responsible for or contribute to the
management or success of the Company or a Subsidiary and who, at the time of the
granting of the Nonqualified Options, are either officers, directors, employees
or advisors of the Company or a Subsidiary.
(b) Incentive Options. Incentive Options shall be granted only to
employees of the Company or a Subsidiary who, in the judgment of the Committee,
are responsible for or contribute to the management or success of the Company or
a Subsidiary and who, at the time of the granting of the Incentive Option are
either an employee of the Company or a Subsidiary.
6. Factors to Be Considered in Granting Options. In making any
determination as to persons to whom Options shall be granted and as to the
number of shares to be covered by such Options, the Committee shall take into
account the duties and responsibilities of the respective officers, directors,
employees, or advisors, their current and potential contributions to the success
of the Company or a Subsidiary, and such other factors as the Committee shall
deem relevant in connection with accomplishing the purpose of the Plan.
7. Time of Granting Options. Neither anything contained in the Plan or in
any resolution adopted or to be adopted by the Board of Directors or the
Shareholders of the Company or a Subsidiary nor any action taken by the
Committee shall constitute the granting of any Option. The granting of an Option
shall be effected only when a written Option Agreement acceptable in form and
substance to the Committee, subject to the terms and conditions hereof including
those set forth in Section 8 hereof, shall have been duly executed and delivered
by or on behalf of the Company and the person to whom such Option shall be
granted. No person shall have any rights under the Plan until such time, if any,
as a written Option Agreement shall have been duly executed and delivered as set
forth in this Section 7.
8. Terms and Conditions of Options. All Options granted pursuant to this
Plan must be granted within ten (10) years from the date the Plan is adopted by
the Board of Directors of the Company. Each Option Agreement governing an Option
granted hereunder shall be subject to at least the following terms and
conditions, and shall contain such other terms and conditions, not inconsistent
therewith, that the Committee shall deem appropriate:
(a) Number of Shares. Each Option shall state the number of shares of
Common Stock which it represents.
(b) Type of Option. Each Option shall state whether it is intended to
be an Incentive Option or a Nonqualified Option.
(c) Option Period.
(1) General. Each Option shall state the date upon which it is
granted. Each Option shall be exercisable in whole or in part during
such period as is provided under the terms of the Option subject to
any vesting period set forth in the Option, but in no event shall an
Option be exercisable either in whole or in part after the expiration
of ten (10) years from the date of grant.
(2) Termination of Employment. Except as otherwise provided in
case of Disability (as hereinafter defined), death or Change of
Control (as hereinafter defined), no Option shall be exercisable after
an optionee who is an employee of the Company or a Subsidiary ceases
to be employed by the Company or a Subsidiary as an employee;
provided, however, that the Committee shall have the right in its sole
discretion, but not the obligation, to extend the exercise period for
not more than three (3) months following the date of termination of
such optionee's employment; provided further, however, that no Option
shall be exercisable after the expiration of ten (10) years from the
date it is granted.
(3) Cessation of Service as Director or Advisor. In the event an
optionee who was a director or advisor of the Company or a Subsidiary
ceases to be a director or advisor of the Company or a Subsidiary for
any reason, other than Disability or death, prior to the full exercise
of the Option, such optionee may exercise his Option at any time
within ninety (90) days after such optionee's status as a director or
advisor of the Company or a Subsidiary is so terminated to the extent
he was entitled to exercise such Option at the date such optionee's
status as a director or advisor of the Company or a Subsidiary
terminated; provided, however, that no Option shall be exercisable
after the expiration of ten (10) years from the date it is granted.
(4) Disability. If an optionee's employment is terminated by
reason of the permanent and total Disability of such optionee or if an
optionee who is a director or advisor of the Company or a Subsidiary
ceases to serve as a director or advisor by reason of the permanent
and total Disability of such optionee, the Committee shall have the
right in its sole discretion, but not the obligation, to extend the
exercise period for not more than one (1) year following the date of
termination of the optionee's employment or the date such optionee
ceases to be a director or advisor of the Company or a Subsidiary, as
the case may be, subject to the condition that no Option shall be
exercisable after the expiration of ten (10) years from the date it is
granted. For purposes of this Plan, the term "Disability" shall mean
the inability of the optionee to fulfill such optionee's obligations
to the Company or a Subsidiary by reason of any physical or mental
impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less
than twelve (12) months as determined by a physician acceptable to the
Committee in its sole discretion.
(5) Death. If an optionee dies while in the employ of the Company
or a Subsidiary, or while serving as a director or advisor of the
Company or a Subsidiary, and shall not have fully exercised Options
granted pursuant to the Plan, such Options may be exercised in whole
or in part at any time within one (1) year after the optionee's death,
by the executors
<PAGE> 3
or administrators of the optionee's estate or by any person or persons
who shall have acquired the Options directly from the optionee by
bequest or inheritance, but only to the extent that the optionee was
entitled to exercise such Option at the date of such optionee's death,
subject to the condition that no Option shall be exercisable after the
expiration of ten (10) years from the date it is granted.
(6) Acceleration and Exercise Upon Change of Control.
Notwithstanding the preceding provisions of this Section 8(c), if any
Option granted under the Plan provides for either (a) an incremental
vesting period whereby such Option may only be exercised in
installments as such incremental vesting period is satisfied or (b) a
delayed vesting period whereby such Option may only be exercised after
the lapse of a specified period of time, such as after the expiration
of one (1) year, such vesting period shall be accelerated upon the
occurrence of a Change of Control (as hereinafter defined) of the
Company, or a threatened Change of Control of the Company as
determined by the Committee, so that such Option shall thereupon
become exercisable immediately in part or its entirety by the holder
thereof, as such holder shall elect. For the purposes of this Plan, a
"Change of Control" shall be deemed to have occurred if:
(i) Any "person", including a "group" as determined in
accordance with Section 13(d)(3) of the Securities Exchange Act
of 1934 ("Exchange Act") and the Rules and Regulations
promulgated thereunder, is or becomes, through one or a series of
related transactions or through one or more intermediaries, the
beneficial owner, directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of
the Company's then outstanding securities, other than a person
who is such a beneficial owner on the effective date of the Plan
and any affiliate of such person;
(ii) As a result of, or in connection with, any tender offer
or exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions ("Transaction"), the persons who were Directors of
the Company before the Transaction shall cease to constitute a
majority of the Board of Directors of the Company or any
successor to the Company;
(iii) Following the effective date of the Plan, the Company
is merged or consolidated with another corporation and as a
result of such merger or consolidation less than 40% of the
outstanding voting securities of the surviving or resulting
corporation shall then be owned in the aggregate by the former
stockholders of the Company, other than (x) any party to such
merger or consolidation, or (y) any affiliates of any such party;
(iv) A tender offer or exchange offer is made and
consummated for the ownership of securities of the Company
representing 25% or more of the combined voting power of the
Company's then outstanding voting securities; or
(v) The Company transfers more than 50% of its assets, or
the last of a series of transfers result in the transfer of more
than 50% of the assets of the Company, to another corporation
that is not a wholly-owned corporation of the Company. For
purposes of this subsection 8(c)(6)(v), the determination of what
constitutes more than 50% of the assets of the Company shall be
determined based on the sum of the values attributed to (i) the
Company's real property as determined by an independent appraisal
thereof, and (ii) the net book value of all other assets of the
Company, each taken as of the date of the Transaction involved.
In addition, upon a Change of Control, any Options previously
granted under the Plan to the extent not already exercised may be
exercised in whole or in part either immediately or at any time during
the term of the Option as such holder shall elect.
(d) Option Prices.
(1) Nonqualified Options. The purchase price or prices of
the shares of the Common Stock which shall be offered to any person
under the Plan and covered by a Nonqualified Option shall be the price
determined by the Committee at the time of granting of the
Nonqualified Option, which price may equal to or higher than eighty
five percent (85%) of the fair market value of the Common Stock at the
time of granting the Nonqualified Option.
(2) Incentive Options. The purchase price or prices of the
shares of the Common Stock which shall be offered to any person under
the Plan and covered by an Incentive Option shall be one hundred
percent (100%) of the fair market value of the Common Stock at the
time of granting the Incentive Option or such higher purchase price as
may be determined by the Committee at the time of granting the
Incentive Option.
(3) Determination of Fair Market Value. During such time as
the Common Stock of the Company is not listed upon an established
stock exchange, the fair market value per share shall be deemed to be
the closing sales price of the Common Stock on the National
Association of Securities Dealers Automated Quotation System
("NASDAQ") on the day the Option is granted, as reported by NASDAQ, if
the Common Stock is so quoted, and if not so quoted, the mean between
dealer "bid" and "ask," prices of the Common Stock in the New York
over-the-counter market on the day the Option is granted, as reported
by the National Association of Securities Dealers, Inc. If the Common
Stock is listed upon an established stock exchange or exchanges, such
fair market value shall be deemed to be the highest closing price of
the Common Stock on such stock exchange or exchanges on the day the
Option is granted or, if no sale of the Common Stock of the Company
shall have been made on established stock exchange on such day, on the
next preceding day on which there was a sale of such stock. If there
is no market price for the Common Stock, then the Board of Directors
and the Committee may, after taking all relevant facts into
consideration, determine the fair market value of the Common Stock.
(e) Exercise of Options. To the extent that a holder of an
Option has a current right to exercise, the Option may be exercised
from time to time by written notice to the Company at its principal
place of business. Such notice shall state the election to exercise
the Option, the number of whole shares in respect of which it is being
exercised, shall be signed by the person or persons so exercising the
Option, and shall contain any investment representation required by
Section 8(i) hereof. Such notice shall be accompanied by payment of
the full purchase price of such shares and by the Option Agreement
evidencing the Option. In addition, if the Option shall be exercised,
pursuant to Section 8(c)(4) or Section 8(c)(5) hereof, by any
<PAGE> 4
person or persons other than the optionee, such notice shall also be
accompanied by appropriate proof of the right of such person or
persons to exercise the Option. The Company shall deliver a
certificate or certificates representing such shares as soon as
practicable after the aforesaid notice and payment of such shares
shall be received. The certificate or certificates for the shares as
to which the Option shall have been so exercised shall be registered
in the name of the person or persons so exercising the Option. In the
event the Option shall not be exercised in full, the Secretary of the
Company shall endorse or cause to be endorsed on the Option the number
of shares which has been exercised thereunder and the number of shares
that remain exercisable under the Option and return such Option
Agreement to the holder thereof.
(f) Nontransferability of Options. An Option granted
pursuant to the Plan shall be exercisable only by the optionee or the
optionee's court appointed guardian as set forth in Section 8(c)(4)
hereof during the optionee's lifetime and shall not be assignable or
transferable by the optionee otherwise than by Will or the laws of
descent and distribution. An Option granted pursuant to the Plan shall
not be assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise other than by Will or the laws of
descent and distribution) and shall not be subject to execution,
attachment, or similar process. Any attempted transfer, assignment,
pledge, hypothecation, or other disposition of any Option or of any
rights granted thereunder contrary to the foregoing provisions of this
Section 8(f), or the levy of any attachment or similar process upon an
Option or such rights, shall be null and void.
(g) Compliance with Securities Laws. The Plan and the grant
and exercise of the rights to purchase shares hereunder, and the
Company's obligations to sell and deliver shares upon the exercise of
rights to purchase shares, shall be subject to all applicable federal
and state laws, rules and regulations, and to such approvals by any
regulatory or governmental agency as may, in the opinion of counsel
for the Company, be required, and shall also be subject to all
applicable rules and regulations of any stock exchange upon which the
Common Stock of the Company may then be listed. At the time of
exercise of any Option, the Company may require the optionee to
execute any documents or take any action which may be then necessary
to comply with the Securities Act of 1933, as amended ("Securities
Act"), and the rules and regulations promulgated thereunder, or any
other applicable federal or state laws regulating the sale and
issuance of securities, and the Company may, if it deems necessary,
include provisions in the stock option agreements to assure such
compliance. The Company may, from time to time, change its
requirements with respect to enforcing compliance with federal and
state securities laws, including the request for and enforcement of
letters of investment intent, such requirements to be determined by
the Company in its judgment as necessary to assure compliance with
said laws. Such changes may be made with respect to any particular
Option or stock issued upon exercise thereof. Without limiting the
generality of the foregoing, if the Common Stock issuable upon
exercise of an Option granted under the Plan is not registered under
the Securities Act, the Company at the time of exercise will require
that the registered owner execute and deliver an investment
representation agreement to the Company in form acceptable to the
Company and its counsel, and the Company will place a legend on the
certificate evidencing such Common Stock restricting the transfer
thereof, which legend shall be substantially as follows:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAW BUT HAVE BEEN ACQUIRED FOR
THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE
OFFERED, SOLD OR TRANSFERRED UNTIL EITHER (i) A REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE STATE
SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO,
OR (ii) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT REGISTRATION UNDER
SUCH SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED OFFER, SALE OR
TRANSFER.
(h) Additional Provisions. The Option Agreements authorized
under the Plan shall contain such other provisions as the Committee
shall deem advisable, including, without limitation, restrictions upon
the exercise of the Option. Any such Option Agreement with respect to
an Incentive Option shall contain such limitations and restrictions
upon the exercise of the Incentive Option as shall be necessary in
order that the option will be an "Incentive Stock Option" as defined
in Section 422 of the Code.
9. Medium and Time of Payment. The purchase price of the shares of the
Common Stock as to which the Option shall be exercised shall be paid in full
either (i) in cash at the time of exercise of the Option, (ii) by tendering to
the Company shares of the Company's Common Stock having a fair market value (as
of the date of receipt of such shares by the Company) equal to the purchase
price for the number of shares of Common Stock purchased, or (iii) partly in
cash and partly in shares of the Company's Common Stock valued at fair market
value as of the date of receipt of such shares by the Company. Cash payment for
the shares of the Common Stock purchased upon exercise of the Option shall be in
the form of either a cashier's check, certified check or money order. Personal
checks may be submitted, but will not be considered as payment for the shares of
the Common Stock purchased and no certificate for such shares will be issued
until the personal check clears in normal banking channels. If a personal check
is not paid upon presentment by the Company, then the attempted exercise of the
Option will be null and void. In the event the optionee tenders shares of the
Company's Common Stock in full or partial payment for the shares being purchased
pursuant to the Option, the shares of Common Stock so tendered shall be
accompanied by fully executed stock powers endorsed in favor of the Company with
the signature on such stock power being guaranteed. If an optionee tenders
shares, such optionee assumes sole and full responsibility for the tax
consequences, if any, to such optionee arising therefrom, including the possible
application of Code Section 424(c), or its successor Code section, which negates
any nonrecognition of income rule with respect to such transferred shares, if
such transferred shares have not been held for the minimum statutory holding
period to receive preferential tax treatment.
10. Rights as a Shareholder. The holder of an Option shall have no rights
as a shareholder with respect to the shares covered by the Option until the due
exercise of the Option and the date of issuance of one or more stock
certificates to such holder for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date
<PAGE> 5
is prior to the date such stock certificate is issued, except as provided in
Section 12 hereof.
11. Optionee's Agreement to Serve. Each employee receiving an Option shall,
as one of the terms of the Option Agreement agree that such employee will remain
in the employ of the Company or Subsidiary for a period of at least one (1) year
from the date on which the Option shall be granted to such employee; and that
such employee will, during such employment, devote such employee's entire time,
energy, and skill to the service of the Company or a Subsidiary as may be
required by the management thereof, subject to vacations, sick leaves, and
military absences. Such employment, subject to the provisions of any written
contract between the Company or a Subsidiary and such employee, shall be at the
pleasure of the Board of Directors of the Company or a Subsidiary, and at such
compensation as the Company or a Subsidiary shall reasonably determine. Any
termination of such employee's employment during the period which the employee
has agreed pursuant to the foregoing provisions of this Section 11 to remain in
employment that is either for cause or voluntary on the part of the employee
shall be deemed a violation by the employee of such employee's agreement. In the
event of such violation, any Option or Options held by such employee, to the
extent not theretofore exercised, shall forthwith terminate, unless otherwise
determined by the Committee. Notwithstanding the preceding, neither the action
of the Company in establishing the Plan nor any action taken by the Company, a
Subsidiary or the Committee under the provisions hereof shall be construed as
granting the optionee the right to be retained in the employ of the Company or a
Subsidiary, or to limit or restrict the right of the Company or a Subsidiary, as
applicable, to terminate the employment of any employee of the Company or a
Subsidiary, with or without cause.
12. Adjustments on Changes in Capitalization.
(a) Changes in Capitalization. Subject to any required action by the
Shareholders of the Company, the number of shares of Common Stock covered
by the Plan, the number of shares of Common Stock covered by each
outstanding Option, and the exercise price per share thereof specified in
each such Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Company
resulting from a subdivision or consolidation of shares or the payment of a
stock dividend (but only on the Common Stock) or any other increase or
decrease in the number of such shares effected without receipt of
consideration by the Company after the date the Option is granted, so that
upon exercise of the Option, the optionee shall receive the same number of
shares the optionee would have received had the optionee been the holder of
all shares subject to such optionee's outstanding Option immediately before
the effective date of such change in the number of issued shares of the
Common Stock of the Company.
(b) Reorganization, Dissolution or Liquidation. Subject to any
required action by the Shareholders of the Company, if the Company shall be
the surviving corporation in any merger or consolidation, each outstanding
Option shall pertain to and apply to the securities to which a holder of
the number of shares of Common Stock subject to the Option would have been
entitled. A dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving corporation, shall
cause each outstanding Option to terminate as of a date to be fixed by the
Committee (which date shall be as of or prior to the effective date of any
such dissolution or liquidation or merger or consolidation); provided, that
not less than thirty (30) days written notice of the date so fixed as such
termination date shall be given to each optionee, and each optionee shall,
in such event, have the right, during the said period of thirty (30) days
preceding such termination date, to exercise such optionee's Option in
whole or in part in the manner herein set forth.
(c) Change in Par Value. In the event of a change in the Common Stock
of the Company as presently constituted, which change is limited to a
change of all of its authorized shares with par value into the same number
of shares with a different par value or without par value, the shares
resulting from any change shall be deemed to be the Common Stock within the
meaning of the Plan.
(d) Notice of Adjustments. To the extent that the adjustments set
forth in the foregoing paragraphs of this Section 12 relate to stock or
securities of the Company, such adjustments, if any, shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive, provided that each Incentive Option granted pursuant to this
Plan shall not be adjusted in a manner that causes the Incentive Option to
fail to continue to qualify as an "Incentive Stock Option" within the
meaning of Section 422 of the Code. The Company shall give timely notice of
any adjustments made to each holder of an Option under this Plan and such
adjustments shall be effective and binding on the optionee.
(e) Effect Upon Holder of Option. Except as hereinbefore expressly
provided in this Section 12, the holder of an Option shall have no rights
by reason of any subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class by reason of any
dissolution, liquidation, merger, reorganization, or consolidation, or
spin-off of assets or stock of another corporation, and any issue by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to the Option. Without limiting the generality of the
foregoing, no adjustment shall be made with respect to the number or price
of shares subject to any Option granted hereunder upon the occurrence of
any of the following events:
(1) The grant or exercise of any other options which may be
granted or exercised under any qualified or nonqualified stock option
plan or under any other employee benefit plan of the Company whether
or not such options were outstanding on the date of grant of the
Option or thereafter granted;
(2) The sale of any shares of Common Stock in the Company's
initial or any subsequent public offering, including, without
limitation, shares sold upon the exercise of any overallotment option
granted to the underwriter in connection with such offering;
(3) The issuance, sale or exercise of any warrants to purchase
shares of Common Stock whether or not such warrants were outstanding
on the date of grant of the Option or thereafter issued;
(4) The issuance or sale of rights, promissory notes or other
securities convertible into shares of Common Stock in accordance with
the terms of such securities ("Convertible Securities") whether or not
such Convertible Securities were outstanding on the date of grant of
the Option or were thereafter issued or sold;
(5) The issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, whether or not any adjustment
in the purchase price was made or required to be made upon the
issuance or sale of such Convertible Securities and whether or not
such Convertible Securities were outstanding on the date of grant of
the Option or were
<PAGE> 6
thereafter issued or sold; or
(6) Upon any amendment to or change in the terms of any rights or
warrants to subscribe for or purchase, or options for the purchase of,
Common Stock or Convertible Securities or in the terms of any
Convertible Securities, including, but not limited to, any extension
of any expiration date of any such right, warrant or option, any
change in any exercise or purchase price provided for in any such
right, warrant or option, any extension of any date through which any
Convertible Securities are convertible into or exchangeable for Common
Stock or any change in the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock.
(f) Right of Company to Make Adjustments. The grant of an Option
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassification, reorganizations, or changes
of its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
13. Investment Purpose. Each Option under the Plan shall be granted on the
condition that the purchase of the shares of stock thereunder shall be for
investment purposes, and not with a view to resale or distribution; provided,
however, that in the event the shares of stock subject to such Option are
registered under the Securities Act or in the event a resale of such shares of
stock without such registration would otherwise be permissible, such condition
shall be inoperative if in the opinion of counsel for the Company such condition
is not required under the Securities Act or any other applicable law,
regulation, or rule of any governmental agency.
14. No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the optionee to exercise such Option.
15. Modification, Extension, and Renewal of Options. Subject to the terms
and conditions and within the limitations of the Plan, the Committee and the
Board of Directors may modify, extend or renew outstanding Options granted under
the Plan, or accept the surrender of outstanding Options (to the extent not
theretofore exercised). Neither the Committee nor the Board of Directors shall,
however, modify any outstanding Options so as to specify a lower price or accept
the surrender of outstanding Options and authorize the granting of new Options
in substitution therefor specifying a lower price. Notwithstanding the
foregoing, however, no modification of an Option shall, without the consent of
the optionee, alter or impair any rights or obligations under any Option
theretofore granted under the Plan.
16. Effective Date of the Plan. The Plan shall become effective on the date
of execution hereof, which date is the date the Board of Directors approved and
adopted the Plan ("Effective Date"); provided, however, if the Shareholders of
the Company shall not have approved the Plan by the requisite vote of the
Shareholders, within twelve (12) months after the Effective Date, then the Plan
shall terminate and all Options theretofore granted under the Plan shall
terminate and be null and void.
17. Termination of the Plan. This Plan shall terminate as of the expiration
of ten (10) years from the Effective Date. Options may be granted under this
Plan at any time and from time to time prior to its termination. Any Option
outstanding under the Plan at the time of its termination shall remain in effect
until the Option shall have been exercised or shall have expired.
18. Amendment of the Plan. The Plan may be terminated at any time by the
Board of Directors of the Company. The Board of Directors may at any time and
from time to time without obtaining the approval of the Shareholders of the
Company or a Subsidiary, modify or amend the Plan (including such form of Option
Agreement as hereinabove mentioned) in such respects as it shall deem advisable
in order that the Incentive Options granted under the Plan shall be "Incentive
Stock Options" as defined in Section 422 of the Code or to conform to any change
in the law, or in any other respect which shall not change: (a) the maximum
number of shares for which Options may be granted under the Plan, except as
provided in Section 14 hereof; or (b) the option prices other than to change the
manner of determining the fair market value of the Common Stock for the purpose
of Section 8(d) hereof to conform with any then applicable provisions of the
Code or regulations thereunder; or (c) the periods during which Options may be
granted or exercised; or (d) the provisions relating to the determination of
persons to whom Options shall be granted and the number of shares to be covered
by such Options; or (e) the provisions relating to adjustments to be made upon
changes in capitalization. The termination or any modification or amendment of
the Plan shall not, without the consent of the person to whom any Option shall
theretofore have been granted, affect that person's rights under an Option
theretofore granted to such person. With the consent of the person to whom such
Option was granted, an outstanding Option may be modified or amended by the
Committee in such manner as it may deem appropriate and consistent with the
requirements of this Plan applicable to the grant of a new Option on the date of
modification or amendment.
19. Withholding. Whenever an optionee shall recognize compensation income
as a result of the exercise of any Option granted under the Plan, the optionee
shall remit in cash to the Company or Subsidiary the minimum amount of federal
income and employment tax withholding which the Company or Subsidiary is
required to remit to the Internal Revenue Service in accordance with the then
current provisions of the Code. The full amount of such withholding shall be
paid by the optionee simultaneously with the award or exercise of an Option.
20. Indemnification of Committee. In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees actually and necessarily incurred
in connection with the defense of any action, suit or proceedings, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the performance of
his duties; provided that within sixty (60) days after institution of any such
action, suit or proceeding a Committee member shall in writing offer the Company
the opportunity, at its own expense, to pursue and defend the same.
21. Application of Funds. The proceeds received by the Company from the
sale of Common Stock pursuant to Options granted hereunder will be used for
general corporate purposes.
22. Governing Law. This Plan shall be governed and construed in accordance
with the laws of the state of incorporation of the Company.
<PAGE> 7
EXECUTED this ______ day of ____________1998.
PERFORMANCE PRINTING CORPORATION
By:
------------------------------------
John T. White
Chief Executive Officer and Director
<PAGE> 1
EXHIBIT 10.8
March 7, 1998
Mr. John T. White
President
Performance Printing Corporation
3012 Fairmount
Dallas, TX 75201
Re: Performance Packaging, L.C. and specifically ACR Loan Numbers AD-3319,
3320, 3321, 3401, 3433, 3436 and 3809 (the "Original Loans")
Dear John:
By way of this letter, please be advised that effective with the closing of the
new ACR Loan AD-3941 on March 1, 1997 all of the obligations of Performance
Packaging, L.C. under the Original Loans were extinguished along with
Performance Printing Corporation's guaranty of those loans.
As you know, ACR did not require the guaranty of Performance Printing
Corporation for the new ACR Loan AD-3941, therefore all obligations of
Performance Printing Corporation under any Performance Packaging, L.C.
transactions have been terminated.
Sincerely,
/s/JFW,Jr.
John F. Wallace, Jr.
Eastern Regional Manager
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PERFORMANCE PRINTING CORPORATION FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 762,501 37,438
<SECURITIES> 0 0
<RECEIVABLES> 4,617,225 3,370,907
<ALLOWANCES> 229,818 332,970
<INVENTORY> 613,598 1,029,492
<CURRENT-ASSETS> 5,889,599 5,385,320
<PP&E> 7,270,545 7,586,742
<DEPRECIATION> 3,626,608 3,670,237
<TOTAL-ASSETS> 9,822,355 9,698,195
<CURRENT-LIABILITIES> 5,594,564 5,654,826
<BONDS> 2,841,483 2,973,938
0 0
0 0
<COMMON> 44,000 44,000
<OTHER-SE> 1,342,308 1,025,431
<TOTAL-LIABILITY-AND-EQUITY> 9,822,355 9,698,195
<SALES> 20,114,549 4,629,824
<TOTAL-REVENUES> 20,114,549 4,629,824
<CGS> 15,466,484 3,694,190
<TOTAL-COSTS> 15,466,484 3,694,190
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 394,115 72,000
<INTEREST-EXPENSE> 587,548 163,826
<INCOME-PRETAX> 551,465 83,123
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 551,465 83,123
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 551,465 83,123
<EPS-PRIMARY> 0.08 0.02
<EPS-DILUTED> 0.08 0.02
</TABLE>
