<PAGE> 1
As filed with the Securities and Exchange Commission on February 11, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
PERFORMANCE PRINTING CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 2799 75-2418082
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification
Code Number) Number)
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 Proposed
maximum maximum
offering aggregate
Title of each class of securities to be Amount to be price offering Amount of
registered(1) registered per share(1) price(1) registration fee
- --------------------------------------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value (2) ............ 1,380,000 $ 5.00 $ 6,900,000 $ 2,091
- --------------------------------------------- ----------- ---------- ----------- -----------
Common Stock Purchase Warrants (3) .......... 1,380,000 0.125 N/A (8) N/A (8)
- --------------------------------------------- ----------- ---------- ----------- -----------
Common Stock, issuable under Warrants(4) ... 1,380,000 7.50 10,350,000 3,136
- --------------------------------------------- ----------- ---------- ----------- -----------
Representative's Common Stock(5) ............ 120,000 6.00 720,000 219
- --------------------------------------------- ----------- ---------- ----------- -----------
Representative's Common Stock Purchase
Warrants(6) ................................. 120,000 0.150 N/A (8) N/A (8)
- --------------------------------------------- ----------- ---------- ----------- -----------
Representative's Common Stock issuable
under Representative's Common Stock
Purchase Warrant(7) ......................... 120,000 7.50 900,000 272
- --------------------------------------------- ----------- ---------- ----------- -----------
TOTAL ....................................... $ 5,720
=========================================================================================================
</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 issuable pursuant to the
Representative's over-allotment option.
(3) Includes 180,000 Warrants issuable pursuant to the Representative's
over-allotment option.
(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) 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.
(6) Represents Warrants issuable upon exercise of the Representative's Warrant,
together with such additional indeterminate number of Warrants as may be
issued upon exercise of such Representative's Warrant.
(7) Represents shares of Common Stock issuable upon exercise of the Common Stock
Purchase Warrants included within the Representative's Warrant, together
with such additional indeterminate number of shares of Common Stock as may
be issued upon exercise of such Warrants by reason of the anti-dilution
provisions contained therein.
(8) 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 FEBRUARY 11, 1998
[LOGO]
1,200,000 Shares of Common Stock
1,200,000 Redeemable Common Stock Purchase Warrants
Performance Printing Corporation (the "Company" or "Performance Printing")
is offering 1,200,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), and 1,200,000 Redeemable Common Stock Purchase Warrants (the
"Warrants"). The Common Stock and the Warrants (collectively, the "Securities")
are being offered separately and not as units, and each are separately tradable.
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
$5.00 per share for the Common Stock (the "Share Offering Price") and $.125 per
Warrant.
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 date of
this Prospectus. 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
First London Securities Corporation, the representative of the Underwriters (the
"Representative"). See "Description of Securities."
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. The initial public offering prices of the Common Stock
and Warrants 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 Common Stock and the Warrants on the Boston Stock Exchange under
the symbols "_____" and " _______ ," respectively, and inclusion on the Nasdaq
SmallCap Market under the symbols " ___" and "_____," 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 shares of Common Stock and the Warrants 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.
FIRST LONDON SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS ____________, 1998
<PAGE> 4
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 of Common Stock and up to 120,000 warrants (the "Underlying
Warrants") exercisable for a four-year period commencing one year from the
date hereof at an exercise price equal to 120% of the initial offering
price of the Shares and the Warrants, subject to adjustment. Each
Underlying Warrant will be exercisable for a four-year period commencing
one year from the date hereof at an exercise price of 150% of the Share
Offering Price, subject to adjustment. In addition, the Company has granted
to the Representative certain registration rights with respect to
registration of the shares of Common Stock, the Underlying Warrants and the
shares of Common Stock issuable upon exercise of the Underlying 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 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 shares of Common Stock and up to 180,000
additional Warrants 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 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.
2
<PAGE> 5
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 $5.00 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 January, 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.
Services provided by the Company include design and electronic prepress
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 Company also operates a
printing division and a display division from separate plants, and it owns a
majority interest in Performance Packaging, L.L.C. ("Performance Packaging"),
which packages trading cards and related materials. 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. 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.
3
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered................. 1,200,000 Shares
Warrants Offered..................... 1,200,000 Warrants
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, fund capital
expenditures and provide additional working capital.
See "Use of Proceeds."
Risk Factors The Common Stock and the Warrants 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:
Common Stock................
Warrants....................
Nasdaq SmallCap Market:
Common Stock................
Warrants....................
</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."
(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 Underlying 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 Underlying 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."
4
<PAGE> 7
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, 1996 and 1997 are
derived from the audited financial statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER DECEMBER
STATEMENTS OF OPERATIONS DATA: 31, 1996 31, 1997
------------ ------------
<S> <C> <C>
Revenue $ 15,715,395 $ 20,114,549
Costs of goods sold 12,101,986 15,557,623
Gross profit 3,613,409 4,556,926
Selling general and administrative expenses 2,872,913 3,269,575
Income from operations 984,229
518,174
Other expense, net (304,814) (432,765)
Pre-tax income 213,360 551,465
============ ============
Income tax provision (1) (81,354) (189,638)
Net income (1) $ 132,006 $ 361,827
============ ============
Earnings per weighted average share $ 0.03 $ 0.08
Weighted average outstanding shares 4,400,000 4,400,000
OTHER DATA:
EBITDA (2) $ 1,629,012 $ 1,884,348
EBITDA as adjusted (3) 2,062,163 2,581,440
Net cash provided by operating activities 485,755 493,543
============ ============
Net cash provided by investing activities 236,506 656,081
============ ============
Net cash provided by (used in) financing activities 85,816 (1,195,200)
============ ============
Depreciation, leases and amortization $ 1,238,493 $ 1,442,139
============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
Actual As Adjusted (4)
=========== ===========
<S> <C> <C>
BALANCE SHEET DATA:
Working capital $ 2,371,643 $ 4,882,406
=========== ===========
Total assets 9,822,355 12,241,917
=========== ===========
Long-term debt and capitalized lease obligations, less
current portion 2,749,553 2,597,002
=========== ===========
Shareholders' equity $ 1,247,234 $ 6,143,160
=========== ===========
</TABLE>
- ---------------
(1) Adjusted to reflect the conversion from "S" Corporation status.
5
<PAGE> 8
(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) EBITDA as adjusted represents EBITDA, as described in (2), above, plus
operating lease payments on significant equipment leased from companies
affiliated through common ownership.
(4) The as adjusted summary balance sheet data has been prepared as if the
Offering had occurred as of December 31, 1997 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."
6
<PAGE> 9
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 Common Stock and the Warrants
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 accounted for 13.6% of sales. The Company had 306
customers in 1997 with an average of approximately $53,600 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."
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'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."
7
<PAGE> 10
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 78% in the net tangible book value of
their shares of Common Stock since the Share Offering Price substantially
exceeds the current tangible book value per share of Common Stock. See
"Dilution."
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
8
<PAGE> 11
"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."
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 Capital Stock" and "Principal
Shareholders."
ARBITRARY OFFERING PRICE AND EXERCISE PRICE OF WARRANTS
The public offering price of the Common Stock and the Warrants 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
9
<PAGE> 12
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 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 nine states. The Warrants may expire, unexercised,
which would result in the holders losing all the value of the Warrants. See
"Description of Capital Stock-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. See "Description of Capital
Stock-Warrants."
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 shares of Common Stock and 120,000 Underlying Warrants 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 120% of the price at which the Common Stock and Warrants are sold to the
public, subject to adjustment. Each of the Underlying Warrants will be
exercisable for a four-year period commencing one year from the date hereof at
an exercise price of 150% of the Share Offering Price, subject to possible
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 Common
Stock or the Warrants. Although the Company has applied to list 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 Common Stock or the Warrants upon completion of
this Offering, or that purchasers will be able to resell their 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 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.
10
<PAGE> 13
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 Capital Stock- Preferred Stock."
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET
It is anticipated that a significant amount of the Common Stock and the
Warrants will be sold to customers of the Representative. Although the
Representative has advised the Company that it intends to make a market in the
Common Stock and the Warrants, it will have no legal obligation to do so. The
prices and the liquidity of the Common Stock and the Warrants 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. 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 shares of Common Stock offered to the public pursuant to this Offering will
be equal to $5.00, the Warrants offered hereby will initially be "penny stocks"
and become subject to rules that impose additional sales practice requirements
on broker/dealers who sell such securities to persons other than established
customers and accredited investors, unless the Common Stock and the Warrants are
listed on the Boston Stock Exchange. There can be no assurance that the Company
will be able to satisfy the listing criteria of the Boston Stock Exchange or
that the Common Stock or the Warrants will trade for $5.00 or more per security
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 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 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 $2,000,000 in total assets,
$100,000 of after-tax income, $1.5 million "public float," and a minimum bid
price for its securities of $3.00 per share. For continued listing on the Boston
Stock Exchange, a company must maintain a $1.0 million market value of the
public float and $2.0 million in total capital and surplus. In addition,
continued inclusion requires two market-makers and a minimum bid of $3.00 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
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.
11
<PAGE> 14
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.
12
<PAGE> 15
DILUTION
The net tangible book value of the Common Stock at December 31, 1997
was $1,247,234 or $0.28 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 shares of Common Stock at an assumed initial public
offering price of $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 December 31, 1997, would have been $6,143,160 or $1.10
per share, representing an immediate increase in net tangible book value of
$0.84 per share to existing shareholders and an immediate dilution of $3.90 per
share (or approximately 78% 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................... $0.28
Increase in value per share attributable to new investors........... $0.82
-----
Pro forma net tangible book value per share after Offering............... $1.10
-----
Dilution per share to new investors...................................... $3.90
=====
Percentage dilution...................................................... 78%
</TABLE>
The following table sets forth as of December 31, 1997, (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
------------------------ ------------------------ Per Share
Number Percent Amount Percent -------------
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Existing shareholders 4,400,000 79% $ 546,750 8% $ 0.12
New investors 1,200,000 21% 6,000,000 92% $ 5.00
---------- ---------- ---------- ----------
Total 5,600,000 100.0% $6,546,750 100%
========== ========== ==========
</TABLE>
13
<PAGE> 16
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of
1,200,000 shares of Common Stock and 1,200,000 Warrants 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 $5.00 per share for the Common Stock and $.125 per Warrant 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>
DOLLAR PERCENT OF
USE AMOUNT NET PROCEEDS
--- ---------- ------------
<S> <C> <C>
Reduce outstanding balance on revolving credit line with
senior lender $2,001,610 39.8%
Repay 1996 debentures 254,000 5.0%
Repay 1997 debentures 193,000 3.8%
Repurchase outstanding warrants 139,074 2.8%
Working capital and capital expenditures 2,447,316 48.6%
---------- -----
Total $5,035,000 100.0%
</TABLE>
At December 31, 1997, the Company's outstanding balance under the
revolving credit note issued to its senior lender was $2,001,610. 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 $254,000.
The balance at December 31, 1997 is $277,059.
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 $193,000. The balance at December 31, 1997 is
$197,724.
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.
The balance of the net proceeds will be used for general working
capital purposes and capital expenditures, including possible acquisitions of
additional printing operations. The Company does not have any present agreements
or understandings regarding any such acquisitions.
14
<PAGE> 17
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.
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as
of December 31, 1997, and (ii) as adjusted to reflect the sale by the Company of
1,200,000 shares of Common Stock and 1,200,000 Warrants offered hereby at an
assumed initial public offering price of $5.00 per share of Common Stock and
$.125 per Warrant (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>
December 31, 1997
-----------------
Actual As Adjusted
---------- -----------
<S> <C> <C>
Current portion of long-term debt $ 594,465 $ 503,266
Long-term debt, less current portion 2,980,557 2,597,002
Shareholders' equity
Preferred stock: 3,000,000 share of $1.00 par value authorized, no 0 0
shares issued and outstanding
Common stock: 20,000,000 share of $.01 par value authorized, 44,000 56,000
4,400,000 share issued and outstanding; 5,600,000 shares issued
and outstanding, as adjusted (1)
Common stock purchase warrants 0 150,000
Additional paid-in capital 502,750 5,226,676
Accumulated earnings 700,484 700,484
---------- ----------
Total shareholders' equity 1,007,097 6,143,160
---------- ----------
Total capitalization $4,114,228 $8,542,944
========== ==========
</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
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."
15
<PAGE> 18
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, 1996 and
1997 are derived from the audited financial statements included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
STATEMENTS OF OPERATIONS DATA: 1996 1997
------------ ------------
<S> <C> <C>
Revenue $ 15,715,395 $ 20,114,549
Costs of goods sold 12,101,986 15,557,623
Gross profit 3,613,409 4,556,926
Sales costs 1,524,708 1,758,510
Income from operations 984,229 518,174
Other expense, net (304,814) (432,765)
Pre-tax income 213,360 551,465
============ ============
Income tax provision (1) (81,354) (189,638)
Net income (1) $ 132,006 $ 361,827
============ ============
Basic Earnings per weighted average share $ 0.03 $ 0.08
Weighted average outstanding shares 4,400,000 4,400,000
OTHER DATA:
EBITDA (2) $ 1,629,012 $ 1,884,348
EBITDA as adjusted (3) 2,062,163 2,581,440
Net cash provided by operating activities 485,755 493,544
============ ============
Net cash provided by investing activities 236,506 656,081
============ ============
Net cash provided by (used in) financing activities 85,816 (1,195,200)
============ ============
Depreciation, leases and amortization $ 1,238,493 $ 1,442,139
============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
Actual As Adjusted (4)
BALANCE SHEET DATA: ========== ===============
<S> <C> <C>
Working capital $2,371,643 $4,896,406
========== ==========
Total assets 9,822,355 12,255,917
========== ==========
Long-term debt and capitalized lease obligations,
Less current portion 2,749,553 2,597,002
========== ==========
Shareholders' equity $1,247,234 $6,157,160
========== ==========
</TABLE>
16
<PAGE> 19
(1) Adjusted to reflect the conversion from "S" Corporation status.
(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) EBITDA as adjusted represents EBITDA, as described in (2), above, plus
operating lease payments on significant equipment leased from companies
affiliated through common ownership.
(4) The as adjusted summary balance sheet data has been prepared as if the
Offering had occurred as of December 31, 1997 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."
17
<PAGE> 20
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 from 1996 to 1997.
<TABLE>
<CAPTION>
% INCREASE
YEAR ENDED YEAR ENDED (DECREASE) 1997
DECEMBER 31, 1996 % OF SALES DECEMBER 31, 1997 % OF SALES FROM 1996
----------------- ---------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Revenue $ 15,715,395 $ 20,115,549 28.0%
Costs of goods sold 12,101,986 77.0% 15,466,484 77.3% 23.4%
Gross profit 3,613,409 23.0% 4,648,065 22.7% 26.1%
Selling, general and 2,872,913 19.7% 3,269,575 17.7% 15.3%
administrative expenses
Income from operations 518,174 3.3% 984,375 4.9% 89.9%
Other expense, net (304,814) (1.9)% (432,910) (2.2)% 42.0%
------------ ----- ------------- ----- ------
Pre-tax Income 213,360 1.4% 551,465 2.7% 158.5%
============ ===== ============= ===== ======
</TABLE>
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.
The costs of goods sold include materials, outside services, labor and
other factory costs. The costs of materials and outside services increased to
$7.6 million in 1997 from $5.7 million in 1996, with an increase (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
18
<PAGE> 21
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 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 $.5 million
in 1997 to $3.6 million from $3.1 million in 1996. However, as a percentage of
revenue the costs decreased to 17.8% in 1997 from 19.7% 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.
Other expense (net) includes interest expense and other gains and
losses. 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 $144,696 in 1997 from a gain of $273,501
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.
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 $493,543 and $485,755 in 1997 and 1996 respectively. The Company intends to
apply approximately $2.4 million of the net proceeds of the Offering to the
repayment of certain indebtedness, including the Company's line of credit and
certain term indebtedness. See "Use of Proceeds."
The Company has a revolving credit facility with a senior lender which
permit 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 31, 1998. At
December 31, 1997, the Company had borrowings of approximately $2,001,610
million outstanding under this credit facility. The Company intends to repay the
outstanding balance of this credit facility with the net proceeds from this
Offering. See "Use of Proceeds."
Three mortgage loans were obtained secured by a building, the first to
Heller First Capital, in the original principal amount of $1,260,000 on April 5,
1995, having an outstanding balance of $689,933. A second mortgage on said
property was financed with Colson Services in the original principal amount of
$579,000 executed June 11, 1997 and having an outstanding principal of $572,248.
A third mortgage on said building in the amount of $65,000 was dated April 15,
1997, with an outstanding balance of $59,502.
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 intends to 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
19
<PAGE> 22
family members. These notes are due in July 1999 and bear interest at 14%. The
Company intends to 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 is
$769,119.
The Company has previously leased printing equipment from certain
related companies. Effective December 31, 1997, 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. The balance of the
equipment was transferred to the Company from one of lessors in exchange for the
assumption by the Company of the debt owed by the lessors to the equipment
manufacturer. 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.
20
<PAGE> 23
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:
o 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.
o 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.
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-Purchase Advertising Institute, an industry
trade organization. The Institute reported a growth of 8% for the industry from
1994 to 1995.
21
<PAGE> 24
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:
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
22
<PAGE> 25
o Plastic Displays. The Company builds molds, heat forms and finishes a
variety of plastics for in-store displays and for packaging components.
o 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.
o 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.
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 (12.2%). The
Company had 306 total customers in 1997 with an average of approximately
$53,600, 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 in 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 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.
23
<PAGE> 26
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.
Two senior lenders have mortgages on the building securing indebtedness
in the aggregate amount of $1,317,025. 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 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, 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. Performance Packaging employs 18 regular
employees and up to 350 temporary employees for hand labor services as needed.
None of its employees is 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 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.
24
<PAGE> 27
AFFILIATED COMPANIES
Although the Company has no subsidiaries, it owns 51% of Performance
Packaging. The remaining 49% is owned by Pinnacle Brands Trading Cards Company
("Pinnacle"), which is the primary customer of Performance Packaging under the
terms of the First Renewal of the Packaging Services Agreement dated April 1,
1997 (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. Pinnacle has legal control of the management of Performance
Packaging, although at this time the Company manages 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 December 31, 1997 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.
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 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.
25
<PAGE> 28
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 59 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 38 Director
C. Thomas Daulton 43 Director
Richard D. Cox 46 Director
Joey E. Pate 54 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 December, 1990 to February, 1995, he was a consultant. 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.
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.
26
<PAGE> 29
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 is
currently the operations manager at VidPro International, Inc, a
point-of-purchase display company. 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 resect 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:
Annual Compensation
<TABLE>
<CAPTION>
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>
(1) AMOUNT CONSISTS OF MATCHING 401 (K) CONTRIBUTIONS OF $950.
27
<PAGE> 30
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) and nonqualified stock options (options which do
not meet the requirements of Section 422).
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.
None of the named Executive Officers was 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.
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.
28
<PAGE> 31
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 December 31, 1997 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 intends to use a portion of
the net proceeds from this Offering to retire the 1997 Notes and to cancel the
1997 Note Warrants. The Company intends to pay to the following persons the
amounts indicated to redeem the 1997 Warrants: John 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 unsecured promissory notes (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
following persons purchased the 1996 Notes for the amounts indicated: White,
Cox, Larson, P.C., Retirement Trust (on behalf of John White, Chief Executive
Officer and a director) $100,000; Richard Cox $50,000; Mrs.
29
<PAGE> 32
Lucy Cox, mother of Richard Cox, $50,000; Thomas P. White, Jr., father of John
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 intends to use a portion of the net proceeds from this Offering to
retire the 1996 Notes and to cancel the 1996 Note Warrants. The Company intends
to the following persons the amounts indicated to redeem the 1996 Warrants: Mr.
John White, $28,690; Richard Cox, $14,345; Mrs. Cox, $14,345; Mr. Thomas P.
White $28,690; and Mr. Russell V. Oesch $14,345. See "Use of Proceeds."
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.
30
<PAGE> 33
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of December 31, 1997 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>
Percentage Owned
Number of Before After
Name Shares Offering Offering
--------------- ----------- ------------
<S> <C> <C> <C>
John T. White (1) 1,144,000 26.00% 20.43%
Richard D. Cox (2) 1,056,000 24.00% 18.86%
W. Chris Pumpelly (1) 847,000 19.25% 15.13%
Joey E. Pate (3) 627,000 14.25% 11.20%
Diana Peterson (4) 440,000 10.00% 7.86%
C. Thomas Daulton (5) 286,000 6.50% 5.11%
Gary H. Homsey (1) - - -
Russell V. Oesch (1) - - -
Greg White (1) - - -
Stephen M. Lilly (6) - - -
All directors, and executive 3,960,000 90.00% 70.71%
officers as a group (twelve
persons)
</TABLE>
- ----------------------------
(1) The address of Messrs John T. White, Pumpelly, Homsey, 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 501 N. Akard, Dallas, Texas 75201.
(6) The address of Mr. Lilly is 1000 Holcomb Woods Parkway, Suite 4408,
Roswell, Georgia 30076.
31
<PAGE> 34
DESCRIPTION OF CAPITAL STOCK
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").
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 majority 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.
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 Chase Mellon Shareholder Service L.L.C., 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 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 and continuing thereafter
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
32
<PAGE> 35
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
200% of the share Offering Price, 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
Common Stock and Warrants is Chase Mellon Shareholder Services, L.L.C., Dallas,
Texas.
33
<PAGE> 36
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 only 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.
A total of 4,400,000 share 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 Company intends to file a registration statement under the
Securities 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.
34
<PAGE> 37
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 Shares of Common Stock ("Shares") and 1,200,000 Warrants
The number of Shares and Warrants which each Underwriter has agreed to purchase
is set forth opposite its name.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
<S> <C> <C>
First London Securities Corporation........ 1,200,000 1,200,000
--------- ---------
TOTAL 1,200,000 1,200,000
========= =========
</TABLE>
The Securities 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 Securities offered by this
Prospectus, if any are purchased.
The Company has been advised by the Representative that the
Underwriters propose initially to offer the Securities 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 Securities 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 Securities 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 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 Shares and an additional 180,000 Warrants at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus
(the "Over-Allotment Option"). The Representative may exercise the
Over-Allotment Option solely to cover over-allotments in the sale of the
Securities being offered by this Prospectus.
Officers and directors of the Company may introduce the Representative
to persons to consider the Offering and purchase Securities either through the
Representative, other Underwriters, or through participating dealers. 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 Securities 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.
Additionally, 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. 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.
35
<PAGE> 38
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 Securities, 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 (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 $6.00 per share and $.15 per Warrant, 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 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 Representatives' 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 Representatives' 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 Securities Act
during the seven year period following the date of this Prospectus, the holders
of the Registrable Securities are entitled to 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."
36
<PAGE> 39
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.
37
<PAGE> 40
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
Statements of Changes in Stockholders' Equity F-5
Statements of Cash Flows F-6 to F-7
Notes to Financial Statements F-8 to F-16
</TABLE>
F-1
<PAGE> 41
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 and retained earnings 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.
January 16, 1998
F-2
<PAGE> 42
PERFORMANCE PRINTING CORPORATION
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets
1997 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash $ 762,501 $ 808,077
Accounts receivable, net 4,387,407 3,086,984
Notes receivable 55,091 189,573
Inventories 613,598 515,715
Prepaid and other current assets 146,002 84,310
---------- ----------
Total current assets 5,964,599 4,684,659
---------- ----------
Property and equipment, net 3,643,937 3,933,257
---------- ----------
Other assets:
Deposits 58,882 44,456
Notes receivable-long term 73,395 240,591
Equity method investment 18,333 65,206
Other assets 63,209 77,278
---------- ----------
213,819 427,531
---------- ----------
$9,822,355 $9,045,447
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term note payable $2,001,610 $2,419,670
Current portion of long-term debt
and debenture notes 594,465 622,685
Accounts payable 2,067,438 1,641,260
Accrued liabilities 729,618 480,996
Deferred income 201,433 39,096
---------- ----------
Total current liabilities 5,594,564 5,203,707
---------- ----------
Long-term liabilities:
Long-term debt 2,597,002 2,738,256
Debenture notes payable 383,555 277,019
---------- ----------
Total long-term liabilities 2,980,557 3,015,275
---------- ----------
Commitments and contingencies
(Notes 5, 6, 9, 10 and 11)
Stockholders' equity:
Common stock; 10,000 shares authorized,
issued and outstanding at an assigned
value of $1 per share 10,000 10,000
Additional paid-in capital 536,750 536,750
Retained earnings 700,484 279,715
---------- ----------
1,247,234 826,465
---------- ----------
$9,822,355 $9,045,447
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 43
PERFORMANCE PRINTING CORPORATION
Statements of Operations
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenue:
Printing sales, net of returns and allowances
of $59,273 and $51,838 in 1997
and 1996, respectively $ 20,114,549 $ 15,715,395
------------ ------------
Cost of goods sold:
Materials and outside services 7,639,665 5,701,008
Other costs 7,826,819 6,400,978
------------ ------------
15,466,484 12,101,986
------------ ------------
Gross profit 4,648,065 3,613,409
Selling, general and administrative expenses 3,269,575 2,872,913
Provision for doubtful accounts 394,115 222,322
------------ ------------
Income from operations 984,375 518,174
------------ ------------
Other income (expense):
Gain (loss) on equity method investment (46,873) 141,024
Interest expense (587,548) (610,310)
Interest and other income 10,088 31,995
Gain on extinguishment of debt -- 41,750
Gain on sale of property and equipment 191,423 90,727
------------ ------------
(432,910) (304,814)
------------ ------------
Net income $ 551,465 $ 213,360
============ ============
Net income per common share:
Basic $ 55.15 $ 21.34
Diluted $ 53.19 $ 20.97
Weighted-average common shares:
Basic 10,000 10,000
Adjusted common shares effect of dilutive warrants 367 175
------------ ------------
Diluted 10,367 10,175
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 44
PERFORMANCE PRINTING CORPORATION
Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Additional Retained
Stock Paid-In Capital Earnings Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ 10,000 $ 536,750 $ 66,355 $ 613,105
Net Income -- -- 213,360 213,360
----------- ----------- ----------- -----------
Balance, December 31, 1996 $ 10,000 $ 536,750 $ 279,715 $ 826,465
Net Income -- -- 551,465 551,465
Stockholders' Distributions -- -- (130,696) (130,696)
----------- ----------- ----------- -----------
Balance, December 31, 1997 $ 10,000 $ 536,750 $ 700,484 $ 1,247,234
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 45
PERFORMANCE PRINTING CORPORATION
Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 551,465 $ 213,360
----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 745,047 805,342
Provision for doubtful accounts 394,115 222,322
Gain on sale of property and equipment (191,423) (90,727)
(Gain) loss on equity method investment 46,873 (141,024)
Gain on extinguishment of debt -- (41,750)
Changes in operating assets and liabilities:
Increase in accounts receivable (1,716,989) (338,081)
(Increase) decrease in inventories (97,883) 84,201
Increase in prepaid and other current assets (60,373) (72,544)
(Increase) decrease in deposits (14,426) 9,455
Increase (decrease) in accounts payable 426,178 (144,975)
Increase in accrued liabilities 248,622 2,472
Increase (decrease) in deferred income 162,337 (22,296)
----------- -----------
(57,922) 272,395
----------- -----------
Net cash provided by operating activities 493,543 485,755
----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment 550,000 150,000
Purchases of property and equipment (195,597) (78,121)
Collections of notes receivable 441,509 303,083
Increase in notes receivable (139,831) (138,456)
----------- -----------
Net cash provided by investing activities 656,081 236,506
----------- -----------
Cash flows from financing activities:
Proceeds from (payments on) short-term note payable (418,060) 342,924
Proceeds from issuance of long-term debt 242,623 590,323
Principal payments on long-term debt (1,032,078) (1,131,380)
Payments made on debt issue costs -- (47,794)
Proceeds on issuance of debenture notes payable 200,000 350,000
Principal payments on debenture notes payable (56,989) (18,257)
Stockholders' distributions (130,696) --
----------- -----------
Net cash provided by (used in) financing activities (1,195,200) 85,816
----------- -----------
</TABLE>
(Continued)
F-6
<PAGE> 46
PERFORMANCE PRINTING CORPORATION
Statements of Cash Flows (Continued)
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Increase (decrease) in cash $ (45,576) $ 808,077
Cash, beginning of year 808,077 --
----------- -----------
Cash, end of year $ 762,501 $ 808,077
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 575,559 $ 633,809
Supplemental schedule of noncash investing and financing activities:
Equipment purchases financed by notes payable $ 605,957 $ 154,625
Notes receivable paid through issuance 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>
F-7
<PAGE> 47
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.
F-8
<PAGE> 48
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 1 - Summary of Significant Accounting Policies (Continued)
Deferred offering costs
If the offering is not completed, such costs will be expensed. If the offering
is completed, such costs will recorded as a reduction of the net proceeds of the
offering.
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.
The unaudited pro forma effects of income tax expense as if the Company had been
a C corporation are shown below. The unaudited pro forma tax amounts have been
computed based on an effective tax rate of 34% in effect for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Income before federal income taxes $ 551,465 $ 213,360
Pro forma federal income tax provision 189,638 81,354
---------------- ----------------
Pro forma net income $ 361,827 $ 132,006
================ ================
</TABLE>
Earnings per share
Basic earnings per share is based on the weighted-average number of common
shares outstanding during the period presented. Diluted earnings per share also
includes the effects of potential common shares, when dilutive.
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 13% 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.
F-9
<PAGE> 49
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 1 - Summary of Significant Accounting Policies (Continued)
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.
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>
F-10
<PAGE> 50
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
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 Lives Service Lives
Amounts Amounts
------------ ------------- ------------ --------------
<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 $ 3,933,217
============ ============
</TABLE>
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
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 $ --
</TABLE>
F-11
<PAGE> 51
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 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 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 --
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
</TABLE>
F-12
<PAGE> 52
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>
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
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 real estate and guaranteed by certain
stockholders. Note was refinanced during 1997
-- 1,260,000
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> 53
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:
Years ended December 31:
<TABLE>
<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 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.
Aggregate principal maturities of debenture notes payable are as follows:
Years ended December 31:
<TABLE>
<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 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> 54
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 equipm7ent 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> 55
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> 56
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>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Available Information........................2
Prospectus Summary...........................3
Risk Factors.................................7
Dilution....................................13
Use of Proceeds.............................14
Dividend Policy.............................15
Capitalization..............................15
Selected Financial Data.....................16
Management's Discussion and
Analysis of Financial Condition
and Results of
Operations..................................18
Business....................................21
Management..................................26
Certain Transactions........................29
Principal Shareholders......................31
Description of Capital
Stock.....................................32
Shares Eligible For
Future Sale...............................34
Underwriting................................35
Legal Matters...............................37
Experts.....................................37
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 SHARES OF
COMMON STOCK
1,200,000 REDEEMABLE COMMON
STOCK WARRANTS
PERFORMANCE PRINTING
CORPORATION
PROSPECTUS
________, 1998
FIRST LONDON SECURITIES CORPORATION
<PAGE> 57
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..............$ 5,720
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............................................ 14,893
-------------
Total ....................................................... $500,000
</TABLE>
II-1
<PAGE> 58
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 unsecured promissory notes (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 eight 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 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 Securities Act of 1933, for transactions not involving a public offering.
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 1996 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 Securities Act of 1933 for transactions not involving a public offering.
No underwriter was involved in the transaction and no compensation was paid to
an underwriter.
II-2
<PAGE> 59
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
1.1 Form of Underwriting Agreement. (1)
3.1 Articles of Incorporation of Performance Printing Corporation, as amended. (2)
3.2 Bylaws, as amended and restated, of Performance Printing Corporation (2)
4.1 Warrant Agreement(1)
5.1 Opinion of Garza & Staples, P.C. (1)
10.1 Performance Printing Corporation Stock Option Plan. (2)
10.2 Loan and Security Agreement by and among the Company and Finova Capital
Corporation, dated December 19, 1996. (1)
10.3 Representative's Warrant Agreement (1)
10.4 Commercial Lease Agreement between The Sigma Joint Venture and Performance
Printing Corporation (1)
10.5 Standard Commercial Lease between Beltline Quaker Limited Partnership and
Performance Printing Corporation (1)
23.1 Consent of Travis Wolf L.L.P. (1)
23.2 Consent of Garza & Staples, P.C. (included in Exhibit 5.1). (1)
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
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 Securities Act
of 1933, to treat each post-effective amendment as a
new Registration Statement relating to the securities
offered herein, and the offering of
II-3
<PAGE> 60
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 the 11th day of February, 1998.
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 the 11th day of February, 1998.
<TABLE>
<CAPTION>
NAME TITLE
<S> <C>
/s/W. Chris Pumpelly Chairman of the Board and Director
- ------------------------
W. Chris Pumpelly
</TABLE>
II-4
<PAGE> 61
<TABLE>
<S> <C>
/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
/s/C. Thomas Daulton Director
- ------------------------
C. Thomas Daulton
/s/Richard D. Cox Director
- ------------------------
Richard D. Cox
/s/Joseph E. Pate Director
- ------------------------
Joseph E. Pate
</TABLE>
II-5
<PAGE> 62
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
1.1 Form of Underwriting Agreement. (1)
3.1 Articles of Incorporation of Performance Printing Corporation, as amended. (2)
3.2 Bylaws, as amended and restated, of Performance Printing Corporation (2)
4.1 Warrant Agreement(1)
5.1 Opinion of Garza & Staples, P.C. (1)
10.1 Performance Printing Corporation Stock Option Plan. (2)
10.3 Loan and Security Agreement by and among the Company and Finova Capital
Corporation, dated December 19, 1996. (1)
10.6 Representative's Warrant Agreement (1)
10.7 Commercial Lease Agreement between The Sigma Joint Venture and Performance
Printing Corporation (1)
10.8 Standard Commercial Lease between Beltline Quaker Limited Partnership and
Performance Printing Corporation (1)
23.1 Consent of Travis Wolf L.L.P. (1)
23.2 Consent of Garza & Staples, P.C. (included in Exhibit 5.1). (1)
24.1 Power of Attorney (included on page II-4). (1)
27.2 Financial Data Schedule (1)
</TABLE>
- ------------------
(1) Filed herewith
(2) To be filed by amendment
<PAGE> 1
EXHIBIT 1.1
PERFORMANCE PRINTING CORPORATION
1,200,000 SHARES OF COMMON STOCK AND
1,200,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
Dallas, Texas
________________, 1998
First London Securities Corporation
2600 State Street
Dallas, Texas 75204
Gentlemen:
Performance Printing Corporation (the "Company"), on the basis of the
representations, warranties, covenants and conditions contained herein, hereby
proposes to issue and sell to such Underwriters as named in Schedule A (the
"Underwriters") to this Underwriting Agreement (the "Agreement"), for whom
First London Securities Corporation is acting as the representative (the
"Representative"), pursuant to the terms of this Agreement, on a "firm
commitment" basis, 1,200,000 shares of Common Stock (the "Shares") at
$__________ per Share (the "Initial Public Offering Price") and 1,200,000
Redeemable Common Stock Purchase Warrants (the "Warrants") at $.125 per
Warrant. The Shares and the Warrants are collectively referred to as the
"Securities". Each Warrant is exercisable to purchase one (1) share of Common
Stock (the "Common Stock") at 125% of the Initial Public Offering Price per
share at any time during the period between the Effective Date and five (5)
years from the Effective Date. The date upon which the Securities and Exchange
Commission ("Commission") shall declare the registration statement of the
Company effective shall be the "Effective Date". The Warrants are subject to
redemption under certain circumstances. In addition, the Company proposes to
grant to the Underwriters (or, at the option of the Representative, to the
Representative, individually) the option referred to in Section 2(b) to
purchase all or any part of an aggregate of 180,000 additional Shares and/or
180,000 additional Warrants (the "Option Securities").
You have advised the Company that you and the other Underwriters
desire to purchase, severally, the Securities, and that you have been
authorized by the Underwriters to execute this Agreement on their behalf. The
Company confirms the agreements made by it with respect to the purchase of the
Securities by the several Underwriters on whose behalf you are signing this
Agreement, as follows:
<PAGE> 2
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with each of the
Underwriters as of the Effective Date (as defined above), the Closing Date (as
hereinafter defined) and the Option Closing Date (as hereinafter defined) that:
(a) A registration statement (File No. 333-_____________) on Form
SB-2 relating to the public offering of the Securities, including a preliminary
form of the prospectus, copies of which have heretofore been delivered to you,
has been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Commission thereunder, and has been filed
with the Commission under the Act. The Company has prepared in the same manner
and proposes to file, prior to the Effective Date of such registration
statement, an additional amendment or amendments to such registration
statement, including a final form of Prospectus, copies of which shall be
delivered to you. "Preliminary Prospectus" shall mean each prospectus filed
pursuant to the Rules and Regulations under the Act prior to the Effective
Date. The registration statement (including all financial schedules and
exhibits) as amended at the time it becomes effective and the final prospectus
included therein are respectively referred to as the "Registration Statement"
and the "Prospectus", except that (i) if the prospectus first filed by the
Company pursuant to Rule 424(b) of the Rules and Regulations shall differ from
said prospectus as then amended, the term "Prospectus" shall mean the
prospectus first filed pursuant to Rule 424(b), and (ii) if such registration
statement or prospectus is amended or such prospectus is supplemented, after
the effective date of such registration statement and prior to the Option
Closing Date (as hereinafter defined), the terms "Registration Statement" and
"Prospectus" shall include such registration statement and prospectus as so
amended, and the term "Prospectus" shall include the prospectus as so
supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up
to the Option Closing Date, if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or Selected Dealers: (i) the Registration Statement and Prospectus
will in all respects conform to the requirements of the Act and the Rules and
Regulations; and (ii) neither the Registration Statement nor the Prospectus
will include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make statements
therein, in light of the circumstances under which they are made, not
misleading; provided, however, that the Company makes no representations,
warranties or agreement as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in conformity with,
written information furnished to the Company by the Underwriters specifically
for use in the preparation thereof. It is understood that the statements set
forth in the Prospectus with respect to stabilization, under the heading
"Underwriting" and regarding the identity of counsel to the Underwriters under
the heading "Legal Matters" constitute the only information furnished in
writing by the Underwriters for inclusion in the Prospectus.
(c) Each of the Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with full power and
authority (corporate and other) to own its properties and conduct its business
2
<PAGE> 3
as described in the Prospectus and is duly qualified to do business as a
foreign corporation and is in good standing in all other jurisdictions in which
the nature of its business or the character or location of its properties
requires such qualification, except where failure to so qualify will not
materially affect the Company's business, properties or financial condition.
(d) The authorized, issued and outstanding securities of the
Company as of the date of the Prospectus is as set forth in the Prospectus
under "Capitalization"; all of the issued and outstanding securities of the
Company have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non- assessable; the issuances
and sales of all such securities complied in all material respects with
applicable Federal and state securities laws; the holders thereof have no
rights of rescission against the Company with respect thereto, and are not
subject to personal liability by reason of being such holders; none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company; except as set forth in the Prospectus, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or agreements or
other rights to convert any obligation into, any securities of the Company have
been granted or entered into by the Company; and all of the securities of the
Company, issued and to be issued as set forth in the Registration Statement,
conform to all statements relating thereto contained in the Registration
Statement and Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and
paid for pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights of any security
holder of the Company. Neither the filing of the Registration Statement nor
the offering or sale of the Securities as contemplated in this Agreement gives
rise to any rights, other than those which have been waived or satisfied, for
or relating to the registration of any securities of the Company, except as
described in the Registration Statement and Prospectus.
The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance and when
issued in accordance with the terms of the Warrants and Warrant Agreement, will
be duly and validly authorized, validly issued, fully paid and non-assessable,
free of preemptive rights and no personal liability will attach to the
ownership thereof. The Warrant exercise period and the Warrant exercise price
may not be changed or revised by the Company without the prior written consent
of the Representative. The Warrant Agreement has been duly authorized and,
when executed and delivered pursuant to this Agreement will constitute the
valid and legally binding obligation of the Company enforceable in accordance
with its terms.
The Common Stock Representatives' Warrants, the Warrant
Representatives' Warrants, the Underlying Warrants, the shares of Common Stock
issuable upon exercise of the Common
3
<PAGE> 4
Stock Representatives' Warrants, and the shares of Common Stock issuable upon
exercise of the Underlying Warrants (all as defined in the Representative's
Warrant Agreement described in Section 12 herein), have been duly authorized
and, when issued, delivered and paid for, will be validly issued, fully paid,
non-assessable, free of preemptive rights and no personal liability will attach
to the ownership thereof, and will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms and
entitled to the benefits provided by the Representatives' Warrant Agreement.
(f) This Agreement, the Warrant Agreement and the Representatives'
Warrant Agreement have been duly and validly authorized, executed and delivered
by the Company, and assuming due execution of this Agreement by the other party
hereto, constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally. The Company has full power and lawful authority to
authorize, issue and sell the Securities to be sold by it hereunder on the
terms and conditions set forth herein, and no consent, approval, authorization
or other order of any third party or any governmental authority is required in
connection with such authorization, execution and delivery or with the
authorization, issuance and sale of the Securities or the securities to be
issued pursuant to the Representatives' Warrant Agreement, except such as may
be required under the Act or state securities laws, or as otherwise have been
obtained.
(g) Except as described in the Prospectus, neither the Company nor
any subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the property or assets of the
Company or each subsidiary or any of the terms or provisions of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or each subsidiary is a party or by which the Company or each
subsidiary may be bound or to which any of the property or assets of the
Company or each subsidiary is subject, nor will such action result in any
material violation of the provisions of the articles of incorporation or bylaws
as amended of the Company or each subsidiary, or any statute or any order, rule
or regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the
Company and each subsidiary have good and marketable title to all properties
and assets described in the Prospectus as owned by each of them, free and clear
of all liens, charges, encumbrances or restrictions, except such as are not
materially significant or important in relation to its business; all of the
material leases and subleases under which the Company or each subsidiary is the
lessor or sublessor of properties or assets or under which the Company or each
subsidiary holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, neither the Company nor each subsidiary is in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone, adverse to
rights of the Company or each subsidiary
4
<PAGE> 5
as lessor, sublessor, lessee, or sublessee under any of the leases or subleases
mentioned above, or affecting or questioning the right of the Company or each
subsidiary to continued possession of the leased or subleased premises or
assets under any such lease or sublease except as described or referred to in
the Prospectus; and the Company and each subsidiary owns or leases all such
properties described in the Prospectus as are necessary to its operations as
now conducted and, except as otherwise stated in the Prospectus, as proposed to
be conducted as set forth in the Prospectus.
(i) Travis, Wolff & Company, LLP, who have given their report on
certain financial statements filed and to be filed with the Commission as part
of the Registration Statement, and which are included in the Prospectus, are
with respect to the Company, independent public accountants as required by the
Act and the Rules and Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus and the Registration Statement present
fairly the financial position and results of operations and changes in
financial position of the Company on the basis stated in the Registration
Statement, at the respective dates and for the respective periods to which they
apply. Said statements and related notes and schedules have been prepared in
accordance with generally accepted accounting principles applied on a basis
which is consistent during the periods involved. The Company's internal
accounting controls and procedures are sufficient to cause the Company and each
subsidiary to prepare financial statements which comply in all material
respects with generally accepted accounting principles applied on a basis which
is consistent during the periods involved. During the preceding five (5) year
period, nothing has been brought to the attention of the Company's management
that would result in any reportable condition relating to the Company's
internal accounting procedures, weaknesses or controls.
(k) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and the Prospectus and to and including
the Option Closing Date, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (i) neither the Company nor any
subsidiary has incurred and will not have incurred any material liabilities or
obligations, direct or contingent, and has not entered into and will not have
entered into any material transactions other than in the ordinary course of
business and/or as contemplated in the Registration Statement and the
Prospectus; (ii) neither the Company nor any subsidiary has and will not have
paid or declared any dividends or have made any other distribution on its
capital stock; (iii) there has not been any change in the capital stock of, or
any incurrence of long-term debt by, the Company or any subsidiary; (iv)
neither the Company nor any subsidiary has issued any options, warrants or
other rights to purchase the capital stock of the Company or any subsidiary;
and (v) there has not been and will not have been any material adverse change
in the business, financial condition or results of operations of the Company or
any subsidiary, or in the book value of the assets of the Company or any
subsidiary, arising for any reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company or any subsidiary, threatened, any material
action, suit, proceeding, inquiry, arbitration or investigation against the
Company or any subsidiary, or any of the officers or directors of the Company
or any subsidiary, or any material action, suit, proceeding, inquiry,
5
<PAGE> 6
arbitration, or investigation, which might result in any material adverse
change in the condition (financial or other), business prospects, net worth, or
properties of the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and
each subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against the Company or any subsidiary that has not been provided for
in the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and
each subsidiary has material licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use
all material patents, patent applications, trademarks, service marks,
trade-names, trademark registrations, service mark registrations, copyrights,
and licenses necessary for the conduct of such business and has not received
any notice of conflict, with the asserted rights of others in respect thereof.
To the best of the Company's knowledge, none of the activities or business of
the Company or any subsidiary are in violation of, or cause the Company or any
subsidiary to violate, any law, rule, regulation or order of the United States,
any state, county or locality, or of any agency or body of the United States or
of any state, county or locality, the violation of which would have a material
adverse impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) Neither the Company nor any subsidiary has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution, in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments or contributions required or
allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other
taxes (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Securities to the several
Underwriters hereunder will have been fully paid or provided for by the Company
and all laws imposing such taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
(r) Except as described in the Registration Statement and
Prospectus, no holders of Common Stock or of any other securities of the
Company have the right to include such Common Stock or other securities in the
Registration Statement and Prospectus.
(s) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, neither the Company nor any subsidiary has any
material contingent liabilities.
6
<PAGE> 7
(t) The Company has no subsidiary corporations except as disclosed
in the Registration Statement and Prospectus, nor has it any equity interest in
any partnership, joint venture, association or other entity except as disclosed
in the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or
suspending the use of any Preliminary Prospectus with respect to the offer and
sale of the Securities and each Preliminary Prospectus, as of its date, has
conformed fully in all material respects with the requirements of the Act and
the Rules and Regulations and did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of
its officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three year
period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions which
were exempt from the registration provisions of the Act and not in violation of
Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriters against any losses, claims,
damages or liabilities, joint or several, which shall include, but not be
limited to, all costs to defend against any such claim, so long as such claim
arises out of agreements made or allegedly made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or five percent (5%) or greater stockholder of the Company or
any subsidiary has any direct or indirect affiliation or association with any
member of the National Association of Securities Dealers, Inc. ("NASD"), except
as disclosed to the Representatives in writing, and no beneficial owner of the
Company's unregistered securities has any direct or indirect affiliation or
association with any NASD member except as disclosed to the Representatives in
writing. The Company will advise the Representatives and the NASD if any five
percent (5%) or greater shareholder of the Company or any subsidiary is or
becomes an affiliate or associated person of an NASD member participating in
the distribution.
(z) The Company and each subsidiary is in compliance in all
material respects with all federal, state and local laws and regulations
respecting the employment of its employees and employment practices, terms and
conditions of employment and wages and hours relating thereto.
7
<PAGE> 8
There are no pending investigations involving the Company or any subsidiary by
the U.S. Department of Labor, or any other governmental agency responsible for
the enforcement of such federal, state or local laws and regulations. There is
no unfair labor practice charge or complaint against the Company or any
subsidiary pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or to the knowledge
of the Company, threatened against or involving the Company or any subsidiary
or any predecessor entity. No question concerning representation exists
respecting the employees of the Company or any subsidiary and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company or any subsidiary. No grievance or arbitration proceeding is
pending under any expired or existing collective bargaining agreements of the
Company or any subsidiary, if any.
(aa) Neither the Company nor any subsidiary maintains, sponsors nor
contributes to, nor is it required to contribute to, any program or arrangement
that is an "employee pension benefit plan" an "employee welfare benefit plan",
or a "multi-employer plan" as such terms are defined in Sections 3(2), 3(i) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). Neither the Company nor any subsidiary
maintained or contributed to a defined benefit plan, as defined in Section
3(35) of ERISA.
(bb) Based upon written representations received from the officers
and directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of
the Company or any subsidiary have been:
(1) Subject of a petition under the Federal bankruptcy
laws or any state insolvency law filed by or against them, or by a
receiver, fiscal agent or similar officer appointed by a court for
their business or property, or any partnership in which either or them
was a general partner at or within two years before the time of such
filing, or any corporation or business association of which either of
them was an executive officer at or within two years before the time
of such filing;
(2) Convicted in a criminal proceeding or a named subject
of a pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining either of them
from, or otherwise limiting, any of the following activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant, any
other person regulated by the Commodity Futures Trading
Commission, or an associated person of any of the foregoing,
or as an investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee
of any investment company, bank, savings and loan association
or insurance company, or engaging in or continuing any conduct
or practice in connection with any such activity;
8
<PAGE> 9
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with
the purchase or sale of any security or commodity or in
connection with any violation of Federal or State securities
law or Federal Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or State
authority barring, suspending or otherwise limiting for more than
sixty (60) days either of their right to engage in any activity
described in paragraph (3)(i) above, or be associated with persons
engaged in any such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to have
violated any Federal or State securities law, and the judgment in such
civil action or finding by the Commission has not been subsequently
reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated
any Federal Commodities Law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated.
(cc) Based upon written representations received from the officers
and directors of the Company, each of the officers and directors of the Company
has reviewed the sections in the Prospectus relating to their biographical data
and equity ownership position in the Company, and all information contained
therein is true and accurate.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement and upon
the basis of the representations, warranties and agreements herein contained,
the Company hereby agrees to issue and sell to the Underwriters an aggregate of
1,200,000 Shares at $__________ per Share and 1,200,000 Warrants at $.112 per
Warrant, (the public offering price less ten percent (10%)), at the place and
time hereinafter specified, in accordance with the number of Shares and/or
Warrants set forth opposite the names of the Underwriters in Schedule A
attached hereto plus any additional Securities which such Underwriters may
become obligated to purchase pursuant to the provisions of Section 9 hereof.
The Securities shall consist of 1,200,000 Shares and 1,200,000 Warrants to be
purchased from the Company, and the price at which the Underwriters shall sell
the Securities to the public shall be $__________ per Share and $.125 per
Warrant.
Delivery of the Securities against payment therefor shall take place
at the offices of First London Securities Corporation, 2600 State Street,
Dallas, Texas 75204 (or at such other place as may be designated by the
Representatives) at 10:00 a.m., Eastern Time, on such date after the Effective
date as the Representatives shall designate, but not later than ten (10)
business days
9
<PAGE> 10
(holidays excepted) following the first date that any of the Securities are
released to you, such time and date of payment and delivery for the Securities
being herein called the "Closing Date".
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants the "Option" to the Underwriters
(or, at the option of the Representatives, to the Representatives,
individually) to purchase all or any part of an aggregate of an additional
180,000 Shares and 180,000 Warrants at the same price per Share and Warrant as
the Underwriters shall pay for the Securities being sold pursuant to the
provisions of subsection (a) of this Section 2 (such additional Securities
being referred to herein as the "Option Securities"). This Option may be
exercised within 30 days after the Effective Date upon notice by the
Underwriters (or the Representatives, individually) to the Company advising as
to the amount of Option Securities as to which the Option is being exercised,
the names and denominations in which the certificates for such Option
Securities are to be registered and the time and date when such certificates
are to be delivered. Such time and date shall be determined by the
Underwriters (or the Representatives, individually) but shall not be later than
ten (10) full business days after the exercise of the Option, nor in any event
prior to the Closing Date, and such time and date is referred to herein as the
"Option Closing Date". Delivery of the Option Securities against payment
therefor shall take place at the offices of the Representatives. The Option
granted hereunder may be exercised only to cover over allotments in the sale by
the Underwriters of the Securities referred to in subsection (a) above. In the
event the Company declares or pays a dividend or distribution on its Common
Stock, whether in the form of cash, shares of Common Stock or any other
consideration, prior to the Option Closing Date, such dividend or distribution
shall also be paid on the Option Closing Date.
(c) The Company will make the certificates for the Securities to
be sold hereunder available to you for inspection at least two (2) full
business days prior to the Closing Date and the Option closing date at the
offices of the Representatives, and such certificates shall be registered in
such names and denominations as you may request. Time shall be of the essence
and delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company or
by wire transfer in New York Clearing House funds.
In addition, in the event the Underwriters (or the Representatives,
individually) exercise the Option to purchase from the Company all or any
portion of the Option Securities pursuant to the provisions of subsection (b)
above, payment for such Securities shall be made payable in New York Clearing
House funds at the offices of the Representatives, or by wire transfer, at the
time and date of delivery of such Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Securities
by the Representatives for the respective
10
<PAGE> 11
accounts of the several Underwriters registered in such names and in such
denominations as the Representatives may request.
It is understood that the Representatives, individually and not as
Representatives of the several Underwriters, may (but shall not be obligated
to) make any and all payments required pursuant to this Section 2 on behalf of
any Underwriters whose check or checks shall not have been received by the
Representatives at the time of delivery of the Securities to be purchased by
such Underwriter or Underwriters. Any such payment by the Representatives
shall not relieve any such Underwriter or Underwriters of any of its or their
obligations hereunder. It is also understood that the Representatives
individually, rather than all of the Underwriters, may (but shall not be
obligated to) purchase the Option Securities referred to in subsection (b) of
this Section 2, but only to cover over allotments.
It is understood that the several Underwriters propose to offer the
Securities to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement is declared effective by the Commission.
3. Covenants of the Company. The Company covenants and agrees
with the several Underwriters that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to
the later of (i) the completion by the Underwriters of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the
Company will prepare and file with the Commission, promptly upon your request,
any amendments or supplements to the Registration Statement or Prospectus which
may be necessary or advisable in connection with the distribution of the
Securities and as mutually agreed to by the Company and the Representatives.
After the Effective Date and as soon as the Company is advised
thereof, the Company will advise you, and confirm the advice in writing, of the
receipt of any comments of the Commission, of the effectiveness of any post-
effective amendment to the Registration Statement, of the filing of any
supplement to the Prospectus or any amended Prospectus, of any request made by
the Commission for amendment of the Registration Statement or for supplementing
of the Prospectus or for additional information with respect thereto, of the
issuance by the Commission or any state or regulatory body of any stop order or
other order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such
purposes, and will use its best efforts to prevent the issuance of any such
order, and, if issued, to obtain as soon as possible the lifting thereof.
11
<PAGE> 12
The Company has caused to be delivered to you copies of each
Preliminary Prospectus and Definitive Prospectus, and the Company has consented
and hereby consents to the use of such copies for the purposes permitted by the
Act. The Company authorizes the Underwriters and Selected Dealers to use the
Prospectus in connection with the sale of the Securities for such period as in
the opinion of counsel to the Underwriters the use thereof is required to
comply with the applicable provisions of the Act and the Rules and Regulations.
In case of the happening, at any time within such period as a Prospectus is
required under the Act to be delivered in connection with sales by the
Underwriters or Selected Dealers, of any event of which the Company has
knowledge and which materially affects the Company or the securities of the
Company, or which in the opinion of counsel for the Company or counsel for the
Underwriters, should be set forth in an amendment to the Registration Statement
or a supplement to the Prospectus, in order to make the statements therein not
then misleading, in light of the circumstances existing at the time the
Prospectus is required to be delivered to a purchaser of the Securities, or in
case it shall be necessary to amend or supplement the Prospectus to comply with
law or with the Act and the Rules and Regulations, the Company will notify you
promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which
they are made, not misleading. The preparation and furnishing of any such
amendment or supplement to the Registration Statement or amended Prospectus or
supplement to be attached to the Prospectus shall be without expense to the
Underwriters.
The Company will comply with the Act, the Rules and Regulations
thereunder, the Securities Exchange Act of 1934 (the "1934 Act"), and the rules
and regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will qualify to register the Securities for sale
under the securities or "blue sky" laws of such jurisdictions as the
Representatives may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent to service of process
in any jurisdiction in any action other than one arising out of the offering or
sale of the Securities. The Company will, from time to time, prepare and file
such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriters may reasonably
request.
(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not limited
to, all such expenses itemized in Section 8(a) and 8(c) hereof, and the
out-of-pocket expenses up to $25,000 of the Representatives and expenses up to
$25,000 of the counsel to the Representatives, if the offering for any reason
is terminated. For the purposes of this sub-paragraph, the Representatives
shall be deemed to have assumed such expenses when they are billed or incurred,
regardless of whether such expenses have been paid. The Representatives shall
not be responsible for any expenses of the Company or others, or for any
charges or claims relative to the proposed public offering whether or not
consummated.
12
<PAGE> 13
(d) The Company will deliver to you at or before the Closing Date
two signed copies of the Registration Statement, including all financial
statements and exhibits filed therewith, and of each amendment or supplement
thereto. The Company will deliver to or upon the order of the several
Underwriters, from time to time until the Effective Date of the Registration
Statement, as many copies of any Preliminary Prospectus filed with the
Commission prior to the Effective Date of the Registration Statement as the
Underwriters may reasonably request. The Company will deliver to the
Underwriters on the Effective Date of the Registration Statement and thereafter
for so long as a Prospectus is required to be delivered under the Act, from
time to time, as many copies of the Prospectus, in final form, or as thereafter
amended or supplemented as the several Underwriters may from time to time
reasonably request.
(e) For so long as the Company is a reporting company under either
Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish to
the Representatives during the period ending five (5) years from the Effective
Date, (i) as soon as practicable after the end of each fiscal year, a balance
sheet of the Company and any of its subsidiaries as at the end of such fiscal
year, together with statements of income, surplus and cash flow of the Company
and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as they are available, a copy of all reports
(financial or other) mailed to security holders; (iii) as soon as they are
available, a copy of all non-confidential documents, including annual reports,
periodic reports and financial statements, furnished to or filed with the
Commission under the Act and the 1934 Act; (iv) copies of each press release,
news item and article with respect to the Company's affairs released by the
Company; and (v) such other information as you may from time to time reasonably
request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will make generally available to its stockholders
and to the registered holders of its Warrants and deliver to you as soon as it
is practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (which need
not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the
necessary action to become a reporting company under Section 12 of the 1934
Act, and the Company will make all filings required to, and will have obtained
approval for, the listing of the Shares and Warrants on The Nasdaq Small Cap
Market or a listing on a national market, and will use its best efforts to
maintain such listing for at least five (5) years from the date of this
Agreement.
(i) For such period as the Company's securities are registered
under the 1934 Act, the Company will hold an annual meeting of stockholders for
the election of Directors within 180 days
13
<PAGE> 14
after the end of each of the Company's fiscal years and, within 150 days after
the end of each of the Company's fiscal years will provide the Company's
stockholders with the audited financial statements of the Company as of the end
of the fiscal year just completed prior thereto. Such financial statements
shall be those required by Rule 14a-3 under the 1934 Act and shall be included
in an annual report pursuant to the requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption
"Use of Proceeds" in the Prospectus, and will file such reports with the
Commission with respect to the sale of the Securities and the application of
the proceeds therefrom as may be required by Sections 12, 13 and/or 15 of the
1934 Act and pursuant to Rule 463 under the Act.
(k) The Company will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action,
which in the reasonable opinion of counsel to the Underwriters and the Company
may be reasonably necessary or advisable in connection with the distribution of
the Securities and will use its best efforts to cause the same to become
effective as promptly as possible.
(l) On the Closing Date the Company shall execute and deliver to
you the Representatives' Warrant Agreement. The Representatives' Warrant
Agreement and Warrant Certificates will be substantially in the form of the
Representatives' Warrant Agreement and Warrant Certificates filed, as an
exhibit to the Registration Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable
upon exercise of the Representatives' Warrants outstanding from time to time.
(n) All beneficial owners of the Company's securities (including
Warrants, Options and Common Stock of the Company), as of the Effective Date,
shall agree in writing, in a form satisfactory to the Representatives, not to
sell, transfer or otherwise dispose of any of such securities or underlying
securities (except to a transferee who agrees to be bound by this provision)
for a period of twelve (12) months from the Effective Date (the "lock-up
period"), or any longer period required by any State, without the prior written
consent of the Representatives. Any of such securities which are originally
registered in a name of a original beneficial owner and are subsequently
registered under a different name will be subject to the twelve (12) month
lock-up period. Sales of the Company's securities by officers and/or directors
of the Company prior to the expiration of the lock-up period shall be effected
through the Representatives.
(o) The Company shall pay to the Representatives upon the exercise
or redemption of the Warrants a fee equal to 5% of the gross proceeds of this
offering received by the Company from the exercise of the Warrants and 5% of
the aggregate redemption price for the Warrants redeemed. Such fee will be
paid to the Representatives or its designees no soon than 12 months after the
Effective Date. Additionally, the Representatives or its designee must be
designated in writing by the Warrant holder as having solicited the Warrant in
order to receive the fee.
14
<PAGE> 15
(p) Prior to the Closing Date, the Company shall at its own
expense, undertake to list the Company's securities in the appropriate
recognized securities manual or manuals published by Standard & Poor's
Corporation and such other manuals as the Representatives may designate, such
listings to contain the information required by such manuals and the Uniform
Securities Act. The Company hereby agrees to use its best efforts to maintain
such listing for a period of not less than five (5) years unless the Company's
securities otherwise qualify for a secondary market trading exemption. The
Company shall take such action as may be reasonably requested by the
Representatives to obtain a secondary market trading exemption in such states
as may be reasonably requested by the Representatives.
(q) During the one hundred eighty (180) day period commencing on
the Closing Date, the Company will not, without the prior written consent of
the Representatives, grant options or warrants to purchase the Company's Common
Stock at a price less than the initial per share public offering price.
(r) During the twelve month period commencing on the closing Date,
the Company will not, without the prior written consent of the Representatives,
issue any additional securities of the Company except for securities issued in
connection with an acquisition or merger by the Company or upon the issuance of
Common Stock upon the exercise of Warrants.
(s) Prior to the Closing Date, neither the Company nor any
subsidiary will issue, directly or indirectly, without your prior consent, any
press release or other communication or hold any press conference with respect
to the Company or its activities or the offering of the Securities other than
routine customary advertising of the Company's products and services, and
except as required by any applicable law or the directives of any relevant
regulatory authority in any relevant jurisdiction.
(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the
financial statements to be included in any registration statement or similar
disclosure document to be filed by the Company hereunder, or any amendment or
supplement thereto. For a period of five (5) years from the Effective Date,
the Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
quarterly report and the filing of quarterly financial information to
stockholders.
(u) The Company shall retain ____________________________________
as the transfer agent for the securities of the Company, or such other transfer
agent as you may agree to in writing. In addition, the Company shall direct
such transfer agent to furnish the Representatives with daily transfer sheets
as to each of the Company's securities as prepared by the Company's transfer
agent and copies of lists of stockholders and warrantholders as reasonably
requested by the Underwriter, for a five (5) year period commencing from the
Closing Date.
15
<PAGE> 16
(v) The Company shall cause the Depository Trust Company, or such
other depository of the Company's securities, to deliver a "special security
position report" to the Representatives on a daily and weekly basis at the
expense of the Company, for a five (5) year period from the Effective Date.
(w) Following the Effective Date, the Company shall, at its sole
cost and expense, prepare and file such Blue Sky applications with such
jurisdictions as the Representatives shall designate and the Company may
reasonably agree.
(x) On the Effective Date and for a period of three (3) years
thereafter, the Company's Board of Directors shall consist of a minimum of five
(5) persons, two (2) of whom shall be independent and not otherwise affiliated
with the Company or associated with any of the Company's affiliates. First
London Securities Corporation shall have the right for a period of three (3)
years from the Effective Date to nominate one Advisory Director to the Board of
Directors. The Advisory Director will have all of the same privileges as a
normal Director, including equal compensation, but will forfeit the right to
vote on Board issues.
(y) For such period as any Warrants are outstanding, the Company
shall use its best efforts to cause post- effective amendments to the
Registration Statement or a new Registration Statement to become effective in
compliance with the Act and without any lapse of time between the effectiveness
of any such post-effective amendments and cause a copy of each Prospectus, as
then amended, to be delivered to each holder of record of a Warrant and to
furnish to each of the Underwriters and each dealer as many copies of each such
Prospectus as such Underwriter or such dealer may reasonably request. Such
post-effective amendments or new Registration Statements shall also register
the Representatives' Warrants and all the securities underlying the
Representatives' Warrants. The Company shall not call for redemption of any of
the Warrants unless a Registration Statement covering the securities underlying
the Warrants or Representatives' Warrants has been declared effective by the
Commission and remains current at least until the date fixed for redemption.
In addition, the Warrants or Representatives' Warrants shall not be redeemable
during the first year after the Effective Date without the written consent of
the Representatives.
(z) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange, Nasdaq National Market or the
American Stock Exchange, the Company shall engage the Company's legal counsel
to deliver to the Representatives a written opinion detailing those states in
which the Shares and Warrants of the Company may be traded in non-issuer
transactions under the Blue Sky laws of the fifty states ("Secondary Market
Trading Opinion"). The initial Secondary Market Trading opinion shall be
delivered to the Representatives on the Effective Date, and the Company shall
continue to update such opinion and deliver same to the Representatives on a
timely basis, but in any event at the beginning of each fiscal year, for a five
(5) year period, if required.
4. Conditions of Underwriters, Obligations. The obligations of
the several Underwriters to purchase and pay for the Securities which they have
agreed to purchase hereunder from the Company are subject, as of the date
hereof and as of the Closing Date and the Option
16
<PAGE> 17
Closing Date, to the continuing accuracy of, and compliance with, the
representations and warranties of the Company herein, to the accuracy of
statements of officers of the Company made pursuant to the provisions hereof,
to the performance by the Company of its obligations hereunder, and to the
following conditions:
(a) (i) The Registration Statement shall have become effective
not later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at
such later time or on such later date as you may agree to in writing; (ii) at
or prior to the Closing Date or Option Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued by the
Commission and no proceeding for that purpose shall have been initiated or
pending, or shall be threatened, or to the knowledge of the Company,
contemplated by the Commission; (iii) no stop order suspending the
effectiveness of the qualification or registration of the Securities under the
securities or "blue sky" laws of any jurisdiction (whether or not a
jurisdiction which you shall have specified) shall be threatened or to the
knowledge of the Company contemplated by the authorities of any such
jurisdiction or shall have been issued and in effect; (iv) any request for
additional information on the part of the Commission or any such authorities
shall have been complied with to the satisfaction of the Commission and any
such authorities, and to the satisfaction of counsel to the Underwriters; and
(v) after the date hereof no amendment or supplement to the Registration
Statement or the Prospectus shall have been filed unless a copy thereof was
first submitted to the Underwriters and the Underwriters did not object
thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any subsidiary except as set forth in or
contemplated by the Registration Statement, (ii) there shall not have been any
material adverse change in the general affairs, business, properties, condition
(financial or otherwise), management, or results of operations of the Company
or any subsidiary, whether or not arising from transactions in the ordinary
course of business, in each case other than as set forth in or contemplated by
the Registration Statement or Prospectus; (iii) neither the Company nor any
subsidiary shall have sustained any material interference with its business or
properties from fire, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree, which is not set forth in the
Registration Statement and Prospectus; and (iv) the Registration Statement and
the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations, and shall in all material respects conform to
the requirements thereof, and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstance under which they are made, not misleading.
(c) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company or any subsidiary, threatened, any material
action, suit, proceeding, inquiry, arbitration or investigation against the
Company or any subsidiary, or any of the officers or
17
<PAGE> 18
directors of the Company or any subsidiary, or any material action, suit,
proceeding, inquiry, arbitration, or investigation, which might result in any
material adverse change in the condition (financial or other), business
prospects, net worth, or properties of the Company or any subsidiary.
(d) Each of the representations and warranties of the Company
contained herein shall be true and correct as of this date and at the Closing
Date as if made at the Closing Date, and all covenants and agreements herein
contained to be performed on the part of the Company and all conditions herein
contained to be fulfilled or complied with by the Company at or prior to the
Closing Date and Option Closing Date shall have been duly performed, fulfilled
or complied with.
(e) At each Closing Date, you shall have received the opinion,
together with copies of such opinion for each of the other several
Underwriters, dated as of each Closing Date, from Garza & Staples, P.C.,
counsel for the Company, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
(i) the Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation,
with full corporate power and authority to own its properties
and conduct its business as described in the Registration
Statement and Prospectus and is duly qualified or licensed to
do business as a foreign corporation and is in good standing
in each other jurisdiction in which the ownership or leasing
of its properties or conduct of its business requires such
qualification except for jurisdictions in which the failure to
so qualify would not have a material adverse effect on the
Company and each subsidiary as a whole;
(ii) the authorized capitalization of the Company
is as set forth under "Capitalization" in the Prospectus; all
shares of the Company's outstanding stock and other securities
requiring authorization for issuance by the Company's Board of
Directors have been duly authorized, validly issued, are fully
paid and non-assessable and conform to the description thereof
contained in the Prospectus; the outstanding shares of Common
Stock of the Company and other securities have not been issued
in violation of the preemptive rights of any shareholder and
the shareholders of the Company do not have any preemptive
rights or, to such counsel's knowledge, other rights to
subscribe for or to purchase securities of the Company, nor,
to such counsel's knowledge, are there any restrictions upon
the voting or transfer of any of the securities of the
Company, except as disclosed in the Prospectus; the Common
Stock, the Shares, the Warrants, and the securities contained
in the Representatives' Warrant Agreement conform to the
respective descriptions thereof contained in the Prospectus;
the Common Stock, the Shares, the Warrants, the shares of
Common Stock to be issued upon exercise of the Warrants and
the securities contained in the Representatives' Warrant
Agreement, have been duly authorized and, when issued,
delivered and paid for, will be duly authorized, validly
issued, fully paid, non-assessable, free of preemptive rights
and no personal liability will attach to the ownership
thereof; all prior sales by the
18
<PAGE> 19
Company of the Company's securities have been made in
compliance with or under an exemption from registration under
the Act and applicable state securities laws and no
shareholders of the Company have any rescission rights against
the Company with respect to the Company's securities; a
sufficient number of shares of Common Stock has been reserved
for issuance upon exercise of the Warrants and the
Representative's Warrants, and to the best of such counsel's
knowledge, neither the filing of the Registration Statement
nor the offering or sale of the Securities as contemplated by
this Agreement gives rise to any registration rights or other
rights, other than those which have been waived or satisfied
or described in the Registration Statement;
(iii) this Agreement, the Representatives' Warrant
Agreement and the Warrant Agreement have been duly and validly
authorized, executed and delivered by the Company and,
assuming the due authorization, execution and delivery of this
Agreement by the Representatives, are the valid and legally
binding obligations of the Company, enforceable in accordance
with their terms, except (a) as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws from time to time in effect
which effect creditors, rights generally; and (b) no opinion
is expressed as to the enforceability of the indemnity
provisions or the contribution provisions contained in this
Agreement;
(iv) the certificates evidencing the outstanding
securities of the Company, the Shares, the Common Stock and
the Warrants are in valid and proper legal form;
(v) to the best of such counsel's knowledge,
except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company, threatened, any material
action, suit, proceeding, inquiry, arbitration or
investigation against the Company or any subsidiary or any of
the officers of directors of the Company or any subsidiary,
nor any material action, suit, proceeding, inquiry,
arbitration, or investigation, which might materially and
adversely affect the condition (financial or otherwise),
business prospects, net worth, or properties of the Company or
any subsidiary;
(vi) the execution and delivery of this Agreement,
the Representatives' Warrant Agreement and the Warrant
Agreement, and the incurrence of the obligations herein and
therein set forth and the consummation of the transactions
herein or therein contemplated, will not result in a violation
of, or constitute a default under (a) the Articles of
Incorporation or By-Laws of the Company and each subsidiary;
(b) to the best of such counsel's knowledge, any material
obligations, agreement, covenant or condition contained in any
bond, debenture, note or other evidence of indebtedness or in
any contract, indenture, mortgage, loan agreement, lease,
joint venture or other agreement or instrument to which the
Company or any subsidiary is a party or by which it or any of
its properties is bound; or (c) to the best of such counsel's
knowledge, any material order, rule,
19
<PAGE> 20
regulation, writ, injunction, or decree of any government,
governmental instrumentality or court, domestic or foreign;
(vii) the Registration Statement has become
effective under the Act, and to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement is in effect, and no proceedings for
that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and
the Prospectus (except for the financial statements and other
financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form
in all material respects with the applicable requirements of
the Act and the Rules and Regulations; and
(viii) no authorization, approval, consent, or
license of any governmental or regulatory authority or agency
is necessary in connection with the authorization, issuance,
transfer, sale or delivery of the Securities by the Company,
in connection with the execution, delivery and performance of
this Agreement by the Company or in connection with the taking
of any action contemplated herein, or the issuance of the
Representatives' Warrants or the Securities underlying the
Representatives' Warrants, other than registrations or
qualifications of the Securities under applicable state or
foreign securities or Blue Sky laws and registration under the
Act.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law, upon opinions of
counsel satisfactory to you and counsel to the Underwriters. The opinion of
such counsel to the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and that the Representatives
and they are justified in relying thereon.
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment
thereto at the time it became effective contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading or that the Prospectus
or any supplement thereto contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make statements therein, in light of the circumstances under which
they are made, not misleading (except, in the case of both the Registration
Statement and any amendment thereto and the Prospectus and any supplement
thereto, for the financial statements, notes thereto and other financial
information and statistical data contained therein, as to which such counsel
need express no opinion).
(f) You and the several Underwriters shall have received on each
Closing Date a certificate dated as of each Closing Date, signed by the Chief
Executive Officer and the Chief
20
<PAGE> 21
Financial officer of the Company and such other officers of the Company as the
Underwriters may request, certifying that:
(1) No order suspending the effectiveness of the
Registration Statement or stop order regarding the sale of the
Securities in effect and no proceedings for such purpose are pending
or are, to their knowledge, threatened by the Commission;
(2) To their knowledge there is no litigation instituted
or threatened against the Company or any subsidiary or any officer or
director of the Company or any subsidiary of a character required to
be disclosed in the Registration Statement which is not disclosed
therein; to their knowledge there are no contracts which are required
to be summarized in the Prospectus which are not so summarized; and to
their knowledge there are no material contracts required to be filed
as exhibits to the Registration Statement which are not so filed;
(3) They have each carefully examined the Registration
Statement and the Prospectus and, to the best of their knowledge,
neither the Registration Statement nor the Prospectus nor any
amendment or supplement to either of the foregoing contains an untrue
statement of any material fact or omits to state any material fact
required to be stated therein or necessary to make the statement
therein, in light of the circumstances under which they are made, not
misleading; and since the Effective Date, to the best of their
knowledge, there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been so set forth;
(4) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any material adverse change in the condition of the Company or
any subsidiary, financial or otherwise, or in the results of its
operations, except as reflected in or contemplated by the Registration
Statement and the Prospectus and except as so reflected or
contemplated since such date, there has not been any material
transaction entered into by the Company or any subsidiary;
(5) The representations and warranties set forth in this
Agreement are true and correct in all material respects and the
Company has complied with all of its agreements herein contained;
(6) Neither the Company nor any subsidiary is delinquent
in the filing of any federal, state and municipal tax return or the
payment of any federal, state or municipal taxes; they know of no
proposed re-determination or reassessment of taxes, adverse to the
Company or any subsidiary, and the Company and each subsidiary has
paid or provided by adequate reserves for all known tax liabilities
except such delinquency that will not have a material adverse affect
on the Company;
(7) They know of no material obligation or liability of
the Company or any subsidiary, contingent or otherwise, not disclosed
in the Registration Statement and Prospectus;
21
<PAGE> 22
(8) This Agreement, the Representatives' Warrant
Agreement and the Warrant Agreement, the consummation of the
transactions herein of therein contemplated, and the fulfillment of
the terms hereof or thereof, will not result in a breach by the
Company of any terms of, or constitute a default under, its Articles
of Incorporation or By-Laws, any indenture, mortgage, lease, deed or
trust, bank loan or credit agreement or any other material agreement
or undertaking of the Company or any subsidiary including, by way of
specification but not by way of limitation, any agreement or
instrument to which the Company or any subsidiary is now a party or
pursuant to which the Company or any subsidiary has acquired any right
and/or obligations by succession or otherwise;
(9) The financial statements and schedules filed with and
as part of the Registration Statement present fairly the financial
position of the Company as of the dates thereof all in conformity with
generally accepted principles of accounting applied on a consistent
basis throughout the periods involved. Since the respective dates of
such financial statements, there have been no material adverse change
in the condition or general affairs of the Company, financial or
otherwise, other than as referred to in the Prospectus;
(10) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
except as may otherwise be indicated therein, neither the Company nor
any subsidiary has, prior to the Closing Date, either (i) issued any
securities or incurred any material liability or obligation, direct or
contingent, for borrowed money, or (ii) entered into any material
transaction other than in the ordinary course of business. The
Company has not declared, paid or made any dividend or distribution of
any kind on its capital stock;
(11) Based upon written representation from the offices
and directors of the Company and each subsidiary they have reviewed
the sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information
contained therein is true and accurate; and
(12) Based upon written representation from the offices
and directors of the Company and each subsidiary except as disclosed
in the Prospectus, during the past five years, they have not been:
(i) Subject of a petition under the Federal
bankruptcy laws or any state insolvency law filed by or
against them, or by a receiver, fiscal agent or similar
officer appointed by a court for their business or property,
or any partnership in which either or them was a general
partner at or within two years before the time of such filing,
or any corporation or business association of which either of
them was an executive officer at or within two years before
the time of such filing;
(ii) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
22
<PAGE> 23
(iii) The subject of any order, judgment, or decree
not subsequently reversed, suspended or vacated, of any court
of competent jurisdiction, permanently or temporarily
enjoining either of them from, or otherwise limiting, any of
the following activities:
(a) acting as a futures commission
merchant, introducing broker, commodity trading
advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person
regulated by the Commodity Futures Trading
Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter,
broker or dealer in securities, or as an affiliated
person, director or employee of any investment
company, bank, savings and loan association or
insurance company, or engaging in or continuing any
conduct or practice in connection with any such
activity;
(b) engaging in any type of business
practice; or
(c) engaging in any activity in
connection with the purchase or sale of any security
or commodity or in connection with any violation of
Federal or State securities law or Federal Commodity
laws.
(iv) The subject of any order, judgment or decree,
not subsequently reversed, suspended or vacated of any Federal
or State authority barring, suspending or otherwise limiting
for more than sixty (60) days either of their right to engage
in any activity described in paragraph (3) (i) above, or be
associated with persons engaged in any such activity;
(v) Found by any court of competent jurisdiction
in a civil action or by the Securities and Exchange Commission
to have violated any Federal or State securities law, and the
judgment in such civil action or finding by the Commission has
not been subsequently reversed, suspended or vacated; or
(vi) Found by a court of competent jurisdiction in
a civil action or by the Commodity Futures Trading Commission
to have violated any Federal Commodities Law, and the judgment
in such civil action or finding by the Commodity Futures
Trading Commission has not been subsequently reversed,
suspended or vacated.
(g) The Underwriters shall have received from ___________________,
independent auditors to the Company, certificates or letters, one dated and
delivered on the Effective Date and one dated and delivered on the Closing
Date, in form and substance satisfactory to the Underwriters, stating, that:
23
<PAGE> 24
(1) they are independent certified public accountants
with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(2) the financial statements and the schedules included
in the Registration Statement and the Prospectus were examined by them
and, in their opinion, comply as to form in all material respects with
the applicable accounting requirements of the Act, the Rules and
Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2;
(3) on the basis of inquiries and procedures conducted by
them (not constituting an examination in accordance with generally
accepted auditing standards), including a reading of the latest
available unaudited interim financial statements or other financial
information of the Company (with an indication of the date of the
latest available unaudited interim financial statements), inquiries of
officers of the Company who have responsibility for financial and
accounting matters, review of minutes of all meetings of the
shareholders and the Board of Directors of the Company and other
specified inquiries and procedures, nothing has come to their
attention as a result of the foregoing inquiries and procedures that
causes them to believe that:
(i) during the period from (and including) the
date of the financial statements in the Registration Statement
and the Prospectus to a specified date not more than five days
prior to the date of such letters, there has been any change
in the Common Stock, long-term debt or other securities of the
Company (except as specifically contemplated in the
Registration Statement and Prospectus) or any material
decreases in net current assets, net assets, shareholder's
equity, working capital or in any other item appearing in the
Company's financial statements as to which the Underwriters
may request advice, in each case as compared with amounts
shown in the balance sheet as of the date of the financial
statement in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or will occur;
(ii) during the period from (and including) the
date of the financial statements in the Registration Statement
and the Prospectus to such specified date there was any
material decrease in revenues or in the total or per share
amounts of income or loss before extraordinary items or net
income or loss, or any other material change in such other
items appearing in the Company's financial statements as to
which the Underwriters may request advice, in each case as
compared with the corresponding period in the preceeding year,
except in each case for increases, changes or decreases which
the Prospectus discloses have occurred or will occur;
(4) they have compared specific dollar amounts, numbers
of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the
general accounting
24
<PAGE> 25
records, including work sheets, of the Company and excluding any
questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute
an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement.
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriters. Any changes, increases or decreases
in the items set forth in such letters which, in the judgment of the several
Underwriters, are materially adverse with respect to the financial position or
results of operations of the Company shall be deemed to constitute a failure of
the Company to comply with the conditions of the obligations to the several
Underwriters hereunder.
(h) Upon exercise of the Option provided for in Section 2(b)
hereof, the obligation of the several Underwriters (or, at its option, the
Representatives, individually) to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(1) The Registration Statement shall remain effective at
the Option Closing Date, and no stop order suspending the
effectiveness thereof shall have been issued and no proceedings for
that purpose shall have been instituted or shall be pending, or, to
your knowledge or the knowledge of the Company, shall be contemplated
by the Commission, and any reasonable request on the part of the
Commission for additional information shall have been complied with to
the satisfaction of counsel to the Underwriters.
(2) At the Option Closing Date, there shall have been
delivered to you the signed opinion from [Joe Garza], counsel for the
Company, dated as of the Option Closing Date, in form and substance
satisfactory to counsel to the Underwriters, which opinion shall be
substantially the same in scope and substance as the opinion furnished
to you at the Closing Date pursuant to Section 4 (e) hereof, except
that such opinion, where appropriate, shall cover the Option
Securities.
(3) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chief Executive Officer and
Chief Financial Officer of the Company, dated the Option Closing Date,
in form and substance satisfactory to counsel to the Underwriters,
substantially the same in scope and substance as the certificate
furnished to you at the Closing Date pursuant to Section 4(f) hereof.
(4) At the Option Closing Date, there shall have been
delivered to you a letter in form and substance satisfactory to you
from ____________________________________, independent auditors to the
Company, dated the Option Closing Date and addressed to the several
Underwriters confirming the information in their letter referred to in
Section 4(g) hereof and stating that nothing has come to their
attention during the period from the ending date of their review
referred to in said letter to a date not more than five business days
prior to the Option Closing Date, which would require any change in
said letter if it were required to be dated the Option Closing Date.
25
<PAGE> 26
(5) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and issuance of the Option
Securities shall be satisfactory in form and substance to the
Underwriters, and the Underwriters and counsel to the Underwriters
shall have been furnished with all such documents, certificates, and
opinions as you may request in connection with this transaction in
order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company or its
compliance with any of the covenants or conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD,
the effect of which would make it improper, at any time prior to the Closing
Date, for members of the NASD to execute transactions (as principal or agent)
in the Common Stock and no proceedings for the taking of such action shall have
been instituted or shall be pending, or, to the knowledge of the several
Underwriters or the Company, shall be contemplated by the Commission or the
NASD. The Company represents that at the date hereof it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD. The
Company shall advise the Representatives of any NASD affiliations of any of its
officers, directors, or stockholders or their affiliates in accordance with
paragraph 1(y) of this Agreement.
(j) At the Effective Date, you shall have received from counsel to
the Company, dated as of the Effective Date, in form and substance satisfactory
to counsel for the Underwriter, a written Secondary Market Trading Opinion
detailing those states in which the Shares and Warrants may be traded in
non-issuer transactions under the Blue Sky laws of the fifty (50) states after
the Effective Date, in accordance with paragraph 3(ab) of this Agreement.
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the several Underwriters, and such counsel shall be furnished with such
documents, certificates and opinions as they may reasonably request to enable
them to pass upon the matters referred to in this sub-paragraph.
(l) Prior to the Effective Date, the Representatives shall have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Representatives, as described in the Registration Statement.
(m) If any of the conditions herein provided for in this Section
shall not have been fulfilled as of the date indicated, this Agreement and all
obligations of the several Underwriters under this Agreement may be canceled
at, or at any time prior to, the Closing Date and/or the Option Closing Date by
the Representatives and/or the Underwriters notifying the Company of such
cancellation in writing or by telegram at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of the several
Underwriters to the Company.
5. Conditions of the Obligations of the Company. The obligation
of the Company to sell and deliver the Securities is subject to the following
conditions:
26
<PAGE> 27
(i) The Registration Statement shall have become
effective not later than 5:00 p.m., Eastern Time, on the date
of this Agreement, or on such later time or date as the
Company and the Representatives may agree in writing; and
(ii) At the Closing Date and the Option Closing
Date, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued under the Act or
any proceedings therefore initiated or threatened by the
Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the Closing Date but are not fulfilled
after the Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Securities on exercise of the
Option provided for in Section 2(b) hereof shall be affected.
6. Indemnification. (a) The Company indemnifies and holds
harmless each Underwriter and each person, if any, who controls the Underwriter
within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include but not be limited to, all reasonable costs of defense and
investigation and all attorneys' fees), to which the Underwriter or such
controlling person may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in (i) the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
(ii) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by
the Company and filed in any state or other jurisdiction in order to qualify
any or all of the Securities under the securities laws thereof (any such
application, document or information being hereinafter called a "Blue Sky
Application"), or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus,
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such cases to the extent, but only to the extent, that any
such losses, claim, damages or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the Underwriters specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such Preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto. Notwithstanding
the foregoing, the Company shall have no liability under this section if such
untrue statement or omission made in a Preliminary Prospectus is cured in the
Prospectus and the Prospectus is not delivered to the person or persons
alleging the liability upon which indemnification is being sought. This
indemnity will be in addition to any liability which the Company may otherwise
have.
27
<PAGE> 28
(b) Each Underwriter, severally, but not jointly, indemnifies and
holds harmless the Company, each of its directors, each nominee (if any) for
director named in the Prospectus, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include, but not
be limited to, all costs of defense and investigation and all attorneys' fees)
to which the Company or any such director, nominee, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statements or alleged untrue statement or omission or alleged omission
was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by you or by any
Underwriter through you specifically for use in the preparation thereof.
Notwithstanding the foregoing, the Underwriters shall have no liability under
this Section if such untrue statement or omission made in a Preliminary
Prospectus is cured in the Prospectus and the Prospectus is not delivered to
the person or persons alleging the liability upon which indemnification is
being sought through no fault of the Underwriter. This indemnity agreement
will be in addition to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that if the indemnified party is an Underwriter or a person who controls such
Underwriter within the meaning of the Act, the fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include both the Underwriter or such controlling person and the
indemnifying party and in the reasonable judgment of the Representatives, it is
advisable for the Representatives or such Underwriters or controlling persons
to be represented by separate counsel (in which case
28
<PAGE> 29
the indemnifying party shall not have the right to assume the defense of such
action on behalf of the Underwriter or such controlling person, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for all such Underwriters and controlling persons,
which firm shall be designated in writing by you). No settlement of any action
against an indemnified party shall be made without the consent of the
indemnifying party, which shall not be unreasonably withheld in light of all
factors of importance to such indemnifying party.
7. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) each Underwriter makes
claim for indemnification pursuant to Section 6 hereof but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case,
notwithstanding the fact that the express provisions of Section 6 provide for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of any Underwriter, then the Company and each person who
controls the Company, in the aggregate, and any such Underwriter shall
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all reasonable costs of defense and investigation and
all reasonable attorneys, fees) in either such case (after contribution from
others) in such proportions that all such Underwriters are responsible in the
aggregate for that portion of such losses, claims, damages or liabilities
represented by the percentage that the underwriting discount per Share
appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon, and the Company shall be responsible for the remaining
portion, provided, however, that (a) if such allocation is not permitted by
applicable law then the relative fault of the Company and the Underwriter and
controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an
untrue statement of a material fact or the omission to state a material fact,
such statement or omission relates to information supplied by the Company, or
the Underwriter and the parties, relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriters and their
controlling persons in the aggregate were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of this Section; and
(b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of
Securities purchased by such Underwriter to the number of Securities purchased
by all contributing Underwriters) of the portion of such losses, claims,
damages or liabilities for which the Underwriters are responsible. No person
ultimately determined to be guilty of a fraudulent
29
<PAGE> 30
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is nor ultimately determined to be
guilty of such fraudulent misrepresentation. As used in this paragraph, the
term "Underwriter" includes any officer, director, or other person who controls
the Underwriter within the meaning of Section 15 of the Act, and the word
"Company" includes any officer, director, or person who controls the Company
within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled to
contribution from the Company, its officers, directors and controlling persons
to the full extent permitted by law. This foregoing agreement shall in no way
affect the contribution liabilities of any persons having liability under
Section 11 of the Act other than the Company and the Underwriter. No
contribution shall be requested with regard to the settlement of any matter
from any party who did not consent to the settlement; provided, however, that
such consent shall not be unreasonably withheld in light of all factors of
importance to such party.
8. Costs and Expenses. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriters is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
the counsel to the Company or of the Company's accountants; the costs and
expenses incident to the preparation, printing, filing and distribution under
the Act of the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), Preliminary Prospectus and
the Prospectus, as amended or supplemented; the fee of the NASD in connection
with the filing required by the NASD relating to the offering of the Securities
contemplated hereby; all state filing fees, expenses and disbursements and
legal fees of counsel to the Company who shall serve as Blue Sky counsel to the
Company in connection with the filing of applications to register the
Securities under the state securities or blue sky laws; the cost of printing
and furnishing to the several Underwriters copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, the
Selected Dealers Agreement, the Agreement Among Underwriters, Underwriters
Questionnaire, Underwriters Power of Attorney and the Blue Sky Memorandum; the
cost of printing the certificates evidencing the securities comprising the
Securities; the cost of preparing and delivering to the Underwriters and its
counsel bound volumes containing copies of all documents and appropriate
correspondence filed with or received from the Commission and the NASD and all
closing documents; and the fees and disbursements of the transfer agent for the
Company's securities. The Company shall pay any and all taxes (including any
original issue, transfer, franchise, capital stock or other tax imposed by any
jurisdiction) on sales to the Underwriters hereunder. The Company will also
pay all costs and expenses incident to the furnishing of any amended Prospectus
or of any supplement to be attached to the Prospectus. The Company shall also
engage the Company's counsel to provide the Representatives with a written
Secondary Market Trading Opinion in accordance with paragraphs 3(ab) and 4(j)
of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at
the Closing Date pay to the Representatives a non-accountable expense allowance
equal to two percent (2%) of the gross proceeds received from the sale of the
Securities, of which an advance of $50,000 has been paid to date. In the event
the over allotment option is exercised, the Company shall pay to the
Representatives at the Option Closing Date an additional amount equal to two
percent (2%) of the gross proceeds received upon exercise of the over allotment
option.
30
<PAGE> 31
(c) Other than as disclosed in the Registration Statement, no
person is entitled either directly or indirectly to compensation from the
Company, from the Representatives or from any other person for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Representatives and the other Underwriters
against any losses, claims, damages or liabilities, joint or several which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys, fees, to which the
Representatives or such other Underwriter may become subject insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon the claim of any person (other than an employee of the
party claiming indemnity) or entity that he or it is entitled to a finder's fee
in connection with the proposed offering by reason of such person's or entity's
influence or prior contact with the indemnifying party.
9. Substitution of Underwriters. If any of the Underwriters
shall for any reason not permitted hereunder cancel their obligations to
purchase the Securities hereunder, or shall fail to take up and pay for the
number of Securities set forth opposite their respective names in Schedule A
hereto upon tender of such Securities in accordance with the terms hereof,
then:
(a) if the aggregate number of Securities which such Underwriter
or Underwriters agreed but failed to purchase does not exceed ten percent (10%)
of the total number of Securities, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Securities which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed
number of Securities with respect to which such default or defaults occurs is
more than ten percent (10%) of the total number of Securities, the remaining
Underwriters shall have the right to take up and pay for (in such proportion as
may be agreed upon among them) the Securities which the defaulting Underwriter
or Underwriters agreed but failed to purchase. If such remaining Underwriters
do not, at the Closing Date, take up and pay for the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase, the time
for delivery of the Securities shall be extended to the next business day to
allow the several Underwriters the privilege of substituting within twenty-four
hours (including non- business hours) another Underwriter or Underwriters
satisfactory to the Company. If no such Underwriter or Underwriters shall have
been substituted as aforesaid, within such twenty-four period, the time of
delivery of the Securities may, at the option of the Company, be again extended
to the next following business day, if necessary, to allow the Company the
privilege of finding within twenty-four hours (including non-business hours)
another Underwriter or Underwriters to purchase the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the Securities of the defaulting Underwriter or Underwriters as
provided in this Section, (i) the Company or the Representatives shall have the
right to postpone the time of delivery for a period of not more than seven (7)
business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary; and (ii) the respective numbers of
31
<PAGE> 32
Securities to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken at the basis of the underwriting obligation for all
purposes of this Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Securities agreed
to be purchased by the defaulting Underwriters or substitute another
Underwriter or Underwriters as aforesaid, and the Company shall not find or
shall not elect to seek another Underwriter or Underwriters for such Securities
as aforesaid, then this Agreement shall terminate.
If, following exercise of the Option provided in Section 2(b) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Securities at the Option Closing
Date, or shall fail to take up and pay for the number of Option Securities,
which they become obligated to purchase at the Option Closing Date upon tender
of such Option Securities in accordance with the terms hereof, then the
remaining Underwriters or substituted Underwriters may take up and pay for the
Option Securities of the defaulting Underwriters in the manner provided in
Section 9(b) hereof. If the remaining Underwriters or substituted Underwriters
shall not take up and pay for all Option Securities, the Underwriters shall be
entitled to purchase the number of Option Securities for which there is no
default or, at their election, the option shall terminate, the exercise thereof
shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of
termination, there shall be no liability on the part of any non-defaulting
Underwriter to the Company, provided that the provisions of this Section 9
shall not in any event affect the liability of any defaulting Underwriter to
the Company arising out of such default.
10. Effective Date. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the
effective date of the Registration Statement, or at such earlier time after the
effective date of the Registration Statement as you in your discretion shall
first commence the public offering by the Underwriters of any of the
Securities. The time of the public offering shall mean the time after the
effectiveness of the Registration Statement when the Securities are first
generally offered by you to the other Underwriters and Selected Dealers. This
Agreement may be terminated by you at any time before it becomes effective as
provided above, except that Sections 3(c), 6, 7, 8, 13, 14, 15, 16, 17 and 18
shall remain in effect notwithstanding such termination.
11. Termination. (a) This Agreement, except for Sections 3(c), 6,
7, 8, 13, 14, 15, 16, 17, and 18 hereof, may be terminated at any time prior to
the Closing Date, and the Option referred to in Section 2(b) hereof, if
exercised, may be canceled at any time prior to the Option Closing Date, by you
if in your judgment it is impracticable to offer for sale or to enforce
contracts made by the Underwriters for the resale of the Securities agreed to
be purchased hereunder by reason of: (i) the Company having sustained a
material adverse loss, whether or not insured, by reason of fire, earthquake,
flood, accident or other calamity, or from any labor dispute or court or
government action, order or decree; (ii) trading in securities on the New York
Stock
32
<PAGE> 33
Exchange or the American Stock Exchange having been suspended or limited; (iii)
material governmental restrictions having been imposed on trading in securities
generally (not in force and effect on the date hereof); (iv) a banking
moratorium having been declared by Federal or New York or Texas state
authorities; (v) an outbreak of major international hostilities or other
national or international calamity having occurred which is reasonably believed
likely by the Representatives to have a material adverse impact on the
business, financial condition or financial statements of the Company or the
market for the securities offered hereby; (vi) the passage by the Congress of
the United States or by any state legislative body of similar impact, of any
act or measure, or the adoption of any orders, rules or regulations by any
governmental body or any authoritative accounting institute or board, or any
governmental executive; (vii) any material adverse change in the financial or
securities markets beyond normal market fluctuations having occurred since the
date of this Agreement; (viii) a pending or threatened legal or governmental
proceeding or action relating generally to the Company's business, or a
notification having been received by the Company of the threat of any such
proceeding or action, which could, in the reasonable judgment of the
Representatives, materially adversely affect the Company; (ix) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
or (x) the Company shall not have complied in all material respects with any
term, condition or provisions on their part to be performed, complied with or
fulfilled (including but not limited to those set forth in this Agreement)
within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section, the Company shall
be promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
12. Representatives' Warrant Agreement. At the Closing Date, the
Company will issue to the Representatives and/or persons related to the
Representatives, for an aggregate purchase price of $100, and upon the terms
and conditions set forth in the form of Representatives' Warrant Agreement
annexed as an exhibit to the Registration Statement, Representatives' Warrants
to purchase up to an aggregate of 120,000 Shares and 120,000 Warrants, in such
denominations as the Representatives shall designate. In the event of conflict
in the terms of this Agreement and the Representatives' Warrant Agreement, the
language of the form of Representatives' Warrant Agreement shall control.
13. Representations, Warranties and Agreements to Survive
Delivery. The respective indemnities, agreements, representations, warranties
and other statements of the Company and its principal officers, where
appropriate, and the Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriters, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment
for the Securities and the termination of this Agreement.
14. Notice. All communications hereunder will be in writing and,
except as otherwise expressly provided herein, will be mailed, delivered or
telegraphed and confirmed:
33
<PAGE> 34
If to the Underwriters: Douglas Nichols, President
First London Securities Corporation
2600 State Street
Dallas, Texas 75204
Copy to: Susan Henderson
Crouch & Hallett, L.L.P.
717 North Harwood
Suite 1400
Dallas, Texas 75201
If to the Company: John T. White, CEO
Performance Printing Corporation
3012 Fairmont
Dallas, Texas 75201
Copy to: Joseph Garza
Garza and Staples, P.C.
5420 LBJ Freeway
1230 Lincoln Center II
Dallas, Texas 75240
15. Parties in Interest. This Agreement herein set forth is made
solely for the benefit of the several Underwriters, the Company and, to the
extent expressed, any person controlling the Company or of the Underwriters,
and directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser of the Securities, as
such purchaser, from the several Underwriters. All of the obligations of the
Underwriters hereunder are several and not joint.
16. Applicable Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Texas applicable to
contracts made and to be performed entirely within the State of Texas. The
parties agree that any action brought by any party against another party in
connection with any rights or obligations arising out of this Agreement shall
be instituted properly in a federal or state court of competent jurisdiction
with venue only in the State District Court of Dallas, County, Texas or the
United States District Court for the Northern District of Texas. A party to
this Agreement named as a Defendant in any action brought in connection with
this Agreement in any court outside of the above named designated county or
district shall have the right to have the venue of said action changed to the
above designated county or district or, if necessary, have the case dismissed,
requiring the other party to re- file such action in an appropriate court in
the above designated county or federal district.
34
<PAGE> 35
17. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counter-parts shall together constitute but one and
the same instrument.
18. Entire Agreement. This Agreement and the agreements referred
to within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreement, understanding, negotiations and discussions,
whether written or oral, of the parties hereto.
19. Representatives as Underwriter. In the event the
Representatives act as the sole Underwriter ("Underwriter") in connection with
the underwriting of the securities being offered pursuant to the Registration
Statement, all references to the Representatives in this Agreement shall be
replaced by reference to the "Underwriter", and (i) any consents required to be
obtained from the Representatives shall be required to be obtained solely from
the Underwriter; (ii) all compensation to be received by the Representatives
shall instead be received by the Underwriter; and (iii) the provisions of
section nine (9) of this Agreement shall not apply.
[Signature page to follow]
35
<PAGE> 36
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the several Underwriters in
accordance with its terms.
Very truly yours,
Performance Printing Corporation
BY:
--------------------------------------
John T. White, Chief Executive
Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
FIRST LONDON SECURITIES CORPORATION
BY:
--------------------------------------
Douglas Nichols, President
For itself and as Representative of
the several Underwriters
36
<PAGE> 37
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
<TABLE>
<CAPTION>
UNDERWRITER SHARES
- ----------- ------
<S> <C>
First London Securities Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,200,000
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITER WARRANTS
- ----------- --------
<S> <C>
First London Securities Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,200,000
</TABLE>
<PAGE> 1
EXHIBIT 4.1
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Agreement") is made and entered into as of
this ____ day of ______, 1998, by and between Performance Printing Corporation,
a corporation organized and existing under the laws of the State of Texas
("Company"), and ___________________________ a ___________ corporation, as
warrant agent ("Warrant Agent").
WHEREAS, the Company proposes to offer and sell a maximum of 1,380,000
shares of common stock ("Common Stock"), $.01 par value per share (which
includes 180,000 shares of Common Stock pursuant to the Underwriters'
over-allotment option) at a purchase price of $_______ per share and 1,380,000
Redeemable Common Stock Purchase Warrants ("Warrants") (which includes 180,000
Warrants pursuant to the Underwriters' over-allotment option) at a purchase
price of $.125 per Warrant pursuant to a Registration Statement on Form SB-2
(the "Prospectus"), File Number 333-_______, filed with the Securities and
Exchange Commission; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, registration of transfer, exchange and exercise of the
Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
2. Form of Warrants. The text and the terms of the Warrants, and the
form of election to purchase shares of Common Stock appearing on the reverse
side thereof shall be substantially as set forth in Exhibit A attached hereto
and made a part hereof. The Warrants shall be executed on behalf of the Company
by the manual or facsimile signature of the Chairman, Vice Chairman of the
Company or President or Chief Executive Officer and by the manual or facsimile
of the secretary or assistant secretary of the Company under its corporate
seal, affixed or in facsimile.
The Warrants shall be dated by the Warrant Agent as of the initial
date of issuance thereof, and upon transfer or exchange, the Warrant shall be
dated as of such subsequent issuance date.
1
<PAGE> 2
The Warrants shall expire at 5:00 p.m. (Texas time) on _________,
2003. If such date shall, in the State of Texas, be a holiday or a day in which
banks are authorized to close, then the Warrants shall expire the next
following day which in the State of Texas is not a holiday or a day on which
banks are authorized to close.
3. Registration and Countersignature. The Warrant Agent shall maintain
books for the transfer and registration of the Warrants. Upon the initial
issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective registered holders, and upon subsequent
issuance, such Warrants shall be registered in the names of the respective
succeeding registered holders. The Warrants shall be countersigned by the
Warrant Agent (or by any successor to the Warrant Agent then acting as warrant
agent under this Agreement) and shall not be valid for any purpose unless so
countersigned. Warrants may be so countersigned, however, by the Warrant Agent
(or by its successor as warrant agent) and be delivered by the Warrant Agent,
notwithstanding that the persons whose manual or facsimile signature appear
thereon as proper officers of the Company shall have ceased to be such officers
at the time of such countersignature or delivery. Until a Warrant is
transferred on the books of the Warrant Agent, the Company and the Warrant
Agent may treat any registered holder of Warrants as the absolute owner thereof
for all purposes, notwithstanding any notice to the contrary.
4. Registration of Transfers and Exchanges. The Warrant Agent shall
transfer any outstanding Warrants on the books to be maintained by the Warrant
Agent for that purpose, upon surrender thereof for transfer, properly endorsed
or accompanied by appropriate instructions for transfer with proper documentary
stamps affixed thereto, if requested. Upon any such transfer, a new Warrant
shall be issued to the transferee, and the surrendered Warrant shall be
canceled by the Warrant Agent. Warrants so canceled shall be delivered by the
Warrant Agent to the Company from time to time. Warrants may be exchanged at
the option of the holder thereof when surrendered at the office of the Warrant
Agent, for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like
number of shares of Common Stock. The Warrant Agent is hereby irrevocably
authorized to countersign and deliver the Warrants in accordance with the
provisions of this Paragraph 4, and the Company, whenever required by the
Warrant Agent, will supply the Warrant Agent with Warrants duly executed on
behalf of the Company for such purpose.
5. Exercise of Warrants. Subject to the provisions of this Agreement,
each registered holder of Warrants shall have the right, which right may be
exercised as in such Warrants as expressed, to purchase from the Company, and
the Company shall issue and sell to such registered holder of Warrants, the
number of fully paid and nonassessable shares of Common Stock specified in such
Warrants, upon surrender to the Company at the office of the Warrant Agent,
with the form of election to purchase on the reverse side
2
<PAGE> 3
thereof duly completed and signed, and upon payment to the Warrant Agent for
the account of the Company of the Exercise Price for the number of shares of
Common Stock in respect of which such Warrants are then exercised. Payment of
such Exercise Price may be made in cash or by certified check, bank draft, or
postal or express money order, payable in United States dollars, to the order
of the Company. Subject to the provisions of Paragraph 8 hereof, upon such
surrender of Warrants and payment of the Exercise Price as aforesaid, the
Company, acting through the Warrant Agent, shall issue and cause to be
delivered with all reasonable dispatch to or upon the written order of the
registered holder of such Warrants and in such name or names as such registered
holder may designate, a certificate or certificates for the number of full
shares of Common Stock so purchased upon the exercise of such Warrants. Such
certificates shall be deemed to have been issued, and any person so designated
to be named therein shall be deemed to have become a holder of record of such
Common Stock, as of the date of surrender of such Warrants and payment of the
Exercise Price, as aforesaid; provided, however, that if, at the date of
surrender of such Warrants and the payment of such Exercise Price, the transfer
books for the Common Stock purchasable upon the exercise of such Warrants shall
be closed, the certificates for the Common Stock in respect of which such
Warrants are then exercised shall be issuable as of the date on which such
books shall next be opened, and until such date the Company shall be under no
duty to deliver any certificate for such shares; provided further, however,
that the transfer books aforesaid, unless otherwise required by law, shall not
be closed at any one time for a period longer than 20 days. The right of
purchase represented by the Warrants shall be exercisable, at the election of
the registered holders thereof, either as an entirety or, from time to time,
for only part of the Common Stock specified therein, and in the event that any
Warrant is exercised in respect of less than all of the Common Stock specified
therein at any time prior to the date of expiration of the Warrants, a new
Warrant or Warrants will be issued for the remaining number of Common Stock
specified in the Warrant so surrendered, and the Warrant Agent is hereby
irrevocably authorized to countersign and to deliver the required new Warrants
pursuant to the provisions of this Paragraph 5 and of Paragraph 3 of this
Agreement, and the Company, whenever required by the Warrant Agent, will supply
the Warrant Agent with Warrants duly executed on behalf of the Company for such
purposes.
Notwithstanding anything contained herein to the contrary, no Warrant
may be exercised if the issuance of Common Stock in connection therewith would
constitute a violation of the registration provisions of federal or state
securities laws.
Upon thirty (30) days prior written notice to all holders of the
Warrants, the Company shall have the right to reduce the exercise price and/or
extend the term of the Warrants in compliance with the requirements of Rule
13e-4 to the extent applicable.
3
<PAGE> 4
The "Exercise Price" of the Warrants shall mean the exercise price
specified in the Warrants until the occurrence of a re-capitalization or
reclassification that, pursuant to the provisions hereof, shall require an
increase or decrease in the exercise price of the Warrants, and thereafter
shall mean said price as adjusted from time to time in accordance with the
provisions hereof. No such adjustment shall be made unless such adjustment
would change the then purchase price per share by ten cents ($.10) or more;
provided, however, that all adjustments not so made shall be deferred and made
when the aggregate thereof would change the then purchase price per share by
ten cents ($.10) or more. No adjustment made pursuant to any provision hereof
shall have the effect of increasing the total consideration payable upon
exercise of any of the Warrants.
6. Adjustments in Certain Cases. In case the Company shall at any time
prior to the exercise or termination of any of the Warrants effect a
re-capitalization or reclassification of such character that its Common Stock
shall be changed into or become exchangeable for a larger or smaller number of
shares, then, upon the effective date thereof, the number of shares of Common
Stock that the holders of the Warrants shall be entitled to purchase upon
exercise thereof shall be increased or decreased, as the case may be, in direct
proportion to the increase or decrease in such number of shares of Common Stock
by reason of such re-capitalization or reclassification, and the purchase price
per share of such re-capitalized or reclassified Common Stock shall, in the
case of an increase in the number of shares, be proportionately decreased and,
in the case of a decrease in the number of shares, be proportionately
increased.
In case the Company shall at any time prior to the exercise or
termination of any of the Warrants distribute to holders of its Common Stock
cash, evidences of indebtedness, or other securities or assets, other than as
dividends or distributions payable out of current or accumulated earnings,
then, in any such case, the holders of the Warrants shall be entitled to
receive, upon exercise thereof, with respect to each share of Common Stock
issuable upon such exercise, the amount of cash or evidences of indebtedness or
other securities or assets that such holder would have been entitled to receive
with respect to the Common Stock as a result of the happening of such event,
had the Warrants been exercised immediately prior to the record date or other
date fixing shareholders to be affected by such event (without giving effect to
any restriction upon such exercise).
In case the Company shall at any time prior to the exercise or
termination of any of the Warrants consolidate or merge with any other
corporation or transfer all or substantially all of its assets to any other
corporation preparatory to a dissolution, then the Company shall, as a
condition precedent to such transaction, cause effective provision to be made
so that the holders of the Warrants, upon the exercise thereof after the
effective date of such transaction, shall be entitled to receive the kind and
amount of shares,
4
<PAGE> 5
evidences of indebtedness, and/or other property receivable on such transaction
by a holder of the number of shares of Common Stock as to which the Warrants
were exercisable immediately prior to such transaction (without giving effect
to any restriction upon such exercise); and, in any such case, appropriate
provision shall be made with respect to the rights and interests of the holders
thereof to the effect that the provisions of the Warrants shall thereafter be
applicable (as nearly as may be practicable) with respect to any shares,
evidences of indebtedness, or other securities or assets thereafter deliverable
upon exercise of the Warrants.
Whenever the number of shares of Common Stock or other types of
securities or assets purchasable upon exercise of any of the Warrants shall be
adjusted as provided herein, the Company shall forthwith obtain and file with
its corporate records a certificate or letter from a firm of independent public
accountants of recognized standing setting forth the computation and the
adjusted number of shares of Common Stock or other securities or assets
purchasable hereunder resulting from such adjustments, and a copy of such
certificate or letter shall be mailed to each of the registered holders of the
Warrants. Any such certificate or letter shall be conclusive evidence as to the
correctness of the adjustment or adjustments referred to therein and shall be
available for inspection by the holders of the Warrants on any day during
normal business hours.
In the event that at any time as a result of an adjustment made
pursuant hereto the holders of the Warrants shall become entitled to purchase
upon exercise thereof shares, evidences of indebtedness, or other securities or
assets (other than Common Stock), then, wherever appropriate, all references
herein to Common Stock shall be deemed to refer to and include such shares,
evidences of indebtedness, or other securities or assets, and thereafter the
number of such shares, evidences of indebtedness, or other securities or assets
shall be subject to adjustment from time to time in a manner and upon terms as
nearly equivalent as practicable to the provisions hereof.
7. Redemption. The Warrants may be redeemed at the option of the
Company, at a redemption price of $.05 per Warrant, upon not less than thirty
(30) days nor more than sixty (60) days prior written notice, if the closing
price of the Common Stock, as reported by the principal exchange on which the
Common Stock is traded, the Nasdaq Small Cap Market or the National Quotation
Bureau, Incorporated, as the case may be, for seven (7) days during any ten
(10) consecutive trading day period ending not more than fifteen (15) days
prior to the date the notice of redemption is marked equals or exceeds $______
per share (200% of the Share Offering Price), subject to adjustment under
certain circumstances during a period of thirty (30) consecutive trading days
ending not earlier than ten (10) days before the date of the Warrants are
called for redemption and provided there is a current registration statement
under the Securities Act of 1933, as amended, with respect to the issuance and
sale of Common Stock upon the exercise of the
5
<PAGE> 6
Warrants. Any redemption of the Warrants during the one-year period commencing
on ______________, 1998 shall require the written consent of First London
Securities Corporation and ____________ the representative of the Underwriters
(the "Representatives"). On and after the date fixed for redemption, the
Registered Holder shall have no rights with respect to the Warrants except to
receive the $.05 per Warrant upon surrender of this Warrant Certificate.
8. Payment of Taxes. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of securities upon the exercise of
the Warrants; provided, however, that the Company shall not be required to pay
any tax or taxes that may be payable in respect of any transfer involved in the
issuance or delivery of any securities in a name other than that of the
registered holder of Warrants in respect of which such securities are issued
and, in such case, neither the Company nor the Warrant Agent shall be required
to issue or deliver any certificate representing such securities or any Warrant
until the person requesting the same has paid to the Company or the Warrant
Agent the amount of such tax or has established to the Company's satisfaction
that such tax has been paid.
9. Mutilated or Missing Warrants. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Warrant Agent may countersign and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant or in lieu of and substitution for the Warrant lost, stolen or
destroyed, a new Warrant of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence satisfactory to the Warrant Agent
of such loss, theft or destruction of such Warrants and indemnity, if
requested, also satisfactory to them. Applicants for such substitute Warrants
shall also comply with such other reasonable regulations and pay such other
reasonable charges as the Company or the Warrant Agent may prescribe.
10. Reservation of Common Stock. Prior to the issuance of any
Warrants, there shall have been reserved, and the Company shall at all times
keep reserved out of the authorized and unissued Common Stock, a number of
shares of Common Stock sufficient to provide for the exercise of the rights of
purchase represented by the Warrants, and the transfer agent for the Common
Stock and every subsequent transfer agent for any of the Company's Common Stock
issuable upon the exercise of any of the rights of purchase aforesaid are
hereby irrevocably authorized and directed at all times to reserve such number
of authorized and unissued Common Stock as shall be requisite for such purpose.
The Company agrees that all Common Stock issued upon exercise of the Warrants
shall be, at the time of delivery of the certificates representing such Common
Stock, validly issued and outstanding, fully paid and non-assessable. The
Company will keep a copy of this Agreement on file with the transfer agent for
the Common Stock and with every subsequent transfer agent for the Company's
Common Stock issuable upon the exercise
6
<PAGE> 7
of the right of purchase represented by the Warrants. The Warrant Agent is
hereby irrevocably authorized to requisition from time to time from such
transfer agent stock certificates required to honor outstanding Warrants that
have been exercised. The Company will supply such transfer agent with duly
executed stock certificates for such purpose. All Warrants surrendered in the
exercise of the rights thereby evidenced shall be canceled by the Warrant Agent
and shall thereafter be delivered to the Company, and such canceled Warrants
shall constitute sufficient evidence of the number of shares of Common Stock
that have been issued upon the exercise of such Warrants. All Warrants
surrendered for transfer, exchange or partial exercise shall be canceled by the
Warrant Agent and delivered to the Company. Promptly after the date of
expiration of the Warrants, the Warrant Agent shall certify to the Company the
total aggregate amount of Warrants then outstanding and, thereafter, no Common
Stock shall be subject to reservation in respect of such Warrants.
11. Disposition of Proceeds on Exercise of Warrants. Unless otherwise
instructed by the Company in writing, the Warrant Agent shall account promptly
to the Company with respect to Warrants exercised and shall promptly deposit in
an account for the benefit of the Company, in a bank designated by the Company,
all moneys received by the Warrant Agent for the purchase of Common Stock
through the exercise of such Warrants.
12. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation or company that may succeed to the business of the Warrant Agent by
merger or consolidation or otherwise to which the Warrant Agent shall be a
party, or any corporation or company or otherwise succeeding to the business of
the Warrant Agent shall be the successor to the Warrant Agent hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided, however, that such corporation would be eligible
for appointment as a successor Warrant Agent under the provision of Paragraph
14 of this Agreement. In case at the time such successor to the Warrant Agent
shall succeed to the agency created by this Agreement or in case at any time
the name of the Warrant Agent shall be changed, and any of the Warrants shall
have been countersigned but not delivered, any such successor to the Warrant
Agent may adopt the countersignature of the original Warrant Agent and deliver
such Warrants so countersigned; and in case at the time any of the Warrants
shall not have been countersigned, the successor to the Warrant Agent may
countersign such Warrants, either in the name of the predecessor Warrant Agent
or in the name of the successor Warrant Agent; and in all such cases, such
Warrants shall have the full force provided in the Warrants and in this
Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant
7
<PAGE> 8
Agent may adopt the countersignature under its prior name and deliver Warrants
so countersigned; and if at that time any of the Warrants shall not have been
countersigned, the Warrant Agent may countersign such Warrants either in its
prior name or in its changed name; and in all such cases, such Warrants shall
have the full force provided in the Warrants and this Agreement.
13. Duties of the Warrant Agent.
(a) The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company shall be bound:
(i) The statements contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same, except such
as describe the Warrant Agent or action or actions taken or to be taken by it.
The Warrant Agent assumes no responsibility with respect to the distribution of
the Warrants, except as herein otherwise provided.
(ii) The Warrant Agent shall not be responsible
for any failure of the Company to comply with any of the covenants contained in
this Agreement or in the Warrants to be complied with by the Company.
(iii) The Warrant Agent may execute and exercise
any of the rights or powers hereby vested in it or perform any duty hereunder,
either itself, or by or through its attorneys, agents or employees.
(iv) The Warrant Agent may consult at any time
with counsel satisfactory to it (who may be counsel for the Company), and the
Warrant Agent shall incur no liability or responsibility to the Company or to
any holder of any Warrant in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with the opinion or advice of
such counsel, provided the Warrant Agent shall have exercised reasonable care
in the selection and continued employment of such counsel.
(v) The Warrant Agent shall incur no liability
or responsibility to the Company or to any holder of any Warrant for any action
taken in reliance upon any notice, resolution, waiver, consent, order,
certificate or other paper, document or instrument reasonably believed by it to
have been signed, sent or presented by the proper party or parties.
8
<PAGE> 9
(vi) The Company agrees to pay the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent in the
execution of this Agreement; to reimburse the Warrant Agent for all expenses,
taxes, governmental charges and other charges of any kind and nature incurred
by the Warrant Agent in the execution of this Agreement; and to indemnify the
Warrant Agent and save it harmless from and against any and all liabilities,
including judgments, costs and reasonable attorneys' fees for anything done or
omitted by the Warrant Agent in the execution of this Agreement, except as a
result of the Warrant Agent's negligence or bad faith.
(vii) The Warrant Agent shall be under no obligation
to institute any action, suit or legal proceeding, or to take any other action
likely to involve expense, unless the Company or one or more registered holders
of Warrants shall furnish the Warrant Agent with reasonable security and
indemnity. All rights of action under this Agreement or under any of the
Warrants or in the production thereof at any trial or other proceeding relative
thereto, and any such action, suit or proceeding instituted by the Warrant
Agent shall be brought in its name as Warrant Agent, and any recovery of
judgment shall be for the benefit of the registered holders of the Warrants, as
their respective rights or interests may appear.
(viii)The Warrant Agent and any shareholder,
director, officer, partner or employee of the Warrant Agent may buy, sell or
deal in any of the Warrants or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to or otherwise act as fully and
freely as though it were not the Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(ix) The Warrant Agent shall act hereunder solely
as agent, and its duties shall be determined solely by the provisions hereof.
The Warrant Agent shall not be liable for anything that it may do or refrain
from doing in connection with this Agreement, except for its own negligence or
bad faith.
(x) The Warrant Agent shall keep copies of this
Agreement available for inspection by holders of the Warrants during normal
business hours at its principal office in New York.
14. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving notice in writing to
the Company and by giving notice by mailing to holders of the Warrants at their
addresses as such addresses appear on the Warrant register of such resignation,
specifying a date when such resignation shall take effect, which date shall not
be less than 30 days after the mailing
9
<PAGE> 10
of said notice. The Warrant Agent may be removed at the discretion of the
Company by like notice to the Warrant Agent from the Company and by like
mailing of notice to the holders of the Warrants. If the Warrant Agent shall
resign or be removed or otherwise become incapable of acting, the Company shall
appoint a successor to the Warrant Agent. If the Company shall fail to make
such appointment within a period of 30 days after such removal, or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by the registered holder of a Warrant (who
shall, with such notice, submit his Warrant for inspection by the Company),
then the registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. After
appointment, any successor Warrant Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as
Warrant Agent without further act or deed, but the former Warrant Agent shall
deliver and transfer to the successor Warrant Agent any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance
act or deed necessary for the purpose. Not later than the effective date of any
such appointment, the Company shall give notice thereof to the predecessor
Warrant Agent and each transfer agent for the Common Stock, and shall forthwith
give notice to the holders of the Warrants in the manner prescribed in this
section. Failure to file or mail any notice provided for in this Section 14,
however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Warrant Agent or the appointment of any
successor Warrant Agent, as the case may be.
15. Identity of Transfer Agent. Forthwith upon the appointment of any
transfer agent other than the Warrant Agent for the Common Stock of the Company
issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting
forth the name and address of such transfer agent.
16. Notices. Any notice pursuant to this Agreement to be given or made
by the Warrant Agent or by the registered holder of any Warrant to the Company
shall be deemed to have been sufficiently given or made if sent by certified
mail, return receipt requested, postage prepaid, addressed (until another
address is filed in writing by the Company with the Warrant Agent) as follows:
To the Company: Performance Printing Corporation
3012 Fairmont
Dallas, Texas 75201
To the Warrant Agent:
10
<PAGE> 11
Any notice pursuant to this Agreement to be given or made by the Company or by
the registered holder of any Warrant to the Warrant Agent shall be deemed to
have been sufficiently given or made if sent by certified mail, return receipt
requested, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company) to the Warrant Agent as set
forth above.
17. Standard of Conduct. Notwithstanding any implication to the
contrary elsewhere herein, whenever the Company or the Warrant Agent are
required or permitted to make any judgment or to take any action, no such
judgment or action shall be made or taken in bad faith or in any arbitrary or
capricious fashion.
18. Supplements and Amendments. The Company and the Warrant Agent may,
from time to time, supplement or amend this Agreement without the approval of
any of the holders of the Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein that may be defective or
inconsistent with any other provision herein, or to make any other provisions
in regard to matters or questions arising hereunder that the Company and the
Warrant Agent may deem necessary or desirable, that shall not be inconsistent
with the provisions of the Warrants, and that shall not materially adversely
affect the rights of the holders of the Warrants.
19. Successors. All of the covenants and provisions hereof by or for
the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
20. Merger or Consolidation of the Company. The Company will not merge
or consolidate with or into any other corporation, unless the corporation
resulting from such merger or consolidation (if not the Company) shall
expressly assume, by supplemental agreement satisfactory in form to the Warrant
Agent and executed and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
21. Texas Contract. This Agreement and each Warrant issued hereunder
shall be deemed to be a contract made under the laws of the State of Texas and
for all purposes shall be construed in accordance with the laws of said state.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give any person or corporation, other than the Company, the
Warrant Agent and the registered holders of the Warrants, any legal or
equitable right, remedy or claim under this Agreement, but this Agreement shall
be for the sole and exclusive benefit of the Company and the Warrant Agent and
their respective successors and of the holders of the Warrant Certificates.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
Performance Printing Corporation
By:
-------------------------------
Its:
------------------------------
ATTEST:
- -------------------------
[WARRANT AGENT]
By:
-------------------------------
Its:
------------------------------
ATTEST:
- -------------------------
12
<PAGE> 13
EXHIBIT A
<PAGE> 14
No. W ____ VOID AFTER _______, 2003
_________ WARRANTS
REDEEMABLE COMMON STOCK PURCHASE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
PERFORMANCE PRINTING CORPORATION
CUSIP
THIS CERTIFIES THAT, FOR VALUE RECEIVED the holder hereof or registered assigns
(the "Registered Holder") is the owner of the number of Redeemable Common Stock
Purchase Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.01 par
value, of Performance Printing Corporation, a Texas corporation (the
"Company"), at any time between _________, 1998 (the "Initial Warrant Exercise
Date"), and the Expiration Date (as hereinafter defined) upon the presentation
and surrender of this Warrant Certificate with the Election to Purchase on the
reverse hereof duly executed, at the corporate office of [name and address of
warrant agent], as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $______ subject to adjustment (the "Purchase Price"),
in lawful money of the United States of America in cash or by check made
payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated _______,
1998, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
<PAGE> 15
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
________, 2003. If such date shall in the State of New York be a holiday or a
day on which the banks are authorized to close, then the Expiration Date shall
mean 5:00 p.m. (New York time) the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver
a prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate of Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may
be redeemed at the option of the Company, at the redemption price of $.05 per
Warrant, on not less than 30 nor more than 60 days written notice ("Notice of
Redemption") if the closing price for the Common Stock for seven trading days
during a 10 consecutive trading day period ending not more than 15 days prior
to the date notice of redemption is mailed equals or exceeds $11.00 per share
(200% of the initial offering price to the public) subject to adjustment under
certain circumstances and provided there is then a current registration
statement under the Securities Act of 1933, as amended, with respect to the
issuance and sale of Common Stock upon the exercise of the Warrants. On and
after the date fixed for redemption, the Registered Holder shall have no rights
with respect
<PAGE> 16
to the Warrants except to receive the $.05 per Warrant upon surrender of this
Warrant Certificate.
Under certain circumstances, the Representatives (as that term is
defined in the Warrant Agreement) or their designees collectively shall be
entitled upon the exercise or redemption of the Warrants to receive a fee equal
to 5% of the gross proceed received by the Company from the exercise of the
Warrants and 5% of the aggregate redemption for the Warrants represented
hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: __________, 1998
[SEAL] PERFORMANCE PRINTING CORPORATION
By:
------------------------------
By:
------------------------------
COUNTERSIGNED:
[WARRANT AGENT]
as Warrant Agent
<PAGE> 17
By:
--------------------------
Name:
---------------------------
Title:
-----------------------
<PAGE> 18
ELECTION TO PURCHASE
(To be signed only upon exercise of Warrant)
TO: Performance Printing Corporation
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing ______________ Warrants of Performance Printing
Corporation (the "Company"), which Warrant Certificate is being delivered
herewith, hereby irrevocably elects to exercise the purchase right provided by
the Warrant Certificate for, and to purchase thereunder, _____________ shares of
Common Stock of the Company, and herewith makes payment of $____________
therefor, and requests that the certificates for such securities be issued in
the name of, and delivered to,____________________________________ whose address
is _________________________________, all in accordance with the Warrant
Agreement and the Warrant Certificate.
Dated:____________________________
------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
------------------------------
------------------------------
(Address)
<PAGE> 19
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________________
________________________________________________ Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, and full
power of substitution.
Dated: Signature:
- ----------------------- ----------------------------------
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
----------------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
<PAGE> 1
EXHIBIT 5.1
February 10, 1998
Performance Printing Corporation
3012 Fairmount
Dallas, Texas 75201
Re: Registration Statement on Form SB-2
Offering of 1,200,000 Shares and Warrants
Gentlemen:
We have acted as counsel to Performance Printing Corporation, a Texas
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, (the "Securities Act"), of 1,200,000 shares
(the "Shares") of common stock, $.01 par value, (the "Common Stock") and
1,200,000 Redeemable Common Stock Purchase Warrants (the "Warrants") to
purchase one share of Common Stock of the Company to be offered to the public
by the Company in a firm commitment underwriting by First London Security,
Inc. The Registration Statement (defined below) also includes 180,000
additional shares and warrants to cover over-allotments, if any.
A registration statement on Form SB-2 is being filed with the
Securities and Exchange Commission herewith (the "Registration Statement"). In
connection with rendering this opinion we have examined executed copies of the
Registration Statement and all exhibits thereto. We have also examined and
relied upon the original , or copies certified to our satisfaction, of (i) the
Articles of Incorporation and the By-laws of the Company, (ii) minutes and
records of the corporate proceedings of the Company with respect to the
issuance of the Shares, the Common Stock and the Warrants, and related matters,
and (iii) such other agreements and instruments relating to the Company as we
deemed necessary or appropriate for purposes of the opinion expressed herein,
and we have relied, to the extent we deemed reasonable, on certificates and
certain other information provided to us by officers of the Company and public
officials as to matters of fact of which the maker of such certificate or the
person providing such other information had knowledge. Furthermore, in
rendering our opinion, we have assumed
<PAGE> 2
that the signatures on all documents examined by us are genuine, that all
documents and corporate record books submitted to us as originals are accurate
and complete, and that all documents submitted to us are true, correct and
complete copies of the original thereof.
Based on the foregoing, we are of the opinion that the Shares, the
Warrants and the shares of Common Stock issuable upon the exercise of the
Warrants, to be issued by the Company as described in the Registration
Statement, have been duly authorized for issuance and sale and the Shares, the
Warrants and the shares of Common Stock issuable upon exercise of the Warrants,
when issued by the Company, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Joe B. Garza
Joe B. Garza
<PAGE> 1
EXHIBIT 10.3
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
BORROWER: PERFORMANCE PRINTING CORPORATION
ADDRESS: 3012 FAIRMOUNT
DALLAS, TEXAS 75201
DATE: AS OF DECEMBER 19, 1996
THIS LOAN AND SECURITY AGREEMENT ("Agreement") dated the date set forth above,
is entered into by and between the borrower named above (the "Borrower"), whose
address is set forth above and FINOVA CAPITAL CORPORATION ("FINOVA"), whose
address is 311 South Wacker Drive, Suite 4400, Chicago, Illinois 60606-6611.
1. LOANS.
1.1 Total Facility. Upon the terms and conditions set forth herein and
provided that no Event of Default or event which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default, shall have
occurred and be continuing, FINOVA shall, upon Borrower's request, make advances
to Borrower from time to time in an aggregate outstanding principal amount not
to exceed the Total Facility amount (the "Total Facility") set forth on the
schedule hereto (the "Schedule"), subject to deduction of reserves for accrued
interest and such other reserves as FINOVA deems proper from time to time, and
less amounts FINOVA may be obligated to pay in the future on behalf of Borrower.
The Schedule is an integral part of this Agreement and all references to
"herein", "herewith" and words of similar import shall for all purposes be
deemed to include the Schedule.
1.2 Loans. Advances under the Total Facility ("Loans") shall be comprised
of the amounts shown on the Schedule.
1.3 Overlines. If at any time or for any reason the outstanding amount of
advances made pursuant hereto exceeds any of the dollar or percentage
limitations contained in the Schedule (any such excess, an "Overline"), then
Borrower shall, upon FINOVA's demand, immediately pay to FINOVA, in cash, the
full amount of such Overline. Without limiting Borrower's obligation to repay to
FINOVA on demand the amount of any Overline, Borrower agrees to pay FINOVA
interest on the outstanding principal amount of any Overline, on demand, at the
rate set forth in on the Schedule.
1.4 Loan Account. All advances made hereunder shall be added to and deemed
part of the Obligations when made. FINOVA may from time to time charge all
Obligations of Borrower to Borrower's loan account with FINOVA.
2. CONDITIONS PRECEDENT.
2.1 Initial Advance. The obligation of FINOVA to make the initial advance
hereunder is subject to the fulfillment, to the satisfaction of FINOVA and its
counsel, of each of the following conditions on or prior to the date set forth
on the Schedule:
(a) Loan Documents. FINOVA shall have received each of the following Loan
Documents: (i) Continuing Personal Guaranty on FINOVA's standard form, executed
by the Guarantor; (ii) such security agreements, intellectual property
assignments and deeds of trust as FINOVA may require with respect to this
Agreement, executed by each of the parties thereto and, if applicable, duly
acknowledged for recording or filing in the appropriate governmental offices;
(iii) Subordination Agreements on FINOVA's standard form, executed by each of
the Subordinating Creditors, together with copies of all instruments subject
thereto showing a legend indicating such subordination; (iv) such Blocked
Account or Dominion Account agreements as it shall determine; (v) Validity
Agreement on FINOVA's standard form, executed by Mr. John White; and (vi) such
other documents, instruments and agreements in connection herewith as FINOVA
shall require, executed, certified and/or acknowledged by such parties as FINOVA
shall designate;
(b) Terminations by Existing Lender. Comerica shall have executed and
delivered UCC termination statements and other documentation evidencing the
termination of its liens and security interests in the assets of Borrower;
(c) Charter Documents. FINOVA shall have received copies of Borrower's
By-laws and Articles of Incorporation, as amended, modified, or supplemented to
the Closing Date, certified by the Secretary of Borrower;
(d) Good Standing. FINOVA shall have received a certificate of corporate
status with respect to Borrower, dated within thirty (30) days of the Closing
Date, by the Secretary of State of the state of incorporation of Borrower, which
certificate shall indicate that Borrower is in good standing in such state;
-1-
<PAGE> 2
(e) Foreign Qualification. FINOVA shall have received certificates of
corporate status with respect to Borrower, each dated within thirty (30) days of
the Closing Date, issued by the Secretary of State of each state in which
Borrower's failure to be duly qualified or licensed would have a material
adverse effect on its financial condition or assets, indicating that such party
is in good standing;
(f) Authorizing Resolutions and Incumbency. FINOVA shall have received a
certificate from the Secretary of Borrower attesting to (i) the adoption of
resolutions of Borrower's Board of Directors authorizing the borrowing of money
from FINOVA and execution and delivery of this Agreement and the other Loan
Documents to which Borrower is a party, and authorizing specific officers of
Borrower to execute same, and (ii) the authenticity of original specimen
signatures of such officers;
(g) Insurance. FINOVA shall have received the insurance certificates and
certified copies of policies required by Section 4.4 hereof, in form and
substance satisfactory to FINOVA and its counsel;
(h) Searches. FINOVA shall have received searches reflecting the filing of
its financing statements in such jurisdictions as it shall determine;
(i) Landlord and Mortgagee Waivers. FINOVA shall have received landlord and
mortgagee waivers from the lessors and mortgagees of all locations where any
Collateral is located;
(j) Fees. Borrower shall have paid all fees payable by it on the Closing
Date pursuant to this Agreement;
(k) Opinion of Counsel. FINOVA shall have received an opinion of Borrower's
counsel covering such matters as FINOVA shall determine in its sole discretion;
(l) Officer Certificate. FINOVA shall have received a certificate of the
President and the Chief Financial Officer or similar official of Borrower,
attesting to the accuracy of each of the representations and warranties of
Borrower set forth in this Agreement and the fulfillment of all conditions
precedent to the initial advance hereunder;
(m) Solvency Certificate. If requested by FINOVA, a signed certificate of
the Borrower's duly elected Chief Financial Officer concerning the solvency and
financial condition of Borrower, on FINOVA's standard form;
(n) Blocked Account. The Blocked Account referred to in Section 7.3 hereof
shall have been established to the satisfaction of FINOVA in its sole
discretion;
(o) Disbursement Request. FINOVA shall have received written instructions
from Borrower directing application of proceeds of the initial advance made
pursuant to this Agreement;
(p) Environmental Assessment. If required by FINOVA, Borrower shall have
caused a Phase I Environmental Assessment to be conducted on the property or
properties occupied by Borrower and owned by Borrower or Guarantor, all at
Borrower's own expense and the results of such assessment(s) shall have been in
form and substance satisfactory to FINOVA in its sole discretion. Such
assessment(s) shall have included, in FINOVA's discretion, core samplings, and
shall have been conducted by an environmental engineer acceptable to FINOVA.
FINOVA may, in its sole and absolute discretion, require that an escrow account
be set up by Borrower to provide funds necessary for any environmental
remediation to correct any matters reflected in such assessment(s);
(q) Environmental Certificate. FINOVA shall have received an Environmental
Certificate from Borrower, in form and substance satisfactory to FINOVA in its
discretion, with respect to all locations of Collateral;
(r) Borrower shall have paid and/or reimbursed FINOVA for all legal fees
and expenses incurred by FINOVA in connection with the documentation, execution
and delivery of the Loan Documents; and
(s) Other Matters. All other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed and recorded and shall be in form and substance satisfactory to FINOVA
and its counsel.
2.2 Subsequent Advances. The obligation of FINOVA to make any advance shall
be subject to the further conditions precedent that, on and as of the date of
such advance: (a) the representations and warranties of Borrower set forth in
this Agreement shall be accurate, before and after giving effect to such advance
or issuance and to the application of any proceeds thereof; (b) no Event of
Default and no event which, with notice or passage of time or both, would
constitute an Event of Default has occurred and is continuing, or would result
from such advance or issuance or from the application of any proceeds thereof;
(c) no material adverse change has occurred in the Borrower's business,
operations, financial condition, or assets or in the prospect of repayment of
the Obligations; and (d) FINOVA shall have received such other approvals,
opinions or documents as FINOVA shall reasonably request.
3. INTEREST RATE AND OTHER CHARGES.
3.1 Interest; Fees. Borrower shall pay FINOVA interest on the daily
outstanding balance of Borrower's loan
-2-
<PAGE> 3
account at the per annum rate set forth on the Schedule. Borrower shall also pay
FINOVA the fees set forth on the Schedule.
3.2 Default Interest Rate. Upon the occurrence and during the continuation
of an Event of Default, Borrower shall pay FINOVA interest on the daily
outstanding balance of Borrower's loan account at a rate per annum which is two
percent (2%) in excess of the rate which would otherwise be applicable thereto
pursuant to the Schedule ("Default Interest").
3.3 Examination Fees. Borrower agrees to pay to FINOVA an examination fee
in the amount set forth on the Schedule in connection with each audit or
examination of Borrower performed by FINOVA prior to or after the date hereof.
Without limiting the generality of the foregoing, Borrower shall pay to FINOVA
an initial examination fee in an amount equal to the amount set forth on the
Schedule. Such initial examination fee shall be deemed fully earned at the time
of payment and due and payable upon the closing of this transaction, and shall
be deducted from any good faith deposit paid by Borrower to FINOVA prior to the
date of this Agreement.
3.4 Excess Interest.
(a) The contracted for rate of interest of the loan contemplated hereby,
without limitation, shall consist of the following: (i) the interest rate set
forth on the Schedule, calculated and applied to the principal balance of the
Obligations in accordance with the provisions of this Agreement; (ii) interest
after an Event of Default, calculated and applied to the amount of the
Obligations in accordance with the provisions hereof; and (iii) all additional
Sums (as herein defined), if any. Borrower agrees to pay an effective contracted
for rate of interest which is the sum of the above-referenced elements. The
examination fees, attorneys fees, expert witness fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees, Termination Fees,
Minimum Interest Charges, other charges, goods, things in action or any other
sums or things of value paid or payable by Borrower (collectively, the
"additional Sums"), whether pursuant to this Agreement or any other documents or
instruments in any way pertaining to this lending transaction, or otherwise with
respect to this lending transaction, that under any applicable law may be deemed
to be interest with respect to this lending transaction, for the purpose of any
applicable law that may limit the maximum amount of interest to be charged with
respect to this lending transaction, shall be payable by Borrower as, and shall
be deemed to be, additional interest and for such purposes only, the agreed upon
and "contracted for rate of interest" of this lending transaction shall be
deemed to be increased by the rate of interest resulting from the inclusion of
the additional Sums.
(b) It is the intent of the parties to comply with the usury laws of the
State of Arizona (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such documents require the payment or permit the
collection of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law (the "Maximum Interest Rate"). In the event (a) any such
excess of interest otherwise would be contracted for, charged or received from
Borrower or otherwise in connection with the loan evidenced hereby, or (b) the
maturity of the Obligations is accelerated in whole or in part, or (c) all or
part of the Obligations shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, shared or received in
connection with the loan evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (1) the provisions of this paragraph shall govern
and control, (2) neither Borrower nor any other person or entity now or
hereafter liable for the payment of the Obligations shall be obligated to pay
the amount of such interest to the extent that it is in excess of the Maximum
Interest Rate, (3) any such excess which may have been collected shall be either
applied as a credit against the then unpaid principal amount of the Obligations
or refunded to Borrower, at FINOVA's option, and (4) the effective rate of
interest shall be automatically reduced to the Maximum Interest Rate. It is
further agreed, without limiting the generality of the foregoing, that to the
extent permitted by the Applicable Usury Law; (x) all calculations of interest
which are made for the purpose of determining whether such rate would exceed the
Maximum Interest Rate shall be made by amortizing, prorating, allocating and
spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from
Borrower or otherwise in connection with such loan; and (y) in the event that
the effective rate of interest on the loan should at any time exceed the Maximum
Interest Rate, such excess interest that would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law shall be paid to
FINOVA from time to time, if and when the effective interest rate on the loan
otherwise falls below the Maximum Interest Rate, to the extent that interest
paid to the date of calculation does not exceed the Maximum Interest Rate, until
the entire amount of interest which would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law has been paid in full.
Borrower further agrees that should the Maximum Interest Rate be increased at
any time hereafter because of a change in the Applicable Usury Law, then to the
extent not prohibited by the Applicable Usury Law, such increases shall apply to
all indebtedness evidenced hereby regardless of when incurred; but, again to the
extent not prohibited by the Applicable Usury Law,
-3-
<PAGE> 4
should the Maximum Interest Rate be decreased because of a change in the
Applicable Usury Law, such decreases shall not apply to the indebtedness
evidenced hereby regardless of when incurred.
4. COLLATERAL.
4.1 Security Interest in the Collateral. To secure the payment and
performance of the Obligations when due, Borrower hereby grants to FINOVA a
security interest in all of Borrower's now owned or hereafter acquired or
arising Inventory, Equipment, Receivables, and General Intangibles, including,
without limitation, all of Borrower's Deposit Accounts, money, any and all
property now or at any time hereafter in FINOVA's possession (including claims
and credit balances), and all proceeds (including proceeds of any insurance
policies, proceeds of proceeds and claims against third parties), all products
and all books and records related to any of the foregoing (all of the foregoing,
together with all other property in which FINOVA may be granted a lien or
security interest, is referred to herein, collectively, as the "Collateral").
4.2 Perfection and Protection of Security Interest. Borrower shall, at its
expense, take all actions requested by FINOVA at any time to perfect, maintain,
protect and enforce FINOVA's security interest and other rights in the
Collateral and the priority thereof from time to time, including, without
limitation, (i) executing and filing financing or continuation statements and
amendments thereof, all in form and substance satisfactory to FINOVA, (ii)
maintaining a perpetual inventory and complete and accurate stock records, (iii)
delivering to FINOVA warehouse receipts covering any portion of the Collateral
located in warehouses and for which warehouse receipts are issued, and
transferring Inventory to warehouses designated by FINOVA, (iv) placing
notations on Borrower's books of account to disclose FINOVA's security interest
therein and (v) delivering to FINOVA all letters of credit on which Borrower is
named beneficiary. FINOVA may file, without Borrower's signature, one or more
financing statements disclosing FINOVA's security interest under this Agreement.
Borrower agrees that a carbon, photographic, photostatic or other reproduction
of this Agreement or of a financing statement is sufficient as a financing
statement. If any Collateral is at any time in the possession or control of any
warehouseman, bailee or any of Borrower's agents or processors, Borrower shall
notify such Person of FINOVA's security interest in such Collateral and, upon
FINOVA's request, instruct them to hold all such Collateral for FINOVA's account
subject to FINOVA's instructions. From time to time, Borrower shall, upon
FINOVA's request, execute and deliver confirmatory written instruments pledging
the Collateral to FINOVA, but Borrower's failure to do so shall not affect or
limit FINOVA's security interest or other rights in and to the Collateral. Until
the Obligations have been fully satisfied and FINOVA's obligation to make
further advances hereunder has terminated, FINOVA's security interest in the
Collateral shall continue in full force and effect.
4.3 Preservation of Collateral. FINOVA may, in its sole discretion, at any
time discharge any lien or encumbrance on the Collateral or bond the same, pay
any insurance, maintain guards, pay any service bureau, obtain any record or
take any other action to preserve the Collateral and charge the cost thereof to
Borrower's loan account as an Obligation.
4.4 Insurance. Borrower will maintain and deliver evidence to FINOVA of
such insurance as is required by FINOVA, written by insurers, in amounts, and
with lender's loss payee and other endorsements, satisfactory to FINOVA. All
premiums with respect to such insurance shall be paid by Borrower as and when
due. Accurate and complete copies of the policies shall be delivered by Borrower
to FINOVA. If Borrower fails to comply with this Section, FINOVA may (but shall
not be required to) procure such insurance at Borrower's expense and charge the
cost thereof to Borrower's loan account as an Obligation.
5. EXAMINATION OF RECORDS; FINANCIAL REPORTING.
5.1. Examinations. FINOVA shall at all reasonable times and, in any event,
at least four (4) times a year have full access to and the right to examine,
audit, make abstracts and copies from and inspect Borrower's records, files,
books of account and all other documents, instruments and agreements relating to
the Collateral and the right to check, test and appraise the Collateral.
Borrower shall deliver to FINOVA any instrument necessary for FINOVA to obtain
records from any service bureau maintaining records for Borrower. All
instruments and certificates prepared by Borrower showing the value of any of
the Collateral shall be accompanied, upon FINOVA's request, by copies of related
purchase orders and invoices. FINOVA may, at any time after the occurrence of an
Event of Default, remove from Borrower's premises Borrower's books and records
(or copies thereof) or require Borrower to deliver such books and records or
copies to FINOVA. FINOVA may, without expense to FINOVA, use such of Borrower's
personnel, supplies and premises as may be reasonably necessary for maintaining
or enforcing FINOVA's security interest.
5.2. Reporting Requirements. Borrower shall furnish FINOVA, upon request,
such information and statements as FINOVA shall request from time to time
regarding Borrower's business affairs, financial condition and the results of
its operations. Without limiting the generality of the foregoing, Borrower shall
provide FINOVA with: (i)
-4-
<PAGE> 5
copies of sales journals, cash receipt journals, deposit slips and FINOVA's
standard form collateral and loan report, daily; (ii) upon FINOVA's request,
copies of sales invoices, customer statements and credit memoranda issued,
remittance advices and reports; (iii) copies of shipping and delivery documents,
upon request; (iv) on or prior to the date set forth on the Schedule, monthly
agings and reconciliations of Receivables, payables reports, inventory reports
and unaudited financial statements (which shall include, without limitation, a
balance sheet and income statement) with respect to the prior month prepared on
a basis consistent with such statements prepared in prior months and otherwise
in accordance with generally accepted accounting principles, consistently
applied; (v) audited annual consolidated and consolidating financial statements,
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with the most recent Prepared Financials provided to FINOVA
by Borrower, including balance sheets, income and cash flow statements,
accompanied by the unqualified report thereon of independent certified public
accountants acceptable to FINOVA, as soon as available, and in any event, within
ninety (90) days after the end of each of Borrower's fiscal years; and (vi) such
certificates relating to the foregoing as FINOVA may request, including, without
limitation, a monthly certificate from the president and the chief financial
officer of Borrower showing Borrower's compliance with each of the financial
covenants set forth in this Agreement, and stating whether any Event of Default
has occurred or event which, with giving of notice or the passage of time, or
both, would constitute an Event of Default, and if so, the steps being taken to
prevent or cure such Event of Default.
5.3. Guarantor's Financial Statements and Tax Returns. Borrower shall cause
the Guarantor to deliver to FINOVA the Guarantor's annual financial statement
(in form acceptable to FINOVA) and a copy of the Guarantor's federal income tax
return with respect to the corresponding year, in each case on the date when
such tax return is due or, if earlier, on the date when available.
6. COLLATERAL REPORTING; INVENTORY.
6.1 Invoices. Borrower shall not re-date any invoice or sale from the
original date thereof or make sales on extended terms beyond those customary in
Borrower's industry, or otherwise extend or modify the term of any Receivable.
If Borrower becomes aware of any matter affecting any Receivable, including
information affecting the credit of the account debtor thereon, Borrower shall
promptly notify FINOVA in writing.
6.2 Instruments. In the event any Receivable is or becomes evidenced by a
promissory note, trade acceptance or any other instrument for the payment of
money, Borrower shall immediately deliver such instrument to FINOVA
appropriately endorsed to FINOVA and, regardless of the form of any presentment,
demand, notice of dishonor, protest and notice of protest with respect thereto,
Borrower shall remain liable thereon until such instrument is paid in full.
6.3 Physical Inventory. Borrower shall conduct a physical count of the
Inventory at such intervals as FINOVA requests and promptly supply FINOVA with a
copy of such accounts accompanied by a report of the value (calculated at the
lower of cost or market value on a first in, first out basis) of the Inventory
and such additional information with respect to the Inventory as FINOVA may
request from time to time.
6.4 Returns. For so long as no Event of Default has occurred and is
continuing and subject to the provisions of Section 9.2, if any account debtor
returns any Inventory to Borrower in the ordinary course of its business,
Borrower shall promptly determine the reason for such return and promptly issue
a credit memorandum to the account debtor (sending a copy to FINOVA) in the
appropriate amount. In the event any attempted return occurs after the
occurrence of any Event of Default, Borrower shall (i) hold the returned
Inventory in trust for FINOVA, (ii) segregate all returned Inventory from all of
Borrower's other property, (iii) conspicuously label the returned Inventory as
FINOVA's property, and (iv) immediately notify FINOVA of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on FINOVA's request deliver such returned Inventory
to FINOVA. Borrower shall not consign any Inventory.
7. PRINCIPAL PAYMENTS; PROCEEDS OF COLLATERAL;APPLICATION OF PAYMENTS.
7.1 Principal Payments. Except where evidenced by notes or other
instruments issued or made by Borrower to FINOVA specifically containing payment
provisions which are in conflict with this Section 7.1 (in which event the
conflicting provisions of said notes or other instruments shall govern and
control), that portion of the Obligations consisting of principal payable on
account of Receivable Loans and Inventory Loans shall be payable by Borrower to
FINOVA immediately upon the earliest of (i) the receipt by FINOVA or Borrower of
any proceeds of any of the Collateral, to the extent of said proceeds, (ii) the
occurrence of an Event of Default in consequence of which FINOVA elects to
accelerate the maturity and payment of such loans, or (iii) any termination of
this Agreement pursuant to Section 16 hereof; provided, however, that any
Overline shall be payable on demand pursuant to the provisions of Section 1.3
hereof.
7.2 Collections; Application of Payments.
-5-
<PAGE> 6
(a) Collections. Until FINOVA notifies Borrower to the contrary, Borrower
may make collection of all Receivables for FINOVA and shall receive all payments
as trustee of FINOVA and immediately deliver all payments to FINOVA in their
original form as set forth below, duly endorsed in blank. FINOVA or its designee
may, at any time, notify account debtors that the Receivables have been assigned
to FINOVA and of FINOVA's security interest therein, and may collect the
Receivables directly and charge the collection costs and expenses to Borrower's
loan account. Borrower agrees that, in computing the charges under this
Agreement and the other Loan Documents, all items of payment shall be deemed
applied by FINOVA on account of the Obligations two (2) Business Days after
receipt by FINOVA of good funds which have been finally credited to FINOVA's
account, whether such funds are received directly from Borrower or from the
Blocked Account bank or the Dominion Account bank, pursuant to Section 7.3
hereof, and this provision shall apply regardless of the amount of the
Obligations outstanding or whether any Obligations are outstanding. In this
Agreement or any other Loan Document, whenever there is a reference to the
"receipt by FINOVA of funds", or any similar language regarding receipt of funds
by FINOVA, in order to be credited to the applicable account on the date that
good funds were received by FINOVA (either directly or through a bank account or
lockbox arrangement, etc.), the funds must reach FINOVA no later than 10:00 a.m.
on that date (using the time zone of the FINOVA office where the Borrower's loan
is managed on the date the transfer of funds is made). Any funds received by
FINOVA after 10:00 a.m. central time will be credited to the appropriate account
on the next immediately following Business Day. FINOVA is not, however, required
to credit Borrower's account for the amount of any item of payment which is
unsatisfactory to FINOVA in its sole discretion and FINOVA may charge Borrower's
loan account for the amount of any item of payment which is returned to FINOVA
unpaid.
b. Application of Payments. The amount of all payments or amounts received
by FINOVA with respect to the Loans shall be applied to the extent applicable
under this Agreement: (i) first, to accrued interest through the date of such
payment, including any Default Interest; (ii) then, to any late fees, overdue
risk assessments, examination fees and expenses, collection fees and expenses
and any other fees and expenses due to FINOVA hereunder; (iii) last, the
remaining balance, if any, to the unpaid principal balance of the Loans;
provided, however, while a default exists under the Loan Documents, each payment
hereunder shall be applied to amounts owed to FINOVA by Borrower as FINOVA in
its sole discretion may determine. In calculating interest and applying payments
as set forth above: (a) interest shall be calculated and collected through the
date a payment is actually applied by FINOVA under the terms of this Agreement;
(b) interest on the outstanding balance shall be charged during any grace period
permitted hereunder; (c) at the end of each month, all accrued and unpaid
interest and other charges provided for hereunder shall be added to the
principal balance and other charges provided for hereunder shall be added to the
principal balance of the Loans; and (d) to the extent that Borrower makes a
payment or FINOVA receives any payment of proceeds of the Collateral for
Borrower's benefit that is subsequently invalidated, set aside or required to be
repaid to any other person or entity, then, to such extent, the Obligations
intended to be satisfied shall be revived and continue as if such payment or
proceeds had not been received by FINOVA and FINOVA may adjust the Loan balances
as FINOVA, in its sole discretion, deems appropriate under the circumstances.
7.3 Establishment of a Lockbox Account or Dominion Account. All proceeds of
Collateral shall, at the direction of FINOVA, be deposited by Borrower into a
lockbox account, or such other "blocked account" as FINOVA may require (each, a
"Blocked Account") pursuant to an arrangement with such bank as may be selected
by Borrower and be acceptable to FINOVA. Borrower shall issue to any such bank
an irrevocable letter of instruction directing said bank to transfer such funds
so deposited to FINOVA, either to any account maintained by FINOVA at said bank
or by wire transfer to appropriate account(s) of FINOVA. All funds deposited in
a Blocked Account shall immediately become the sole property of FINOVA and
Borrower shall obtain the agreement by such bank to waive any offset rights
against the funds so deposited. FINOVA assumes no responsibility for any Blocked
Account arrangement, including, without limitation, any claim of accord and
satisfaction or release with respect to deposits accepted by any bank
thereunder. Alternatively, FINOVA may establish depository accounts in the name
of FINOVA at a bank or banks for the deposit of such funds (each, a "Dominion
Account") and Borrower shall deposit all proceeds of Receivables and all cash
proceeds of any sale of Inventory or, to the extent permitted herein, Equipment
or cause same to be deposited, in kind, in such Dominion Accounts of FINOVA in
lieu of depositing same to Blocked Accounts.
7.4 Payments Without Deductions. Borrower shall pay principal, interest,
and all other amounts payable hereunder, or under any related agreement, without
any deduction whatsoever, including, but not limited to, any deduction for any
setoff or counterclaim.
7.5 Collection Days Upon Repayment. In the event Borrower repays the
Obligations in full at any time hereafter, such payment in full shall be
credited (conditioned upon final collection) to Borrower's loan
-6-
<PAGE> 7
account five (5) Business Days after FINOVA's receipt thereof.
7.6 Monthly Accountings. FINOVA shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by FINOVA), unless Borrower
notifies FINOVA in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or admissions.
8. POWER OF ATTORNEY.
Borrower appoints FINOVA and its designees as Borrower's attorney, with the
power to endorse Borrower's name on any checks, notes, acceptances, money orders
or other forms of payment or security that come into FINOVA's possession; to
sign Borrower's name on any invoice or bill of lading relating to any
Receivable, on drafts against customers, on assignments of Receivables, on
notices of assignment, financing statements and other public records, on
verifications of accounts and on notices to customers or account debtors; to
send requests for verification of Receivables to customers or account debtors;
after the occurrence of any Event of Default, to notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by FINOVA and to open and dispose of all mail addressed to Borrower;
and to do all other things FINOVA deems necessary or desirable to carry out the
terms of this Agreement. Borrower hereby ratifies and approves all acts of such
attorney. Neither FINOVA nor any of its designees shall be liable for any acts
or omissions nor for any error of judgment or mistake of fact or law while
acting as Borrower's attorney. This power, being coupled with an interest, is
irrevocable until the Obligations have been fully satisfied and FINOVA's
obligation to provide loans hereunder shall have terminated.
9. RECEIVABLES.
9.1 Eligibility. Borrower represents and warrants that each Receivable
covers and shall cover a bona fide sale or lease and delivery by it of goods or
the rendition by it of services in the ordinary course of its business, and
shall be for a liquidated amount and FINOVA's security interest shall not be
subject to any offset, deduction, counterclaim, rights of return or
cancellation, lien or other condition. If any representation or warranty herein
is breached as to any Receivable or any Receivable ceases to be an Eligible
Receivable for any reason other than payment thereof, then FINOVA may, in
addition to its other rights hereunder, designate any and all Receivables owing
by that account debtor as not Eligible Receivables; provided, that FINOVA shall
in any such event retain its security interest in all Receivables, whether or
not Eligible Receivables, until the Obligations have been fully satisfied and
FINOVA's obligation to provide loans hereunder has terminated.
9.2 Disputes. Borrower shall notify FINOVA promptly of all disputes or
claims and settle or adjust such disputes or claims at no expense to FINOVA, but
no discount, credit or allowance shall be granted to any account debtor and no
returns of merchandise shall be accepted by Borrower without FINOVA's consent,
except for discounts, credits and allowances made or given in the ordinary
course of Borrower's business. FINOVA may, at any time after the occurrence of
an Event of Default, settle or adjust disputes or claims directly with account
debtors for amounts and upon terms which FINOVA considers advisable in its
reasonable credit judgment and, in all cases, FINOVA shall credit Borrower's
loan account with only the net amounts received by FINOVA in payment of any
Receivables.
10. EQUIPMENT.
Borrower shall keep and maintain the Equipment in good operating condition
and repair and make all necessary replacements thereto to maintain and preserve
the value and operating efficiency thereof at all times consistent with
Borrower's past practice, ordinary wear and tear excepted. Borrower shall not
permit any item of Equipment to become a fixture (other than a trade fixture) to
real estate or an accession to other property.
11. OTHER LIENS; NO DISPOSITION OF COLLATERAL.
Borrower represents, warrants and covenants that (a) all Collateral is and
shall continue to be owned by it free and clear of all liens, claims and
encumbrances whatsoever (except for FINOVA's security interest, Permitted
Encumbrances, and such other liens, claims and encumbrances as may be permitted
by FINOVA in its sole discretion from time to time in writing), and (b) Borrower
shall not, without FINOVA's prior written approval, sell, encumber or dispose of
or permit the sale, encumbrance or disposal of any Collateral or any interest of
Borrower therein, except for the sale of Inventory in the ordinary course of
Borrower's business. In the event FINOVA gives any such prior written approval,
the same may be conditioned on the sale price being equal to, or greater than,
an amount acceptable to FINOVA. The proceeds of any such sales shall be remitted
to FINOVA pursuant to this Agreement for application to the Obligations.
-7-
<PAGE> 8
12. GENERAL REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
12.1 Due Organization. It is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas, is qualified and
authorized to do business and is in good standing in all states in which such
qualification and good standing are necessary in order for it to conduct its
business and own its property, and has all requisite power and authority to
conduct its business as presently conducted, to own its property and to execute
and deliver each of the Loan Documents to which it is a party and perform all of
its Obligations thereunder, and has not taken any steps to wind-up, dissolve or
otherwise liquidate its assets;
12.2 Other Names. Borrower has not, during the preceding five (5) years,
been known by or used any other corporate or fictitious name except as set forth
on the Schedule, nor has Borrower been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any person
during such time except as set forth on the Schedule;
12.3 Due Authorization. The execution, delivery and performance by Borrower
of the Loan Documents to which it is a party have been authorized by all
necessary corporate action and do not and shall not constitute a violation of
any applicable law or of Borrower's Articles of Incorporation or By-Laws or any
other document, agreement or instrument to which Borrower is a party or by which
Borrower or its assets are bound;
12.4 Binding Obligation. Each of the Loan Documents to which Borrower is a
party is the legal, valid and binding obligation of Borrower enforceable against
Borrower in accordance with its terms;
12.5 Intangible Property. Borrower possesses adequate assets, licenses,
patents, patent applications, copyrights, trademarks, trademark applications and
trade names for the present and planned future conduct of its business without
any known conflict with the rights of others, and each is valid and has been
duly registered or filed with the appropriate governmental authorities;
12.6 Capital. Borrower has capital sufficient to conduct its business, is
able to pay its debts as they mature, and owns property having a fair salable
value greater than the amount required to pay all of its debts (including
contingent debts);
12.7 Material Litigation. Borrower has no pending or overtly threatened
litigation, actions or proceedings which would materially and adversely affect
its business, assets, operations, prospects or condition, financial or
otherwise, or the Collateral or any of FINOVA's interests therein;
12.8 Title; Security Interests of FINOVA. Borrower has good, indefeasible
and merchantable title to the Collateral and, upon the filing of UCC-1 Financing
Statements in the appropriate offices, this Agreement and such documents shall
create valid and perfected first priority liens in the Collateral, subject only
to Permitted Encumbrances;
12.9 Restrictive Agreements; Labor Contracts. Borrower is not a party or
subject to any contract or subject to any charge, corporate restriction,
judgment, decree or order materially and adversely affecting its business,
assets, operations, prospects or condition, financial or otherwise, or which
restricts its right or ability to incur Indebtedness, and it is not party to any
labor dispute. In addition, no labor contract is scheduled to expire during the
Initial Term of this Agreement, except as disclosed to FINOVA in writing prior
to the date hereof;
12.10 Laws. Borrower is not in violation of any applicable statute,
regulation, ordinance or any order of any court, tribunal or governmental
agency, in any respect materially and adversely affecting the Collateral or its
business, assets, operations, prospects or condition, financial or otherwise;
12.11 Consents. Borrower has obtained or caused to be obtained or issued
any required consent of a governmental agency or other Person in connection with
the financing contemplated hereby;
12.12 Defaults. Borrower is not in default with respect to any note,
indenture, loan agreement, mortgage, lease, deed or other agreement to which it
is a party or by which it or its assets are bound, nor has any event occurred
which, with the giving of notice or the lapse of time, or both, would cause such
a default;
12.13 Financial Condition. The Prepared Financials fairly present
Borrower's financial condition and results of operations and those of such other
Persons described therein as of the date thereof; there are no material
omissions from the Prepared Financials or other facts or circumstances not
reflected in the Prepared Financials; and there has been no material and adverse
change in such financial condition or operations since the date of the initial
Prepared Financials delivered to FINOVA hereunder;
12.14 ERISA. None of Borrower, any ERISA Affiliate, or any Plan is or has
been in violation of any of the provisions of ERISA, any of the qualification
requirements of IRC Section 401(a) or any of the published interpretations
thereunder, nor has Borrower or any ERISA Affiliate received any notice to such
effect. No notice of intent to terminate a Plan has been filed under Section
4041 of ERISA, nor has any Plan been terminated under ERISA. The PBGC has not
instituted proceedings to terminate, or appointed a trustee to administer, a
Plan. No lien upon the
-8-
<PAGE> 9
assets of Borrower has arisen with respect to a Plan. No prohibited transaction
or Reportable Event has occurred with respect to a Plan. Neither Borrower nor
any ERISA Affiliate has incurred any withdrawal liability with respect to any
Multiemployer Plan. Borrower and each ERISA Affiliate have made all
contributions required to be made by them to any Plan or Multiemployer Plan when
due. There is no accumulated funding deficiency in any Plan, whether or not
waived;
12.15 Taxes. Borrower has filed all tax returns and such other reports as
it is required by law to file and has paid or made adequate provision for the
payment on or prior to the date when due of all taxes, assessments and similar
charges that are due and payable;
12.16 Locations; Federal Tax ID No. Borrower's chief executive office and
the offices and locations where it keeps the Collateral (except for Inventory in
transit) are at the locations set forth on the Schedule, except to the extent
that such locations may have been changed after notice to FINOVA in accordance
with Section 13.5 below; Borrower's federal tax identification number is as
shown on the Schedule;
12.17 Relationships Business. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower and any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of Borrower, or with any material supplier, and there exists no present
condition or state of facts or circumstances which would materially and
adversely affect Borrower or prevent Borrower from conducting such business
after the consummation of the transactions contemplated by this Agreement in
substantially the same manner in which it has heretofore been conducted; and
12.18 Reaffirmations. Each request for a loan made by Borrower pursuant to
this Agreement shall constitute (i) an automatic representation and warranty by
Borrower to FINOVA that there does not then exist any Event of Default and (ii)
a reaffirmation as of the date of said request of all of the representations and
warranties of Borrower contained in this Agreement and the other Loan Documents.
13. AFFIRMATIVE COVENANTS.
Borrower covenants that, so long as any Obligation remains outstanding and
this Agreement is in effect, it shall:
13.1 Expenses. Promptly reimburse FINOVA for all costs, fees and expenses
incurred by FINOVA in connection with the negotiation, preparation, execution,
delivery, administration and enforcement of each of the Loan Documents,
including, but not limited to, the attorneys' and paralegals' fees of in-house
and outside counsel, expert witness fees, lien, title search and insurance fees,
appraisal fees, all charges and expenses incurred in connection with any and all
environmental reports and environmental remediation activities, and all other
costs, expenses, taxes and filing or recording fees payable in connection with
the transactions contemplated by this Agreement, including, without limitation,
all such costs, fees and expenses as FINOVA shall incur or for which FINOVA
shall become obligated in connection with (i) any inspection or verification of
the Collateral, (ii) any proceeding relating to the Loan Documents or the
Collateral, (iii) actions taken with respect to the Collateral and FINOVA's
security interest therein, including, without limitation, the defense or
prosecution of any action involving FINOVA and Borrower or any third party, (iv)
enforcement of any of FINOVA's rights and remedies with respect to the
Obligations or Collateral and (v) consultation with FINOVA's attorneys and
participation in any workout, bankruptcy or other insolvency or other proceeding
involving any Loan Party or any Affiliate, whether or not suit is filed.
Borrower shall also pay all FINOVA charges in connection with bank wire
transfers, forwarding of loan proceeds, deposits of checks and other items of
payment, returned checks, establishment and maintenance of lockboxes and other
Blocked Accounts, and all other bank and administrative matters, in accordance
with FINOVA's schedule of bank and administrative fees and charges in effect
from time to time;
13.2 Taxes. File all tax returns and pay or make adequate provision for the
payment of all taxes, assessments and other charges on or prior to the date when
due;
13.3 Notice of Litigation. Promptly notify FINOVA in writing of any
litigation, suit or administrative proceeding which may materially and adversely
affect the Collateral or Borrower's business, assets, operations, prospects or
condition, financial or otherwise, whether or not the claim is covered by
insurance;
13.4 ERISA. Notify FINOVA in writing (i) promptly upon the occurrence of
any event described in Paragraph 4043 of ERISA, other than a termination,
partial termination or merger of a Plan or a transfer of a Plan's assets and
(ii) prior to any termination, partial termination or merger of a Plan or a
transfer of a Plan's assets;
13.5 Change in Location. Notify FINOVA in writing forty-five (45) days
prior to any change in the location of Borrower's chief executive office or the
location of any Collateral, or Borrower's opening or closing of any other place
of business;
-9-
<PAGE> 10
13.6 Corporate Existence. Maintain its corporate existence and its
qualification to do business and good standing in all states necessary for the
conduct of its business and the ownership of its property and maintain adequate
assets, licenses, patents, copyrights, trademarks and trade names for the
conduct of its business;
13.7 Labor Disputes. Promptly notify FINOVA in writing of any labor dispute
to which Borrower is or may become subject and the expiration of any labor
contract to which Borrower is a party or bound;
13.8 Violations of Law. Promptly notify FINOVA in writing of any violation
of any law, statute, regulation or ordinance of any governmental entity, or of
any agency thereof, applicable to Borrower which may materially and adversely
affect the Collateral or Borrower's business, assets, prospects, operations or
condition, financial or otherwise;
13.9 Defaults. Notify FINOVA in writing within five (5) business days of
Borrower's default under any note, indenture, loan agreement, mortgage, lease or
other agreement to which Borrower is a party or by which Borrower is bound, or
of any other default under any Indebtedness of Borrower;
13.10 Capital Expenditures. Promptly notify FINOVA in writing of the making
of any Capital Expenditure materially affecting Borrower's business, assets,
prospects, operations or condition, financial or otherwise;
13.11 Books and Records. Keep adequate records and books of account with
respect to its business activities in which proper entries are made in
accordance with generally accepted accounting principles consistently applied,
reflecting all of its financial transactions;
13.12 Leases; Warehouse Agreements. Provide FINOVA with (i) copies of all
agreements between Borrower and any landlord or warehouseman which owns any
premises at which any Collateral may, from time to time, be located, and (ii)
without limiting the landlord and mortgagee waivers to be provided pursuant to
Section 2.1(j) above, additional landlord and mortgagee waivers in form
acceptable to FINOVA with respect to all locations where any Collateral is
hereafter located;
13.13 additional Documents. At FINOVA's request, promptly execute or cause
to be executed and delivered to FINOVA any and all documents, instruments or
agreements deemed necessary by FINOVA to facilitate the collection of the
Obligations or the Collateral or otherwise to give effect to or carry out the
terms or intent of this Agreement or any of the other Loan Documents. Without
limiting the generality of the foregoing, if any of the Receivables with a face
value in excess of $1,000.00 arises out of a contract with the United States of
America or any department, agency, subdivision or instrumentality thereof,
Borrower shall promptly notify FINOVA of such fact in writing and shall execute
any instruments and take any other action required or requested by FINOVA to
comply with the provisions of the Federal Assignment of Claims Act; and
13.14 Financial Covenants. Comply with the financial covenants set forth on
the Schedule.
14. NEGATIVE COVENANTS.
Without FINOVA's prior written consent, which consent FINOVA may withhold
in its sole discretion, so long as any Obligation remains outstanding and this
Agreement is in effect, Borrower shall not:
14.1 Mergers. Merge or consolidate with or acquire any other Person, or
make any other material change in its capital structure or in its business or
operations which might adversely affect the repayment of the Obligations;
14.2 Loans. Make advances, loans or extensions of credit to, or invest in,
any Person;
14.3 Dividends. Declare or pay cash dividends upon any of its stock or
distribute any of its property or redeem, retire, purchase or acquire directly
or indirectly any of its stock; provided, however, that so long as no Event of
Default exists or would result therefrom, Borrower may make Tax Distributions to
its shareholders in accordance with this Section 14.3. Tax Distributions shall
be paid annually based upon Borrower's taxable income through the end of its
preceding fiscal year and upon FINOVA's receipt of copies of Borrower's "U.S.
Income Tax Return for an S Corporation" and related Schedules K-1 for such
fiscal year. If the Tax Distributions actually paid with respect to any of
Borrower's fiscal years exceed the Tax Distributions permitted by this Section
14.3 based upon Borrower's actual taxable net income as disclosed by copies of
such tax returns and schedules described above and the calculations of the Tax
Distributions delivered to FINOVA, then Borrower shall immediately recover the
excess amount from the recipient shareholder and shall not pay any further Tax
Distributions to any shareholder until such excess amount is recovered;
14.4 Adverse Transactions. Enter into any transaction which materially and
adversely affects the Collateral or its ability to repay the Obligations in full
as and when due;
14.5 Indebtedness of Others. Become directly or contingently liable for the
Indebtedness of any Person, except by endorsement of instruments for deposit;
14.6 Repurchase. Make a sale to any customer on a bill-and-hold, guaranteed
sale, sale and return, sale on approval, consignment, or any other repurchase or
return basis;
-10-
<PAGE> 11
14.7 Name. Use any corporate or fictitious name other than its corporate
name as set forth in its Articles of Incorporation on the date hereof or as set
forth on the Schedule;
14.8 Prepayment. Prepay any Indebtedness other than trade payables and
other than the Obligations;
14.9 Restricted Payments. Make any payments on (i) the Debentures other
than regularly scheduled payments of principal and interest, and (ii) the
Subordinated Debt other than regularly scheduled interest payments; provided,
however, that, notwithstanding the foregoing, any payments otherwise permitted
by this Section 14.9 shall not be made if, after taking into account such
payment, such payment would result in an Overline. In addition, Borrower shall
not amend, modify or supplement the Debentures and/or any documents evidencing
the Subordinated Debt without FINOVA's prior written approval;
14.10 Capital Expenditure. Make or incur any Capital Expenditure if, after
giving effect thereto, the aggregate amount of all Capital Expenditures by
Borrower in any fiscal year would exceed the amount set forth on the Schedule;
14.11 Compensation. Pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts and other payments,
whether directly or indirectly, in money or otherwise, during any fiscal year to
all of Borrower's executives, officers and directors (or any relative thereof)
in an amount in excess of the amount set forth on the Schedule;
14.12 Indebtedness. Create, incur, assume or permit to exist any
Indebtedness (including Indebtedness in connection with Capital Leases) in
excess of the amount set forth on the Schedule, other than (i) the Obligations,
(ii) trade payables and other contractual obligations to suppliers and customers
incurred in the ordinary course of business, and (iii) other Indebtedness
existing on the date of this Agreement and reflected in the Prepared Financials
(except Indebtedness paid on the date of this Agreement from proceeds of the
initial advances hereunder);
14.13 Affiliate Transactions. Except as set forth below, sell, transfer,
distribute or pay any money or property to any Affiliate, or invest in (by
capital contribution or otherwise) or purchase or repurchase any stock or
Indebtedness, or any property, of any Affiliate, or become liable on any
guaranty of the indebtedness, dividends or other obligations of any Affiliate.
Notwithstanding the foregoing, Borrower may pay compensation permitted by
Section 14.11 to employees who are Affiliates and, if no Event of Default has
occurred, Borrower may engage in transactions with Affiliates in the normal
course of business, in amounts and upon terms which are fully disclosed to
FINOVA and which are no less favorable to Borrower than would be obtainable in a
comparable arm's length transaction with a Person who is not an Affiliate;
14.14 Nature of Business. Enter into any new business or make any material
change in any of Borrower's business objectives, purposes or operations;
14.15 FINOVA's Name. Use the name of FINOVA in connection with any of
Borrower's business or activities, except in connection with internal business
matters or as required in dealings with governmental agencies and financial
institutions or with trade creditors of Borrower, solely for credit reference
purposes; or
14.16 Margin Security. Own, purchase or acquire (or enter into any contract
to purchase or acquire) any "margin security" as defined by any regulation of
the Federal Reserve Board as now in effect or as the same may hereafter be in
effect.
15. ENVIRONMENTAL MATTERS.
15.1 Definitions. The following definitions apply to the provisions of this
Section 15: (a) the term "Applicable Law" shall include, but shall not be
limited to, each statute named or referred to in this Section 15.1 and all rules
and regulations thereunder, and any other local, state and/or federal laws,
rules, regulations or ordinances, whether currently in existence or hereafter
enacted, which govern, to the extent applicable to the Property or to Borrower,
(i) the existence, cleanup and/or remedy of contamination on real property; (ii)
the protection of the environment from soil, air or water pollution, or from
spilled, deposited or otherwise emplaced contamination; (iii) the emission or
discharge of hazardous substances into the environment; (iv) the control of
hazardous wastes; or (v) the use, generation, transport, treatment, removal or
recovery of Hazardous Substances; (b) the term "Hazardous Substance" shall mean
(i) any oil, flammable substance, explosives, radioactive materials, hazardous
wastes or substances, toxic wastes or substances or any other wastes, materials
or pollutants which either pose a hazard to the Property or to persons on or
about the Property or cause the Property to be in violation of any Applicable
Law; (ii) asbestos in any form which is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated biphenyls, or radon gas;
(iii) any chemical, material or substance defined as or included in the
definition of "hazardous substances," "waste," "hazardous wastes," "hazardous
materials," "extremely hazardous waste," "restricted hazardous waste," or "toxic
substances" or words of similar import under any Applicable Law, including, but
not limited to, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), 42 USC ss.ss. 9601 et seq.;
-11-
<PAGE> 12
the Resource Conservation and Recovery Act ("RCRA"), 42 USC ss.ss. 6901 et seq.;
the Hazardous Materials Transportation Act, 49 USC ss.ss. 1801 et seq.; the
Federal Water Pollution Control Act, 33 USC ss.ss. 1251 et seq.; the California
Hazardous Waste Control Law ("HWCL"), Cal. Health & Safety ss.ss. 25100 et seq.;
the Underground Storage of Hazardous Substances Act (Cal. Health & Safety ss.ss.
25280 et seq.; Hazardous Substance Account Act ("HSAA"), Cal. Health & Safety
Code ss.ss. 25300 et seq.; the Porter-Cologne Water Quality Control Act (the
"Porter-Cologne Act"), Cal. Water Code ss.ss. 13000 et seq.; the Safe Drinking
Water and Toxic Enforcement Act of 1986 (Proposition 65); Title 22 of the
California Code of Regulations, Division 4, Chapter 30; (iv) any other chemical,
material or substance, exposure to which is prohibited, limited or regulated by
any governmental authority which may or could pose a hazard to the health or
safety of the occupants of the Property or the owners and/or occupants of
property adjacent to or surrounding the Property, or any other person coming
upon the Property or adjacent property; and (v) any other chemical, materials or
substance which may or could pose a hazard to the environment; and (c) the term
"Property" shall mean all real property, wherever located, in which Borrower or
any Affiliate of Borrower has any right, title or interest, whether now existing
or hereafter arising, and including, without limitation, as owner, lessor or
lessee.
15.2 Covenants and Representations. (a) Borrower represents and warrants
that there have not been during the period of Borrower's possession of any
interest in the Property and, to the best of its knowledge after reasonable
inquiry, there have not been at any other times, any activities on the Property
involving, directly or indirectly, the use, generation, treatment, storage or
disposal of any Hazardous Substances except in compliance with Applicable Law
(i) under, on or in the land included in the Property, whether contained in
soil, tanks, sumps, ponds, lagoons, barrels, cans or other containments,
structures or equipment, (ii) incorporated in the buildings, structures or
improvements included in the Property, including any building material
containing asbestos, or (iii) used in connection with any operations on or in
the Property. (b) Without limiting the generality of the foregoing and to the
extent not included within the scope of this Section 15.2, Borrower represents
and warrants that it is in full compliance with Applicable Law and has received
no notice from any person or any governmental agency or other entity of any
violation by Borrower or its Affiliates of any Applicable Law. (c) Borrower
shall be solely responsible for and agrees to indemnify FINOVA, protect and
defend FINOVA with counsel reasonably acceptable to FINOVA, and hold FINOVA
harmless from and against any claims, actions, administrative proceedings,
judgments, damages, punitive damages, penalties, fines, costs, liabilities
(including sums paid in settlements of claims), interest or losses, attorneys'
fees (including any fees and expenses incurred in enforcing this indemnity),
consultant fees, expert fees, and other out-of-pocket costs or expenses actually
incurred by FINOVA (collectively, the "Environmental Costs"), that may, at any
time or from time to time, arise directly or indirectly from or in connection
with: (i) the presence, suspected presence, release or suspected release of any
Hazardous Substance whether into the air, soil, surface water or groundwater of
or at the Property, or any other violation of Applicable Law, or (ii) any breach
of the foregoing representations and covenants; except to the extent any of the
foregoing result from the actions of FINOVA, its employees, agents and
representatives. All Environmental Costs incurred or advanced by FINOVA shall be
deemed to be made by FINOVA in good faith and shall constitute Obligations
hereunder.
16. TERM; TERMINATION.
16.1 Term. The initial term of this Agreement shall be as set forth on the
Schedule (the "Initial Term") and shall be automatically renewed for successive
periods of one (1) year (each, a "Renewal Term"), unless earlier terminated as
provided herein.
16.2 Prior Notice. Each party, at their sole discretion, shall have the
right to terminate this Agreement at the end of the Initial Term or at the end
of any Renewal Term by giving the other party written notice not less than sixty
(60) days prior to the effective date of such termination, by registered or
certified mail.
16.3 Payment in Full. Upon the effective date of termination, the
Obligations shall become immediately due and payable in full in cash.
16.4 Early Termination; Termination Fee. In addition to the procedure set
forth in Section 16.2, Borrower may terminate this Agreement at any time but
only upon sixty (60) days' prior written notice and prepayment of the
Obligations. Upon any such early termination by Borrower or any termination of
this Agreement by FINOVA upon the occurrence of an Event of Default, then, and
in any such event, Borrower shall pay to FINOVA upon the effective date of such
termination a fee (the "Termination Fee") in an amount equal to the amount shown
on the Schedule.
17. DEFAULT.
17.1 Events of Default. Any one or more of the following events shall
constitute an Event of Default under this Agreement:
(a) Borrower fails to pay when due and payable any portion of the
Obligations at stated maturity, upon acceleration or otherwise;
-12-
<PAGE> 13
(b) Borrower or any other Loan Party fails or neglects to perform, keep, or
observe any Obligation including, but not limited to, any term, provision,
condition, covenant or agreement contained in any Loan Document to which
Borrower or such other Loan Party is a party;
(c) Any material adverse change occurs in Borrower's business, assets,
operations, prospects or condition, financial or otherwise;
(d) The prospect of repayment of any portion of the Obligations or the
value or priority of FINOVA's security interest in the Collateral is materially
impaired;
(e) Any material portion of Borrower's assets is seized, attached,
subjected to a writ or distress warrant, is levied upon or comes into the
possession of any judicial officer;
(f) Borrower shall generally not pay its debts as they become due or shall
enter into any agreement (whether written or oral), or offer to enter into any
agreement, with all or a significant number of its creditors regarding any
moratorium or other indulgence with respect to its debts or the participation of
such creditors or their representatives in the supervision, management or
control of the business of Borrower;
(g) Any bankruptcy or other insolvency proceeding is commenced by Borrower,
or any such proceeding is commenced against Borrower and remains undischarged or
unstayed for forty-five (45) days;
(h) Any notice of lien, levy or assessment is filed of record with respect
to any of Borrower's assets;
(i) Any judgments are entered against Borrower in an aggregate amount
exceeding $25,000;
(j) Any default shall occur under any material agreement between Borrower
and any third party including, without limitation, any default which would
result in a right by such third party to accelerate the maturity of any
Indebtedness of Borrower to such third party;
(k) Any representation or warranty made or deemed to be made by Borrower,
any Affiliate or any other Loan Party in any Loan Document or any other
statement, document or report made or delivered to FINOVA in connection
therewith shall prove to have been misleading in any material respect;
(l) The Guarantor dies, terminates or attempts to terminate his Guaranty or
any security therefor or becomes subject to any bankruptcy or other insolvency
proceeding;
(m) Any Prohibited Transaction or Reportable Event shall occur with respect
to a Plan which could have a material adverse effect on the financial condition
of Borrower; any lien upon the assets of Borrower in connection with any Plan
shall arise; Borrower or any of its ERISA Affiliates shall fail to make full
payment when due of all amounts which Borrower or any of its ERISA Affiliates
may be required to pay to any Plan or any Multiemployer Plan as one or more
contributions thereto; Borrower or any of its ERISA Affiliates creates or
permits the creation of any accumulated funding deficiency, whether or not
waived; or
(n) Any transfer of more than ten percent (10%) of the issued and
outstanding shares of common stock or other evidence of ownership of Borrower.
17.2 Remedies. Upon the occurrence of an Event of Default, FINOVA may, at
its option and in its sole discretion and in addition to all of its other rights
under the Loan Documents, terminate this Agreement and declare all of the
Obligations to be immediately payable in full. Borrower agrees that FINOVA shall
also have all of its rights and remedies under applicable law, including,
without limitation, the default rights and remedies of a secured party under the
Code, and upon the occurrence of an Event of Default Borrower hereby consents to
the appointment of a receiver by FINOVA in any action initiated by FINOVA
pursuant to this Agreement and to the jurisdiction and venue set forth in
Section 19.7 hereof, and Borrower waives notice and posting of a bond in
connection therewith. Further, FINOVA may, at any time, take possession of the
Collateral and keep it on Borrower's premises, at no cost to FINOVA, or remove
any part of it to such other place(s) as FINOVA may desire, or Borrower shall,
upon FINOVA's demand, at Borrower's sole cost, assemble the Collateral and make
it available to FINOVA at a place reasonably convenient to FINOVA. FINOVA may
sell and deliver any Collateral at public or private sales, for cash, upon
credit or otherwise, at such prices and upon such terms as FINOVA deems
advisable, at FINOVA's discretion, and may, if FINOVA deems it reasonable,
postpone or adjourn any sale of the Collateral by an announcement at the time
and place of sale or of such postponed or adjourned sale without giving a new
notice of sale. Borrower agrees that FINOVA has no obligation to preserve rights
to the Collateral or marshall any Collateral for the benefit of any Person.
FINOVA is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, name, trade secrets, trade names,
trademarks and advertising matter, or any similar property, in completing
production, advertising or selling any Collateral and Borrower's rights under
all licenses and all franchise agreements shall inure to FINOVA's benefit. Any
requirement of reasonable notice shall be met if such notice is mailed postage
prepaid to Borrower at its address set forth in the heading to this Agreement at
least five (5) days before sale or other disposition. The proceeds of sale shall
be applied, first, to all attorneys fees and other expenses of sale, and second,
to the Obligations in such order as FINOVA shall elect, in its sole discretion.
FINOVA shall
-13-
<PAGE> 14
return any excess to Borrower and Borrower shall remain liable for any
deficiency to the fullest extent permitted by law.
17.3 Standards for Determining Commercial Reasonableness. Borrower and
FINOVA agree that the following conduct by FINOVA with respect to any
disposition of Collateral shall conclusively be deemed commercially reasonable
(but other conduct by FINOVA, including, but not limited to, FINOVA's use in its
sole discretion of other or different times, places and manners of noticing and
conducting any disposition of Collateral shall not be deemed unreasonable): Any
public or private disposition: (i) as to which on no later than the fifth
calendar day prior thereto written notice thereof is mailed or personally
delivered to Borrower and, with respect to any public disposition, on no later
than the fifth calendar day prior thereto notice thereof describing in general
non-specific terms, the Collateral to be disposed of is published once in a
newspaper of general circulation in the county where the sale is to be conducted
(provided that no notice of any public or private disposition need be given to
the Borrower or published if the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market); (ii) which is conducted at any place designated by FINOVA, with or
without the Collateral being present; and (iii) which commences at any time
between 8:00 a.m. and 5:00 p.m. Without limiting the generality of the
foregoing, Borrower expressly agrees that, with respect to any disposition of
accounts, instruments and general intangibles, it shall be commercially
reasonable for FINOVA to direct any prospective purchaser thereof to ascertain
directly from Borrower any and all information concerning the same, including,
but not limited to, the terms of payment, aging and delinquency, if any, the
financial condition of any obligor or account debtor thereon or guarantor
thereof, and any collateral therefor.
18. DEFINITIONS.
18.1 Defined Terms. As used in this Agreement, the following terms have the
definitions set forth below:
"Affiliate" means any Person controlling, controlled by or under common control
with Borrower. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause direction of the
management and policies of any Person, whether through ownership of common or
preferred stock or other equity interests, by contract or otherwise. Without
limiting the generality of the foregoing, each of the following shall be an
Affiliate: any officer, director, employee or other agent of Borrower, any
shareholder or subsidiary of Borrower, and any other Person with whom or which
Borrower has common shareholders, officers or directors.
"Business Day" means any day on which commercial banks in both Los Angeles,
California and Phoenix, Arizona are open for business.
"Capital Expenditures" means all expenditures made and liabilities incurred for
the acquisition of any fixed asset or improvement, replacement, substitution or
addition thereto which has a useful life of more than one year and including,
without limitation, those arising in connection with Capital Leases.
"Capital Lease" means any lease of property by Borrower that, in accordance with
generally accepted accounting principles, should be capitalized for financial
reporting purposes and reflected as a liability on the balance sheet of
Borrower.
"Closing Date" means the date of the initial advance made by FINOVA pursuant to
this Agreement.
"Code" means the Uniform Commercial Code as adopted and in effect in the State
of Arizona from time to time.
"Collateral" has the meaning set forth in Section 4.1 above.
"Comerica" means Comerica Bank-Texas, a banking association organized under the
laws of the State of Texas.
"Current Assets" at any date means the amount at which the current assets of
Borrower would be shown on a balance sheet of Borrower as at such date, prepared
in accordance with generally accepted accounting principles, provided that
amounts due from Affiliates and investments in Affiliates shall be excluded
therefrom.
"Current Liabilities" at any date means the amount at which the current
liabilities of Borrower would be shown on a balance sheet of Borrower as at such
date, prepared in accordance with generally accepted accounting principles.
"Debentures" means each of the following notes: (a) that certain Promissory
Note, dated as of July 15, 1996, executed by Borrower and payable to the order
of John T. White, as trustee for White, Cox & Larson, P.C., Profit Sharing
Trust, in the original principal amount of $50,000; (b) that certain Promissory
Note, dated as of July 15, 1996, executed by Borrower and payable to the order
of John T. White, as trustee for White, Cox & Larson, P.C., Money Purchase
Trust, in the original principal amount of $50,000; (c) that certain Promissory
Note, dated as of July 15, 1996, executed by Borrower and payable to the order
of Russell V. Oesch in the original principal amount of $50,000; (d) that
certain Promissory Note, dated as of September 27, 1996, executed by Borrower
and payable to the order of Lucy M. Cox in the original principal amount of
$50,000; and (e) that certain Promissory Note, dated as of July 15, 1996,
executed by Borrower and payable to the order of Thomas P. White, Jr. in the
original principal amount of $100,000.
-14-
<PAGE> 15
"Deposit Accounts" has the meaning set forth in Section 9105 of the Code.
"EBITDA" for any fiscal period of Borrower means the net income of Borrower for
such fiscal period, plus interest expense and provision for income taxes for
such fiscal period, plus depreciation, amortization and other non-cash changes
deducted in arriving at such net income, and minus non-recurring miscellaneous
income and expenses, all calculated in accordance with generally accepted
accounting principles, consistently applied.
"Eligible Inventory" means Inventory which FINOVA, in its sole judgment, deems
Eligible Inventory, based on such considerations as FINOVA may from time to time
deem appropriate. Without limiting the generality of the foregoing, no Inventory
shall be Eligible Inventory unless, in FINOVA's sole judgment, such Inventory
(i) consists of raw materials; (ii) meets all standards imposed by any
governmental agency or authority; (iii) conforms in all respects to the
warranties and representations set forth herein; (iv) is at all times subject to
FINOVA's duly perfected, first-priority security interest; and (v) is situated
at a location in compliance with Section 12.16 hereof.
"Eligible Receivables" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
FINOVA, in its sole judgment, shall deem eligible based on such considerations
as FINOVA may from time to time deem appropriate. Without limiting the
foregoing, a Receivable shall not be deemed to be an Eligible Receivable if (i)
the account debtor has failed to pay the Receivable within a period of ninety
(90) days after invoice date, to the extent of any amount remaining unpaid after
such period; (ii) the account debtor has failed to pay more than 25% of all
outstanding Receivables owed by it to Borrower within ninety (90) days after
invoice date; (iii) the account debtor is an Affiliate of Borrower; (iv) the
goods relating thereto are placed on consignment, guaranteed sale or other terms
pursuant to which payment by the account debtor may be conditional; (v) the
account debtor is not located in the United States, unless the Receivable is
supported by a letter of credit or other form of guaranty or security, in each
case in form and substance satisfactory to FINOVA; (vi) the account debtor is
the United States or any department, agency or instrumentality thereof or any
State, city or municipality of the United States; (vii) Borrower is or may
become liable to the account debtor for goods sold or services rendered by the
account debtor to Borrower; (viii) the account debtor's total obligations to
Borrower exceed 15% of all Eligible Receivables, to the extent of such excess;
provided, however, that, with respect to obligations owed by Pinnacle Brands,
Inc. to Borrower, Pinnacle Brands, Inc.'s total obligations to Borrower exceed
25% of all Eligible Receivables, to the extent of such excess; (ix) the account
debtor disputes liability or makes any claim with respect thereto (up to the
amount of such liability or claim), or is subject to any insolvency or
bankruptcy proceeding, or becomes insolvent, fails or goes out of a material
portion of its business; (x) the amount thereof consists of late charges or
finance charges; (xi) the amount thereof consists of a credit balance more than
ninety (90) days past due; or (xii) the face amount thereof exceeds $25,000,
unless accompanied by evidence of shipment of the goods relating thereto
satisfactory to FINOVA in its sole discretion.
"Equipment" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"ERISA" means the Employment Retirement Income Security Act of 1974, as amended,
and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or not incorporated and
whether or not foreign) which is or may hereafter become a member of a group of
which Borrower is a member and which is treated as a single employer under ERISA
Section 4001(b)(1), or IRC Section 414.
"Event of Default" means any of the events set forth in Section 17.1 of this
Agreement.
"General Intangibles" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all chooses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against FINOVA, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation credit, liability,
property and other insurance) tax refunds and claims, computer programs, discs,
tapes and tape files, claims under guaranties, security interests or other
security held by or
-15-
<PAGE> 16
granted to Borrower to secure payment of any of the Receivables by an account
debtor, all rights to indemnification and all other intangible property of every
kind and nature (other than Receivables).
"Guarantor" means Mr. John White.
"Indebtedness" means all of Borrower's present and future obligations,
liabilities, debts, claims and indebtedness, contingent, fixed or otherwise,
however evidenced, created, incurred, acquired, owing or arising, whether under
written or oral agreement, operation of law or otherwise, and includes, without
limiting the foregoing (i) the Obligations, (ii) obligations and liabilities of
any Person secured by a lien, claim, encumbrance or security interest upon
property owned by Borrower, even though Borrower has not assumed or become
liable therefor, (iii) obligations and liabilities created or arising under any
lease (including Capital Leases) or conditional sales contract or other title
retention agreement with respect to property used or acquired by Borrower, even
though the rights and remedies of the lessor, seller or lender are limited to
repossession, (iv) all unfunded pension fund obligations and liabilities and (v)
deferred taxes.
"Initial Term" has the meaning set forth on the Schedule.
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease, all raw materials, work in
process, finished goods and materials and supplies of any kind, nature or
description which are or might be used or consumed in Borrower's business or
used in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, merchandise or other personal property, and all
documents of title or other documents representing them.
"Inventory Loans" has the meaning set forth on the Schedule.
"IRC" means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
"Loan Documents" means, collectively, this Agreement, any note or notes executed
by Borrower and payable to FINOVA, and any other agreement entered into in
connection with this Agreement, together with all alterations, amendments,
changes, extensions, modifications, refinancings, refundings, renewals,
replacements, restatements, or supplements, of or to any of the foregoing.
"Loan Party" means Borrower, Guarantor, each Subordinating Creditor and each
other party (other than FINOVA) to any Loan Document.
"Multiemployer Plan" means a "multiemployer plan" as defined in ERISA Sections
3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of Borrower or
any ERISA Affiliate.
"Net Worth" at any date means the Borrower's net worth as determined in
accordance with generally accepted accounting principles, consistently applied.
"Obligations" means all present and future loans, advances, debts, liabilities,
obligations, covenants, duties and indebtedness at any time owing by Borrower to
FINOVA, whether evidenced by this Agreement, any note or other instrument or
document, whether arising from an extension of credit, opening of a letter of
credit, banker's acceptance, loan, guaranty, indemnification or otherwise,
whether direct or indirect (including, without limitation, those acquired by
assignment and any participation by FINOVA in Borrower's debts owing to others),
absolute or contingent, due or to become due, including, without limitation, all
interest, charges, expenses, fees, attorney's fees, expert witness fees,
examination fees, letter of credit fees, collateral monitoring fees, closing
fees, facility fees, Termination Fees, Minimum Interest Charges and any other
sums chargeable to Borrower hereunder or under any other agreement with FINOVA.
"Overlines" has the meaning set forth in Section 1.3.
"PBGC" means the Pension Benefit Guarantee Corporation.
"Permitted Encumbrance" means each of the liens, mortgages and other security
interests set forth on the Schedule and incorporated herein by this reference.
"Person" means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
"Plan" means any plan described in ERISA Section 3(2) maintained for employees
of Borrower or any ERISA Affiliate, other than a Multiemployer Plan.
"Prepared Financials" means the balance sheets of Borrower as of the date set
forth in the Schedule, and as of each subsequent date on which audited balance
sheets are delivered to FINOVA from time to time hereunder, and the related
statements of operations, changes in stockholder's equity and changes in cash
flow for the periods ended on such dates.
"Prohibited Transaction" means any transaction described in Section 406 of ERISA
which is not exempt by reason of Section 408 of ERISA, and any transaction
described in Section 4975(c) of the IRC which is not exempt by reason of Section
4975(c)(2) of the IRC.
"Receivable Loans" has the meaning set forth on the Schedule.
-16-
<PAGE> 17
"Receivables" means all of Borrower's now owned and hereafter acquired accounts
(whether or not earned by performance), proceeds of any letters of credit naming
Borrower as beneficiary, contract rights, chattel paper, instruments, documents
and all other forms of obligations at any time owing to Borrower, all guaranties
and other security therefor, whether secured or unsecured, all merchandise
returned to or repossessed by Borrower, and all rights of stoppage in transit
and all other rights or remedies of an unpaid vendor, lienor or secured party.
"Renewal Term" has the meaning set forth on the Schedule.
"Reportable Event" means a reportable event described in Section 4043 of ERISA
or the regulations thereunder, a withdrawal from a Plan described in Section
4063 of ERISA, or a cessation of operations described in Section 4068(f) of
ERISA.
"Subordinated Debt" means liabilities of Borrower the repayment of which is
subordinated, to the payment and performance of the Obligations, pursuant to a
subordination agreement on FINOVA's standard form.
"Subordinating Creditor" means the persons set forth on the Schedule.
"Tax Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, and the regulations promulgated thereunder.
"Tax Distributions" shall mean, with respect to Borrower, cash distributions
made to Borrower's shareholders with respect to any of Borrower's fiscal years
ending on December 31 for which Borrower has made an effective S corporation
election, in an amount equal to the combined federal and state income tax
liability of such shareholders arising from their respective allocable share of
the earnings and profits of Borrower, with each shareholder's federal and state
income tax liability, including any minimum tax liability, to be computed on the
basis of the highest marginal tax rate for any individual under the Tax Code and
relevant state law as reduced by deductions for state income taxes with respect
to the Tax Code and for federal income taxes with respect to the relevant state
law; but not including any penalty tax provisions such as provisions for
accumulated earnings taxes or personal holding taxes.
"Total Facility" has the meaning set forth on the Schedule.
18.2 Other Terms. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with generally accepted accounting principles, consistently applied. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the Code, to the extent such terms are defined therein.
19. MISCELLANEOUS.
19.1 Recourse to Security; Certain Waivers. All Obligations shall be
payable by Borrower as provided for herein and, in full, at the termination of
this Agreement; recourse to security shall not be required at any time. Borrower
waives presentment and protest of any instrument and notice thereof, notice of
default and, to the extent permitted by applicable law, all other notices to
which Borrower might otherwise be entitled.
19.2 No Waiver by FINOVA. Neither FINOVA's failure to exercise any right,
remedy or option under this Agreement, any supplement, the Loan Documents or
other agreement between FINOVA and Borrower nor any delay by FINOVA in
exercising the same shall operate as a waiver. No waiver by FINOVA shall be
effective unless in writing and then only to the extent stated. No waiver by
FINOVA shall affect its right to require strict performance of this Agreement.
FINOVA's rights and remedies shall be cumulative and not exclusive.
19.3 Binding on Successor and Assigns. All terms, conditions, promises,
covenants, provisions and warranties shall inure to the benefit of and bind
FINOVA's and Borrower's respective representatives, successors and assigns.
19.4 Severability. If any provision of this Agreement shall be prohibited
or invalid under applicable law, it shall be ineffective only to such extent,
without invalidating the remainder of this Agreement.
19.5 Amendments; Assignments. This Agreement may not be modified, altered
or amended, except by an agreement in writing signed by Borrower and FINOVA.
Borrower may not sell, assign or transfer any interest in this Agreement or any
other Loan Document, or any portion thereof, including, without limitation, any
of Borrower's rights, title, interests, remedies, powers and duties hereunder or
thereunder. Borrower hereby consents to FINOVA's participation, sale,
assignment, transfer or other disposition, at any time or times hereafter, of
this Agreement and any of the other Loan Documents, or of any portion hereof or
thereof, including, without limitation, FINOVA's rights, title, interests,
remedies, powers and duties hereunder or thereunder. In connection therewith,
FINOVA may disclose all documents and information which FINOVA now or hereafter
may have relating to Borrower or Borrower's business. To the extent that FINOVA
assigns its rights and obligations hereunder to a third party, FINOVA shall
thereafter be released from such assigned obligations to Borrower and such
assignment shall effect a novation between Borrower and such third party.
19.6 Integration. This Agreement, together with the Schedule (which is a
part hereof) and the other Loan
-17-
<PAGE> 18
Documents, reflect the entire understanding of the parties with respect to the
transactions contemplated hereby.
19.7 Governing Law; Waivers. THIS AGREEMENT SHALL BE INTERPRETED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE
STATE OF ARIZONA GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
BORROWER HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE COUNTY OF MARICOPA IN THE STATE OF ARIZONA OR, AT THE
SOLE OPTION OF FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL INITIATE LEGAL
OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE
MATTER IN CONTROVERSY. BORROWER WAIVES ANY OBJECTION OF FORUM NON CONVENIENS AND
VENUE. BORROWER FURTHER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT,
AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE MANNER SET FORTH IN
SECTION 19.13 HEREOF FOR THE GIVING OF NOTICE. BORROWER FURTHER WAIVES ANY RIGHT
IT MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST IT.
19.8 Survival. All of the representations and warranties of Borrower
contained in this Agreement shall survive the execution, delivery and acceptance
of this Agreement by the parties. No termination of this Agreement or of any
guaranty of the Obligations shall affect or impair the powers, obligations,
duties, rights, representations, warranties or liabilities of the parties hereto
and all shall survive such termination.
19.9 Evidence of Obligations. Each Obligation may, in FINOVA's discretion,
be evidenced by notes or other instruments issued or made by Borrower to FINOVA.
If not so evidenced, such Obligation shall be evidenced solely by entries upon
FINOVA's books and records.
19.10 Collateral Security. The Obligations shall constitute one loan
secured by the Collateral. FINOVA may, in its sole discretion, (i) exchange,
enforce, waive or release any of the Collateral, (ii) apply Collateral and
direct the order or manner of sale thereof as it may determine, and (iii)
settle, compromise, collect or otherwise liquidate any Collateral in any manner
without affecting its right to take any other action with respect to any other
Collateral.
19.11 Application of Collateral. Except as otherwise provided herein,
FINOVA shall have the continuing and exclusive right to apply or reverse and
re-apply any and all payments to any portion of the Obligations in such order
and manner as FINOVA shall determine in its sole discretion. To the extent that
Borrower makes a payment or FINOVA receives any payment or proceeds of the
Collateral for Borrower's benefit which is subsequently invalidated, declared to
be fraudulent or preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver or any other party under any bankruptcy law,
common law or equitable cause, then, to such extent, the Obligations or part
thereof intended to be satisfied shall be revived and continue as if such
payment or proceeds had not been received by FINOVA.
19.12 Loan Requests. Each oral or written request for a loan by any Person
who purports to be any employee, officer or authorized agent of Borrower shall
be made to FINOVA on or prior to 10:00 a.m., Chicago time, on the Business Day
on which the proceeds thereof are requested to be paid to Borrower and shall be
conclusively presumed to be made by a Person authorized by Borrower to do so and
the crediting of a loan to Borrower's operating account shall conclusively
establish Borrower's obligation to repay such loan. Unless and until Borrower
otherwise directs FINOVA in writing, all loans shall be wired to Borrower's
operating account set forth on the Schedule.
19.13 Notices. Any notice required hereunder shall be in writing and
addressed to the Borrower and FINOVA at their addresses set forth at the
beginning of this Agreement. Notices hereunder shall be deemed received on the
earlier of receipt, whether by mail, personal delivery, facsimile, or otherwise,
or upon deposit in the United States mail, postage prepaid.
19.14 Brokerage Fees. Borrower represents and warrants to FINOVA that, with
respect to the financing transaction herein contemplated, no Person is entitled
to any brokerage fee or other commission and Borrower agrees to indemnify and
hold FINOVA harmless against any and all such claims.
19.15 Disclosure. No representation or warranty made by Borrower in this
Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to Borrower
or which reasonably should be known to Borrower which Borrower has not disclosed
to FINOVA in writing with respect to the transactions contemplated by this
Agreement which materially and adversely affects the business, assets,
operations, prospects or condition (financial or otherwise), of Borrower.
19.16 Publicity. FINOVA is hereby authorized to issue appropriate press
releases and to cause a tombstone to be published announcing the consummation of
this transaction and the aggregate amount thereof.
-18-
<PAGE> 19
19.17 Captions. The Section titles contained in this Agreement are without
substantive meaning and are not part of this Agreement.
19.18 Injunctive Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its Obligations under this
Agreement, any remedy at law may prove to be inadequate relief to FINOVA.
Therefore, FINOVA, if it so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
19.19 Counterparts. This Agreement may be executed in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
19.20 Construction. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments or
exhibits hereto.
19.21 Time of Essence. Time is of the essence for the performance by
Borrower of the Obligations set forth in this Agreement.
19.22 Limitation of Actions. Borrower agrees that any claim or cause of
action by Borrower against FINOVA, or any of FINOVA's directors, officers,
employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Agreement, or any other present or future agreement, or any
other transaction contemplated hereby or thereby or relating hereto or thereto,
or any other matter, cause or thing whatsoever, whether or not relating hereto
or thereto, occurred, done, omitted or suffered to be done by FINOVA, or by
FINOVA's directors, officers, employees, agents, accountants or attorneys,
whether sounding in contract or in tort or otherwise, shall be barred unless
asserted by Borrower by the commencement of an action or proceeding in a court
of competent jurisdiction by the filing of a complaint within one year after the
first act, occurrence or omission upon which such claim or cause of action, or
any part thereof, is based and service of a summons and complaint on an officer
of FINOVA or any other person authorized to accept service of process on behalf
of FINOVA, within 30 days thereafter. Borrower agrees that such one-year period
of time is a reasonable and sufficient time for Borrower to investigate and act
upon any such claim or cause of action. The one-year period provided herein
shall not be waived, tolled, or extended except by a specific written agreement
of FINOVA. This provision shall survive any termination of this Loan Agreement
or any other agreement.
19.23 Liability. Neither FINOVA nor any FINOVA Affiliate shall be liable
for any indirect, special, incidental or consequential damages in connection
with any breach of contract, tort or other wrong relating to this Agreement or
the Obligations or the establishment, administration or collection thereof
(including without limitation damages for loss of profits, business
interruption, or the like), whether such damages are foreseeable or
unforeseeable, even if FINOVA has been advised of the possibility of such
damages. Neither FINOVA, nor any FINOVA Affiliate shall be liable for any
claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by the Borrower through the ordinary negligence of FINOVA,
or any FINOVA Affiliate. "FINOVA Affiliate" shall mean FINOVA's directors,
officers, employees, agents, attorneys or any other person or entity affiliated
with or representing FINOVA.
19.24 Notice of Breach by FINOVA. Borrower agrees to give FINOVA written
notice of (i) any action or inaction by FINOVA or any attorney of FINOVA in
connection with any Loan Documents that may be actionable against FINOVA or any
attorney of FINOVA or (ii) any defense to the payment of the Obligations for any
reason, including, but not limited to, commission of a tort or violation of any
contractual duty or duty implied by law. Borrower agrees that unless such notice
is fully given as promptly as possible (and in any event within thirty (30)
days) after Borrower has knowledge, or with the exercise of reasonable diligence
should have had knowledge, of any such action, inaction or defense, Borrower
shall not assert, and Borrower shall be deemed to have waived, any claim or
defense arising therefrom.
19.25 MUTUAL WAIVER OF RIGHT TO JURY TRIAL. FINOVA AND BORROWER EACH HEREBY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; (II) ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN FINOVA AND BORROWER; OR (III)
ANY CONDUCT, ACTS OR OMISSIONS OF FINOVA OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
FINOVA OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
-19-
<PAGE> 20
BORROWER:
PERFORMANCE PRINTING CORPORATION
BY: /S/
-----------------------------
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
FINOVA:
FINOVA CAPITAL CORPORATION
BY: /S/
-----------------------------
TITLE
---------------------------
-20-
<PAGE> 21
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: PERFORMANCE PRINTING CORPORATION
ADDRESS: 3012 FAIRMOUNT
DALLAS, TEXAS 75201
DATE: AS OF DECEMBER 19, 1996
This Schedule forms an integral part of the Loan and Security Agreement between
the above Borrower and FINOVA Capital Corporation dated the above date, and all
references herein and therein to "this Agreement" shall be deemed to refer to
said Agreement and to this Schedule.
================================================================================
TOTAL FACILITY (SECTION 1.1):
$3,500,000.00
================================================================================
LOANS (SECTION 1.2):
REVOLVING LOANS: A revolving line of credit consisting of
loans against Borrower's Eligible Receivables ("Receivable
Loans") and against Borrower's Eligible Inventory
("Inventory Loans") in an aggregate outstanding principal
amount not to exceed the lesser of (a) or (b) below:
(a) the amount of the Total Facility, or
(b) the sum of
(i) an amount equal to 85% of the net amount of
Eligible Receivables; plus
(ii) an amount not to exceed the lesser of:
(A) 50% of the value of Borrower's Eligible
Inventory, calculated at the lower of cost or
market value and determined on a first-in,
first-out basis, or
(B) $350,000.00.
<PAGE> 22
================================================================================
CONDITIONS PRECEDENT (SECTION 2.1):
The obligation of FINOVA to make the initial advance
hereunder is subject to the fulfillment, to the satisfaction
of FINOVA and its counsel, of each of the following
conditions, in addition to the conditions set forth in
Sections 2.1 and 2.2 above:
(a) Borrower shall have excess borrowing availability under
the Revolving Loan facility of not less than $200,000.00,
after giving effect to the initial advance hereunder and
after giving effect to payment in full of all of Borrower's
accounts payable outstanding 30 days or more from their
invoice date and all book overdrafts;
(b) No material adverse change has occurred in the
Borrower's business, operations, financial condition, or
assets or in the prospect of repayment of the Obligations
since September 30, 1996; and
(c) Upon FINOVA's request, Borrower shall (i) furnish FINOVA
with a Bishop's report on individuals, selected by FINOVA,
associated with the operations and/or ownership of Borrower;
(ii) furnish FINOVA with credit reports and/or UCC, tax and
judgment lien searches on Borrower and/or Borrower's senior
management; and (iii) customer and vendor credit reference
checks.
Borrower shall cause the conditions precedent set forth in
Section 2.1 of this Agreement and set forth above in this
Schedule to be satisfied, and shall provide evidence to
FINOVA that all such conditions precedent have been
satisfied, on or before December 19, 1996.
================================================================================
INTEREST AND FEES (SECTION 3.1):
Interest. Borrower shall pay FINOVA interest on the daily
outstanding balance of Borrower's loan account at a per
annum rate of 1.5% in excess of the rate of interest
announced publicly by Citibank, N.A., from time to time as
its "base rate" (or any successor thereto), which may or may
not be such institution's lowest rate (the "Base Rate");
provided, however, if Borrower's EBITDA (plus equipment
rental payments) for its 1996 fiscal year, as reflected in
the audited consolidated financial statements respecting
such fiscal year delivered by Borrower to FINOVA pursuant to
Section 5.2 hereof, is more than Two Million and No/100
Dollars ($2,000,000.00), then, beginning on the later of (i)
the first anniversary of the date of this Agreement or (ii)
the first day of the month following FINOVA's receipt of
such financial statements, Borrower shall pay FINOVA
interest on the daily outstanding balance of Borrower's loan
account at a per annum rate of (1.0%) in excess of the Base
Rate. The interest rate chargeable hereunder shall be
increased or decreased, as the case may be, without
<PAGE> 23
notice or demand of any kind, upon the announcement of any
change in the Base Rate. Each change in the Base Rate shall
be effective hereunder on the first day following the
announcement of such change; provided, however, that a
cumulative change of less than one-fourth of one percent
(0.25%) shall not be considered. Interest charges and all
other fees and charges herein shall be computed on the basis
of a year of 360 days and actual days elapsed and shall be
payable to FINOVA in arrears on the first day of each month.
Minimum Interest Charge. With respect to each calendar month
or portion thereof during the term of this Agreement
(excluding the calendar month in which this Agreement is
executed), Borrower shall also pay FINOVA, on the first day
of the next month, as a minimum charge, the amount by which
accrued interest pursuant to the section above for such
month or portion thereof is less than $2,000.00 (the
"Minimum Interest Charge"). Notwithstanding the occurrence
of any Event of Default hereunder or termination of this
Agreement by FINOVA as a result thereof, the Minimum
Interest Charge shall be paid by Borrower for the unexpired
portion of the Initial Term or any Renewal Term of this
Agreement.
Loan Commitment Fee. In consideration for Lender's
commitment to make the Revolving Loans available to
Borrower, Borrower has agreed to pay to FINOVA a loan
commitment fee in an amount equal to one-half of one percent
(.50%) of the amount of the Total Facility, all of which
shall be due and payable on the Closing Date. The entire
loan commitment fee should be deemed to be fully earned on
the Closing Date.
Renewal Fee. Borrower shall pay to FINOVA a facility renewal
fee equal to one-quarter of one percent (0.25%) per annum of
the amount of the Total Facility. The facility renewal fee
shall be deemed fully earned at the time when due and is
otherwise due and payable annually, commencing upon the
second anniversary of the date of this Agreement and
continuing on each subsequent anniversary thereof.
Examination Fees. Borrower agrees to pay to FINOVA an
examination fee in the amount of $500 per person per day in
connection with each audit or examination of Borrower
performed by FINOVA prior to or after the date hereof, plus
all costs and expenses incurred in connection therewith.
<PAGE> 24
Unused Line Fee. From the Closing Date, Borrower agrees to
pay FINOVA a quarterly unused line fee, in an amount equal
to one-quarter of one percent (0.25%) per annum (calculated
on the basis of a year of 360 days) of the average amount of
the unused portion of the revolving line of credit for such
quarter. Such unused line fee shall be deemed fully earned
at the time when due and is otherwise due and payable in
arrears on the first Business day of each calendar quarter,
commencing on the Closing Date, during the term of this
Agreement, and upon the termination hereof.
================================================================================
REPORTING REQUIREMENTS (SECTION 5.2):
1. Borrower shall provide FINOVA with monthly agings aged by
invoice date and reconciliations of Receivables within ten
(10) days after the end of each month.
2. Borrower shall provide FINOVA with monthly accounts payable
agings aged by invoice date, outstanding or held check
registers and inventory certificates within fifteen (15)
days after the end of each month.
3. Borrower shall provide FINOVA with monthly perpetual
inventory reports for the Inventory valued on a first-in,
first-out basis at the lower of cost or market (in
accordance with generally accepted accounting principles) or
such other inventory reports as are reasonably requested by
FINOVA, all within fifteen (15) days after the end of each
month.
4. Borrower shall provide FINOVA with monthly unaudited
financial statements within thirty (30) days after the end
of each month.
5. Borrower shall provide FINOVA with annual operating budgets
(including income statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal year of
Borrower within thirty (30) days prior to the end of each
fiscal year of Borrower.
================================================================================
BORROWER INFORMATION:
Fictitious Names/Prior Corporate Names (Section 12.2):
Prior Names: Performance Printing, Ltd.
Fictitious Names: Performance Display, Performance Marketing, and
Performance Printing, Ltd.
Borrower Locations (Section 12.16) 3012 Fairmount, Dallas, Texas 75201
2929 Stemmons, Dallas, Texas 75201
1174 Quaker Court, Dallas, Texas 75201
Borrower's Federal Tax Identification Number (Section 12.16): 75-2418082
<PAGE> 25
Permitted Encumbrances (Section 18.1): see Exhibit A attached hereto.
FINANCIAL COVENANTS (SECTION 13.14):
Borrower shall comply with all of the following
covenants. Compliance shall be determined as of the end
of each month, except as otherwise specifically provided
below:
Current Ratio. Borrower shall maintain a ratio of Current Assets to
Current Liabilities of not less than 1.4 to 1.0;
NetWorth. Borrower shall maintain Net Worth of not less than (i)
Seven Hundred Forty Thousand Dollars ($740,000) at all
times from and after the date hereof through and
including December 30, 1997, and (ii) One Million
Dollars ($1,000,000) at all times from and after
December 31, 1997;
Debt to Net Worth. Borrower shall maintain a ratio of Indebtedness to Net
Worth of not greater than (i) 10.5 to 1.0 at all times
from and after the date hereof through and including
December 30, 1997, and (ii) 10.0 to 1.0 at all times
from and after December 31, 1997; and
EBITDA Borrower shall maintain EBITDA of not less than (i) One
Million Three Hundred Thousand Dollars ($1,300,000) at
all times from and after the date hereof through and
including December 30, 1997, and (ii) One Million Five
Hundred Thousand Dollars ($1,500,000) at all times from
and after December 31, 1997.
EBITDA shall be measured as of the last day of each
calendar month over a period consisting of the preceding
twelve (12) months (i.e., on a rolling, 12-month basis).
Senior Debt Coverage: Borrower shall at all times maintain a ratio (the
"Senior Debt Coverage Ratio") of (A) EBITDA, to (B) the
sum of (i) interest payments on the Obligations, and
(ii) principal and interest payments on Indebtedness
(excluding the Obligations) of not less than
1.20 to 1.0.
The Senior Debt Coverage Ratio shall be measured as of
the last day of each calendar month over a period
consisting of the preceding twelve (12) months (i.e., on
a rolling, 12-month basis).
<PAGE> 26
================================================================================
NEGATIVE COVENANTS (SECTION 14):
Capital Expenditures: Borrower shall not make or incur any unfinanced Capital
Expenditure if, after giving effect thereto, the
aggregate amount of all Capital Expenditures by Borrower
in any fiscal year (beginning with the 1997 fiscal year)
would exceed $60,000.
Compensation: Borrower shall not pay total compensation, including
salaries, withdrawals, fees, bonuses, commissions,
drawing accounts and other payments, whether directly or
indirectly, in money or otherwise, during any fiscal
year to all of Borrower's executives, officers and
directors (or any relative thereof) in an amount in
excess of one hundred ten percent (110%) of the prior
year's aggregate compensation for each such executive,
officer or director.
Indebtedness: Borrower shall not create, incur, assume or permit to
exist any Indebtedness (including Indebtedness in
connection with Capital Leases) in excess of $50,000
other than (i) the Obligations, (ii) trade payables and
other contractual obligations to suppliers and customers
incurred in the ordinary course of business and (iii)
other Indebtedness existing on the date of this
Agreement and reflected in the Prepared Financials
(other than Indebtedness paid on the date of this
Agreement from proceeds of the initial advances
hereunder).
================================================================================
TERM (SECTION 16.1):
The initial term of this Agreement shall be TWO (2)
year(s) from the date hereof (the "Initial Term") and
shall be automatically renewed for successive periods of
one (1)year each (each, a "Renewal Term"), unless
earlier terminated as provided in Section 16 or 17 above
or elsewhere in this Agreement.
================================================================================
TERMINATION FEE (SECTION 16.4):
The Termination Fee provided in Section 16.4 shall be an
amount equal to the following percentage of the average
daily outstanding balance of the Obligations for the
180-day period (or lesser period if applicable)
preceding the date of termination:
(i) three percent (3%), if such early termination occurs
on or prior to the first anniversary of the date of this
Agreement;
(ii) two percent (2%), if such early termination occurs
after the first anniversary of the date of this
Agreement and prior to the second anniversary of the
date of this Agreement.
<PAGE> 27
================================================================================
additional DEFINITIONS (SECTION 18.1):
"Prepared Financials" means the balance sheets of Borrower as of December 31,
1995, and as of each subsequent date on which audited
balance sheets are delivered to FINOVA from time to time
hereunder, and the related statements of operations,
changes in stockholder's equity and changes in cash flow
for the periods ended on such dates.
"Subordinating means John T. White.
Creditor"
================================================================================
DISBURSEMENT (SECTION 19.12):
Unless and until Borrower otherwise directs FINOVA in
writing, all loans shall be wired to Borrower's
operating account at Comerica Bank-Texas, account number
7201-00432-7.
BORROWER: FINOVA:
PERFORMANCE PRINTING CORPORATION FINOVA CAPITAL CORPORATION
BY: /S/ BY: /S/
---------------------------- ------------------------------
PRESIDENT OR VICE PRESIDENT TITLE
----------------------------
<PAGE> 1
EXHIBIT 10.6
REPRESENTATIVE'S WARRANT AGREEMENT (the "Representative's Warrant
Agreement" or "Agreement"), dated as of ________, 1998, between Performance
Printing Corporation (the "Company") and FIRST LONDON SECURITIES CORPORATION
(the "Representative").
W I T N E S S E T H:
WHEREAS, the Representative has agreed, pursuant to that certain
underwriting agreement dated as of the date hereof by and between the Company
and the Representative (the "Underwriting Agreement"), to act as the
Representative of the Underwriters in connection with the Company's proposed
public offering (the "Public Offering") of up to 1,380,000 shares of the
Company's Common Stock at $____ per share (the "Common Stock IPO Price") and of
up to 1,380,000 Redeemable Common Stock Purchase Warrants (the "Public
Warrants") at $.125 per warrant (the "Warrant IPO Price"); and
WHEREAS, the Company proposes to issue to the Representative and/or
persons related to the Representative as those persons are defined in Rule 2710
of the NASD Conduct Rules (the "Holder"), 120,000 warrants ("Common Stock
Representative Warrants") to purchase 120,000 shares of the Company's Common
stock (the "Shares") and 120,000 warrants ("Warrant Representative Warrants")
to purchase 120,000 Common Stock Purchase Warrants ("Underlying Warrants")
exercisable to purchase 120,000 shares of the Company's Common Stock (the
"Underlying Warrant Shares"). The "Common Stock Representative Warrants" and
the "Warrant Representative Warrants" are collectively referred to as the
"Warrants". The "Shares," and the "Underlying Warrants" and the "Underlying
Warrant Shares" are collectively referred to as the "Warrant Securities"; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the holders ("Holders") in consideration for, and
as part of the compensation in connection with, the Representative acting as
representative pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of ONE HUNDRED AND NO CENTS ($100.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE> 2
1. Grant and Period.
The Public Offering has been registered under a Registration Statement
on Form SB-2 (File No. 333-______) (the "Registration Statement") and declared
effective by the Securities and Exchange Commission (the "SEC" or "Commission")
on ______, 1998 (the "Effective Date"). This Agreement is entered into
pursuant to the Underwriting Agreement between the Company and the
Representative, as representative of the Underwriters, in connection with the
Public Offering.
Pursuant to the Warrants, the Holders are hereby granted the right to
purchase from the Company, at any time during the period commencing one year
from the Effective Date and expiring four (4) years thereafter (the "Expiration
Time"), up to 120,000 Shares at an initial exercise price (subject to
adjustment as provided in Article 8 hereof) of $____ per share (120% of the
Common Stock IPO Price) (the "Share Exercise Price") and/or 120,000 Underlying
Warrants at an initial exercise price of $.15 per warrant (120% of the Warrant
IPO Price) (the "Underlying Warrant Exercise Price"), subject to the terms and
conditions of this Agreement. Each Underlying Warrant is exercisable to
purchase one (1) share of Common Stock at $____ (150% of the Common Stock IPO
Price) per share during the four (4) year period commencing one year from the
Effective Date.
Except as specifically otherwise provided herein, the Shares, the
Underlying Warrants and the Underlying Warrant Shares constituting the Warrant
Securities shall bear the same terms and conditions as such securities
described under the caption "Description of Securities" in the Registration
Statement, and as designated in the Company's Articles of Incorporation and any
amendments thereto, and the Underlying Warrants shall be governed by the terms
of the Warrant Agreement executed in connection with the Company's public
offering (the "Warrant Agreement"), except as provided herein, and the Holders
shall have registration rights under the Securities Act of 1933, as amended
(the "Act"), for the Shares, the Underlying Warrants, and the Underlying
Warrant Shares, as more fully described in Article 7 of this Representative's
Warrant Agreement. In the event of any extension of the expiration date or
reduction of the exercise price of the Public Warrants, the same such changes
to the Underlying Warrants shall be simultaneously effected, except that the
Underlying Warrants shall expire no later than five (5) years from the
Effective Date.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificate") delivered and to be
delivered pursuant to this Agreement shall be in the form set forth in the form
of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions,
2
<PAGE> 3
omissions, substitutions, and other variations as required or permitted by this
Agreement.
3. Exercise of Warrant.
3.1 Full Exercise.
(i) The Holder hereof may effect a cash exercise of the Common
Stock Representative Warrants and/or the Warrant Representative Warrants and/or
the Underlying Warrants by surrendering the Warrant Certificate, together with
a Subscription in the form of Exhibit "A" attached thereto, duly executed by
such Holder to the Company, at any time prior to the Expiration Time, at the
Company's principal office, accompanied by payment in cash or by certified or
official bank check payable to the order of the Company in the amount of the
aggregate purchase price (the "Aggregate Price"), subject to any adjustments
provided for in this Agreement. The aggregate price hereunder for each Holder
shall be equal to the exercise price as set forth in Article 6 hereof
multiplied by the number of Warrants, Underlying Warrants, Underlying Warrant
Shares or Shares that are the subject of each Holder's Warrant (as adjusted as
hereinafter provided).
(ii) The Holder hereof may effect a cashless exercise of the
Common Stock Representative Warrants and/or the Underlying Warrants by
delivering the Warrant Certificate to the Company together with a Subscription
in the form of Exhibit "B" attached thereto, duly executed by such Holder, in
which case no payment of cash will be required. Upon such cashless exercise,
the number of Shares to be purchased by each Holder hereof shall be determined
by dividing: (i) the number obtained by multiplying the number of Shares or
Underlying Warrant Shares, as the case may be, that are the subject of each
Holder's Warrant Certificate by the sum of (1) Share Exercise Price or the
Underlying Warrant Share Exercise Price, as the case may be, plus (2) the
amount, if any, by which the then Market Value (as hereinafter defined) exceeds
the Share Exercise Price or the Underlying Warrant Share Exercise Price, as
applicable; by (ii) the Share Exercise Price or the Underlying Warrant Share
Exercise Price, as applicable. In no event shall the Company be obligated to
issue any fractional securities and, at the time it causes a certificate or
certificates to be issued, it shall pay the Holder in lieu of any fractional
securities or shares to which such Holder would otherwise be entitled, by
Company check, in an amount equal to such fraction multiplied by the Market
Value. The Market Value shall be determined on a per share basis as of the
close of the business day preceding the exercise, which determination shall be
made as follows: (a) if the Common Stock is listed for trading on a national or
regional stock exchange or is included on the Nasdaq National Market or Small-
Cap Market, the average closing sale price quoted on such exchange or the
Nasdaq National Market or Small-Cap Market which is published in The Wall
Street Journal for
3
<PAGE> 4
the ten (10) trading days immediately preceding the date of exercise, or if no
trade of the Common Stock shall have been reported during such period, the last
sale price so quoted for the next day prior thereto on which a trade in the
Common Stock was so reported; or (b) if the Common Stock is not so listed,
admitted to trading or included, the average of the closing highest reported
bid and lowest reported ask price as quoted on the National Association of
Securities Dealer's OTC Bulletin Board or in the "pink sheets" published by the
National Daily Quotation Bureau for the first day immediately preceding the
date of exercise on which the Common Stock is traded.
3.2 Partial Exercise. The Warrant Securities referred to in Section
3.1 above also may be exercised from time to time in part by surrendering the
Warrant Certificate in the manner specified in Section 3.1 hereof, except that
with respect to a cash exercise, the purchase price payable shall be equal to
the number of Warrant Securities being purchased hereunder multiplied by the
per security purchase price, subject to any adjustments provided for in this
Agreement. Upon any such partial exercise, the Company, at its expense, will
forthwith issue to the Holder hereof a new Warrant Certificate or Warrants of
like tenor calling in the aggregate for the number of securities (as
constituted as of the date hereof) for which the Warrant Certificate shall not
have been exercised, issued in the name of the Holder hereof or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct.
4. Issuance of Certificates.
Upon the exercise of the Warrants or the Underlying Warrants, the
issuance of certificates for the shares of Common Stock and/or other securities
shall be made forthwith (and in any event within three (3) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Articles 5 and 7 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares of
Common Stock and/or other securities shall be executed on behalf of the Company
by the manual or facsimile signature of the then present Chairman or Vice
Chairman or President or Chief Executive Officer of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the then
4
<PAGE> 5
present Secretary or Assistant Secretary of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants.
The Holder of a Warrant Certificate, by acceptance thereof, covenants
and agrees that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, except (a) to
officers of the Representative or to officers and partners of the other
Underwriters or Selected Dealers participating in the Public Offering; (b) by
will; or (c) by operation of law.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices.
The initial exercise price of each Common Stock Representative Warrant
shall be $_____ per share (120% of the Common Stock IPO Price). The initial
exercise price of each Warrant Representative Warrant shall be $.15 per
Underlying Warrant (120% of the Warrant IPO Price). The initial exercise price
of each Underlying Warrant shall be $____ per share (150% of the Common Stock
IPO Price). The adjusted exercise price shall be the price which shall result
from time to time from any and all adjustments of the initial exercise price in
accordance with the provisions of Article 8 hereof. The Warrant Representative
Warrants and the Underlying Warrants are exercisable during the four (4) year
period commencing one year from the Effective Date.
6.2 Exercise Price.
The term "Exercise Price" herein shall mean the initial exercise price
or the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933.
The Shares, the Underlying Warrants and the Underlying Warrant Shares
(collectively the "Registrable Securities") have been registered under the
Securities Act of 1933, as amended (the "Act"). Upon exercise, in part or in
whole, of the Warrants, certificates representing the Shares, the Underlying
Warrants or the Underlying Warrant Shares shall bear the following legend in
the event there is no current
5
<PAGE> 6
registration statement effective with the Commission at such time as to such
securities:
The securities represented by this certificate may not be offered or
sold except pursuant to (i) an effective registration statement under the Act,
(ii) to the extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or (iii) an opinion
of counsel, if such opinion shall be reasonably satisfactory to counsel to the
issuer, that an exemption from registration under such Act and applicable state
securities laws is available.
7.2 Piggyback Registration.
If, at any time commencing after the Effective Date of the Public
Offering and expiring seven (7) years thereafter, the Company prepares and
files a post-effective amendment to the Registration Statement, or a new
registration statement, under the Act, or files a Notification on Form 1-A or
otherwise registers securities under the Act, or files a similar disclosure
document with the Commission (collectively the "Registration Documents") as to
any of its securities under the Act (other than under a registration statement
pursuant to Form S-8 or form S-4 or small business issue equivalent), it will
give written notice by registered mail, at least thirty (30) days prior to the
filing of each such Registration Document, to the Representative and to all
other Holders of the Registrable Securities of its intention to do so. If the
Representative and/or other Holders of the Registrable Securities notify the
Company within twenty (20) days after receipt of any such notice of its or
their desire to include any such Registrable Securities in such proposed
Registration Documents, the Company shall afford the Representative and such
Holders of such Registrable Securities the opportunity to have any Registrable
Securities registered under such Registration Documents or any other available
Registration Document.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of
any such securities shall have been made) to elect not to file any such
proposed registration statement, or to withdraw the same after the filing but
prior to the effective date thereof.
7.3 Demand Registration.
(a) In addition to the registration rights under Section 7.2, at any
time commencing one (1) year after the Effective Date of the Public Offering,
and expiring four (4) years thereafter, the Holders of any Registrable
Securities representing more than 50% of such securities shall have the right,
exercisable by written request to the
6
<PAGE> 7
Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement or any other appropriate disclosure
document so as to permit a public offering and sale for nine (9) consecutive
months (or such longer period of time as permitted by the Act) by any such
Holder of Registrable Securities; provided, however, that the provisions of
Section 7.4(b) hereof shall not apply to any such registration request and
registration and all costs incident thereto shall be at the expense of the
Holder or Holders participating in the offering pro-rata.
(b) Any written request by the Holders made pursuant to this Section
7.3 shall:
(i) specify the number of Registrable Securities which the
Holders intend to offer and sell and the minimum price at which the
Holders intend to offer and sell such securities;
(ii) state the intention of the Holders to offer such
securities for sale;
(iii) describe the intended method of distribution of such
securities; and
(iv) contain an undertaking on the part of the Holders to
provide all such information and materials concerning the Holders and
take all such action as may be reasonably required to permit the Company
to comply with all applicable requirements of the Commission and to
obtain acceleration of the effective date of the registration statement.
(c) In the event the Company receives from the Holders of any
Registrable Securities representing more than 50% of such securities at that
time outstanding, a request that the Company effect a registration on Form S-3
with respect to the Registrable Securities and if Form S-3 is available for
such offering, the Company shall, as soon as practicable, effect such
registration as would permit or facilitate the sale and distribution of the
Registrable Securities as are specified in the request. All expenses incurred
in connection with a registration requested pursuant to this Section shall be
borne by the Company. Registrations effected pursuant to this Section 7.3(c)
shall not be counted as registrations pursuant to Section 7.3(b) hereof.
7.4 Covenants of the Company With Respect to Registration.
In connection with any registration under Section 7.2 or 7.3 hereof, the
Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) days of receipt of any demand pursuant to
Section 7.3, and shall
7
<PAGE> 8
use its best efforts to have any such registration statement declared effective
at the earliest practicable time. The Company will promptly notify each seller
of such Registrable Securities and confirm such advice in writing, (i) when
such registration statement becomes effective, (ii) when any post-effective
amendment to such registration statement becomes effective and (iii) of any
request by the SEC for any amendment or supplement to such registration
statement or any prospectus relating thereto or for additional information.
The Company shall furnish to each seller of such Registrable Securities
such number of copies of such registration statement and of each such amendment
and supplement thereto (in each case including each preliminary prospectus and
summary prospectus) in conformity with the requirements of the Act, and such
other documents as such seller may reasonably request in order to facilitate
the disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if
any, and fees and expenses of Holder's counsel and the Holder's pro-rata
portion of the selling discount or commissions), fees and expenses in
connection with all registration statements filed pursuant to Sections 7.2 and
7.3(c) hereof including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. The Holder will pay all
costs, fees and expenses in connection with any registration statement filed
pursuant to Section 7.3(a). If the Company shall fail to comply with the
provisions of Section 7.3(a), the Company shall, in addition to any other
equitable or other relief available to the Holder, be liable for any or all
special and consequential damages sustained by the Holder requesting
registration of their Registrable Securities.
(c) The Company shall prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be reasonably necessary to keep such registration
statement effective for at least nine months (or such longer period as
permitted by the Act), and to comply with the provisions of the Act with
respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the seller or sellers of Registrable Securities set forth in
such registration statement. If at any time the SEC should institute or
threaten to institute any proceedings for the purpose of issuing a stop order
suspending the effectiveness of any such registration statement, the Company
will promptly notify each seller of such Registrable Securities and will use
all reasonable efforts to prevent the issuance of any such stop order or to
obtain the withdrawal thereof as soon as possible. The Company will use its
good faith reasonable efforts and take all reasonably necessary action which
may be required in qualifying or registering the Registrable Securities
included in a registration statement for offering
8
<PAGE> 9
and sale under the securities or blue sky laws of such states as reasonably are
required by the Holder, provided that the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
The Company shall use its good faith reasonable efforts to cause such
Registrable Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities of the
United States or any State thereof as may be reasonably necessary to enable the
seller or sellers thereof to consummate the disposition of such Registrable
Securities.
(d) The Company shall indemnify the Holder of the Registrable
Securities to be sold pursuant to any registration statement and each person,
if any, who controls such Holders within the meaning of Section 15 of the Act
or Section 20 (a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act,
the Exchange Act or otherwise, arising from such registration statement but
only to the same extent and with the same effect as the provisions pursuant to
which the Company has agreed to indemnify the Representative as contained in
the Underwriting Agreement.
(e) If requested by the Company prior to the filing of any
registration statement covering the Registrable Securities, each of the Holders
of the Registrable Securities to be sold pursuant to a registration statement,
and their successors and assigns, shall severally, and not jointly, indemnify
the Company, its officers and directors and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20 (a) of
the Exchange Act, against all loss, claim, damage or expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become subject under
the Act, the Exchange Act or otherwise, arising from written information
furnished by such Holder, or their successors or assigns, for specific
inclusion in such registration statement to the same extent and with the same
effect as the provisions contained in the Underwriting Agreement pursuant to
which the Representative have agreed to indemnify the Company, except that the
maximum amount which may be recovered from each Holder pursuant to this
paragraph or otherwise shall be limited to the amount of net proceeds received
by the Holder from the sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holders to exercise their Warrants or Underlying Warrants prior
to the filing of any registration statement or the effectiveness thereof.
9
<PAGE> 10
(g) The Company shall not permit the inclusion of any securities
other than the Registrable Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof without the prior written
consent of the Holders of the Registrable Securities representing a majority of
such securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall deliver promptly to each Holder participating
in the offering requesting the correspondence and memoranda described below and
the managing underwriter copies of all correspondence between the Commission
and the Company, its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and
at such reasonable times and as often as any such Holder shall reasonably
request.
(j) With respect to a registration statement filed pursuant to
Section 7.3, the Company, if requested, shall enter into an underwriting
agreement with the managing underwriter, reasonably satisfactory to the
Company, selected for such underwriting by Holders holding a majority of the
Registrable Securities requested to be included in such underwriting. Such
agreement shall be satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as
10
<PAGE> 11
are customarily contained in agreements of that type used by the managing
underwriter. The Holders, if required by the underwriter to be parties to any
underwriting agreement relating to an underwritten sale of their Registrable
Securities, may, at their option, require that any or all the representations,
warranties and covenants of the Company to or for the benefit of such
underwriters shall also be made to and for the benefit of such Holders. Such
Holders shall not be required to make any representations or warranties to or
agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
(k) Notwithstanding the provisions of paragraph 7.2 or paragraph 7.3
of this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to paragraph 7.2 or paragraph
7.3 hereof if, within thirty (30) days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holders requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder, to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder may otherwise be sold, in the manner proposed by such Holder, without
registration under the Securities Act, or (ii) the SEC shall have issued a no-
action position, in form and substance satisfactory to counsel for the Holder
requesting registration of such Registrable Securities, to the effect that the
entire number of Registrable Securities proposed to be sold by such Holder may
be sold by it, in the manner proposed by such Holder, without registration
under the Securities Act.
(l) After completion of the Public Offering, the Company shall not,
directly or indirectly, enter into any merger, business combination or
consolidation in which (a) the Company shall not be the surviving corporation
and (b) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which the Holders would
be entitled to receive in exchange for Registrable Securities under any such
merger, business combination or consolidation, provided that to the extent such
securities to be received are convertible into shares of Common Stock of the
issuer thereof, then any such shares of Common Stock as are issued or issuable
upon conversion of said convertible securities shall also be included within
the definition of "Registrable Securities".
11
<PAGE> 12
8. Adjustments to Exercise Price and Number of Securities.
8.1 Adjustment for Dividends, Subdivisions, Combinations or
Reclassification.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into
a greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Share Exercise Price, the Underlying Warrant Exercise
Price and the number of Warrants in effect immediately prior to such action
shall be adjusted so that the Holder of this Warrant thereafter upon the
exercise hereof shall be entitled to receive the number and kind of shares of
the Company which such Holder would have owned immediately following such
action had this warrant been exercised immediately prior thereto. An
adjustment made pursuant to this Section shall become effective immediately
after the record date in the case of a dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Section, the Holder shall become entitled to receive
shares of two or more classes of capital stock of the Company, the Board of
Directors of the Company (whose determination shall be conclusive) shall
determine the allocation of the adjusted Exercise Price between or among shares
of such class of capital stock.
Immediately upon any adjustment of the exercise price of any Warrant
pursuant to this Section, the Company shall send written notice thereof to the
Holder of Warrant Certificates (by first class mail, postage prepaid), which
notice shall state the exercise price of any Warrant resulting from such
adjustment, and any increase or decrease in the number of Warrant Securities to
be acquired upon exercise of the Warrants, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.
8.2 Adjustment For Reorganization, Merger or Consolidation.
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and
12
<PAGE> 13
other securities and property receivable upon such consolidation or merger, by
a holder of the number of shares of Common Stock of the Company for which such
Warrant might have been exercised immediately prior to such reorganization,
consolidation, merger, conveyance, sale or transfer. Such supplemental Warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in Section 8.1 and such registration rights and other
rights as provided in this Agreement. The Company shall not effect any such
consolidation, merger, or similar transaction as contemplated by this
paragraph, unless prior to or simultaneously with the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing, receiving, or leasing
such assets or other appropriate corporation or entity shall assume, by written
instrument executed and delivered to the Holders, the obligation to deliver to
the Holders, such shares of stock, securities, or assets as, in accordance with
the foregoing provisions, such holders may be entitled to purchase, and to
perform the other obligations of the Company under this Agreement. The above
provision of this Subsection shall similarly apply to successive consolidations
or successively whenever any event listed above shall occur.
8.3 Dividends and Other Distributions.
In the event that the Company shall at any time prior to the exercise of
all of the Warrants and/or Underlying Warrants distribute to its stockholders
any assets, property, rights, evidences of indebtedness, securities (other than
a distribution made as a cash dividend payable out of earnings or out of any
earned surplus legally available for dividends under the laws of the
jurisdictions of incorporation of the Company), whether issued by the Company
or by another, the Holders of the unexercised Warrants shall thereafter be
entitled, in addition to the shares of Common Stock or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such distribution as if the Warrants had been exercised
immediately prior to such distribution. At the time of any such distribution,
the Company shall make appropriate reserves to ensure the timely performance of
the provisions of this subsection or an adjustment to the Exercise Price, which
shall be effective as of the day following the record date for such
distribution.
8.4 Adjustment in Number of Securities.
Upon each adjustment of the Exercise Price pursuant to the provisions of
this Article 8, the number of securities issuable upon the exercise of each
Warrant and/or Underlying Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the exercise price in effect immediately prior
to such adjustment by
13
<PAGE> 14
the number of securities issuable upon exercise of the Warrants and the
Underlying Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
8.5 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than 5 cents ($.05) per Security, provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together
with the next subsequent adjustment which, together with any adjustment so
carried forward, shall amount to at least 5 cents ($.05) per Share.
8.6 Accountant's Certificate of Adjustment.
In each case of an adjustment or readjustment of the Share Exercise
Price, Underlying Warrant Exercise Price or the number of any securities
issuable upon exercise of the Warrants or Underlying Warrants, the Company, at
its expense, shall cause independent certified public accountants of recognized
standing selected by the Company (who may be the independent certified public
accountants then auditing the books of the Company) to compute such adjustment
or readjustment in accordance herewith and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to any Holder of the Warrants or Underlying Warrants at
the Holder's address as shown on the Company's books. The certificate shall
set forth such adjustment or readjustment, showing in detail the facts upon
which such adjustment or readjustment is based including, but not limited to, a
statement of (i) the Share Exercise Price or the Underlying Warrant Share
Exercise Price at the time in effect, and (ii) the number of additional
securities and the type and amount, if any, of other property which at the time
would be received upon exercise of the Warrants or Underlying Warrants.
8.7 Adjustment of Underlying Warrant Exercise Price.
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlying Warrant
exercise price and the number of shares of Common Stock underlying such
Underlying Warrants shall be automatically adjusted in accordance with the
Warrant Agreement between the Company and the Company's transfer agent, upon
occurrence of any of the events relating to adjustments described therein.
Thereafter, the Underlying Warrants shall be exercisable at such adjusted
Underlying Warrant Share Exercise Price for such adjusted number of Underlying
Warrant Shares or other securities, properties or rights.
14
<PAGE> 15
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interest.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrants or
Underlying Warrants, nor shall it be required to issue script or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests may be eliminated, at the Company's option, by rounding
any fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights, or in lieu thereof paying cash equal to such
fractional interest multiplied by the current value of a share of Common Stock.
11. Reservation and Listing.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants and the Underlying Warrants, such number of shares of
Common Stock or other securities, properties or rights as shall be issuable
upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants or the Underlying Warrants, and payment of the
exercise price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid, non-
assessable and not subject to the preemptive rights of any stockholder. As
long as the Warrants and Underlying Warrants shall be outstanding, the Company
shall use its best efforts to cause all shares of Common Stock issuable upon
the exercise of the Warrants and the Underlying Warrants to be listed and
quoted (subject to official notice of issuance) on all securities Exchanges and
Systems on which the Common Stock and/or the Public Warrants may then be listed
and/or quoted, including Nasdaq.
15
<PAGE> 16
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Warrants or Underlying Warrants the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders, for the election of directors or any other matter, or as having
any rights whatsoever as a stockholder of the Company. If, however, at any
time prior to the expiration of the warrants and Underlying Warrants and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date of the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notices shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Underlying Warrants.
The form of the certificate representing the Underlying Warrants (and
the form of election to purchase shares of Common Stock upon the exercise of
the Underlying Warrants and the form of assignment printed on the reverse
thereof) shall be
16
<PAGE> 17
substantially as set forth in the exhibits to the Warrant Agreement. Subject
to the terms of this Agreement, one (1) Underlying Warrant shall evidence the
right to initially purchase one (1) fully-paid and non-assessable share of
Common Stock at an initial purchase price of $_______ during the four (4) year
period commencing one year after the Effective Date of the Registration
Statement, at which time the Underlying Warrants, unless the exercise period
has been extended, shall expire. The exercise price of the Underlying Warrants
and the number of shares of Common Stock issuable upon the exercise of the
Underlying Warrants are subject to adjustment, whether or not the Warrants have
been exercised and the Underlying Warrants have been issued, in the manner and
upon the occurrence of the events set forth in the Warrant Agreement, which is
hereby incorporated herein by reference and made a part hereof as if set forth
in its entirety herein. Subject to the provisions of this Agreement and upon
issuance of the Underlying Warrants, each registered holder of such Underlying
Warrant shall have the right to purchase from the Company (and the Company
shall issue to such registered holders) up to the number of fully-paid and non-
assessable shares of Common Stock (subject to adjustment as provided in the
Warrant Agreement) set forth in such Warrant Certificate, free and clear of all
preemptive rights of stockholders, provided that such registered Holder
complies with the terms governing exercise of the Underlying Warrant set forth
in the Warrant Agreement, and pays the applicable exercise price, determined in
accordance with the terms of the Warrant Agreement. Upon exercise of the
Underlying Warrants, the Company shall forthwith issue to the registered Holder
of any such Underlying Warrant in his name or in such name as may be directed
by him, certificates for the number of shares of Common Stock so purchased.
Except as otherwise provided herein and in this Agreement, the Underlying
Warrants shall be governed in all respects by the terms of the Warrant
Agreement. The Underlying Warrants shall be transferable in the manner
provided in the Warrant Agreement, and upon any such transfer, a new Underlying
Warrant certificate shall be issued promptly to the transferee. The Company
covenants to send to each Holder, irrespective of whether or not the Warrants
have been exercised, any and all notices required by the Warrant Agreement to
be sent to holders of Underlying Warrants.
14. Notices.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly given when personally
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the Registrable
Securities, to the address of such Holder as shown on the books of the Company;
or
17
<PAGE> 18
(b) If to the Company, to the address set forth below or to
such other address as the Company may designate by notice to the Holders.
John T. White
Chief Executive Officer
Performance Printing Corporation
3012 Fairmont
Dallas, Texas 75201
With a copy to: Joseph Garza
Garza and Staples, P.C.
5420 LBJ Freeway
1230 Lincoln Center II
Dallas, Texas 75240
15. Entire Agreement: Modification.
This Agreement (and the Underwriting Agreement and Warrant Agreement to
the extent applicable) contain the entire understanding between the parties
hereto with respect to the subject matter hereof, and the terms and provisions
of this Agreement may not be modified, waived or amended except in a writing
executed by the Company and the Holders of at least a majority of Registrable
Securities (based on underlying numbers of shares of Common Stock). Notice of
any modification, waiver or amendment shall be promptly provided to any Holder
not consenting to such modification, waiver or amendment.
16. Successors.
All the covenants and provisions of this Agreement shall be binding upon
and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
17. Termination.
This Agreement shall terminate at the close of business on __________,
2005. Notwithstanding the foregoing, the indemnification provisions of Section
7 shall survive such termination.
18
<PAGE> 19
18. Governing Law; Submission to Jurisdiction.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Texas and for all
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws. The
Company, the Representative and the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the State District court in Dallas, County,
Texas or the United States District Court for the Northern District of Texas,
and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Representative and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such
action, proceeding or claim) may be served by transmitting a copy thereof, by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 14 hereof. Such mailing
shall be deemed personal service and shall be legal and binding upon the party
so served in any action, proceeding or claim.
19. Severability.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
20. Captions.
The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive
effect.
21. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Representative and any other
registered Holder of the Warrant Certificates or Registrable Securities any
legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Representative and any other Holder of the Warrant Certificates or Registrable
Securities.
19
<PAGE> 20
22. Counterparts.
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
20
<PAGE> 21
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
Performance Printing Corporation
By:
--------------------------------
John T. White
Chief Executive Officer
Attest:
_____________________________
Russell V. Oesch, Secretary
FIRST LONDON SECURITIES CORPORATION
By:
--------------------------------
Douglas Nichols, President
21
<PAGE> 22
EXHIBIT A
22
<PAGE> 23
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M, EASTERN TIME ON _______, 2003
<TABLE>
<S> <C> <C> <C>
NO. W-______
________ Common Stock ___________ Warrant
Representative Representative
Warrants Warrants
or
___________ Underlying
Warrants
</TABLE>
This Warrant Certificate certifies that ___________________, or
registered assigns, is the registered holder of _____________ Common Stock
Representative Warrants and/or ________ Warrant Representative Warrants and/or
_________________ Underlying Warrants of Performance Printing Corporation (the
"Company"). Each Common Stock Representative Warrant permits the Holder hereof
to purchase initially, at any time from _________, 1999 ("Purchase Date") until
5:00 p.m. Eastern Time on ______, 2003 ("Expiration Date"), one (1) share of
the Company's Common Stock at the initial exercise price, subject to adjustment
in certain events (the "Exercise Price"), of $.15 per share (120% of the public
warrant offering price). Each Warrant Representative Warrant permits the
Holder hereof to purchase initially, at any time from the Purchase Date until
four (4) years from the Purchase Date, one (1) Underlying
23
<PAGE> 24
Warrant at the Exercise Price of $.15 per Underlying Warrant (120% of the
public warrant offering price). Each Underlying Warrant permits the Holder
thereof to purchase, at any time from the Purchase Date until four (4) years
from the Purchase Date, one (1) share of the Company's Common Stock at the
Exercise Price of $_____ per share (150% of the public share offering price).
Any exercise of Common Stock Representative Warrants and/or Warrant
Representative Warrants and/or Underlying Warrants shall be effected by
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the Representative's Warrant Agreement dated as of _________, 1998,
between the Company and First London Securities Corporation (the
"Representative's Warrant Agreement"). Payment of the Exercise Price shall be
made by certified check or official bank check in New York Clearing House funds
payable to the order of the Company in the event there is no cashless exercise
pursuant to Section 3.1(ii) of the Representative's Warrant Agreement. The
Common Stock Representative Warrants, the Warrant Representative Warrants and
the Underlying Warrants are collectively referred to as "Warrants".
No Warrant may be exercised after 5:00 p.m., Eastern Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Representative's Warrant
Agreement, which Representative's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Representative's Warrant Agreement provides that upon the occurrence
of certain events, the exercise price and the type and/or number of the
Company's securities issuable thereupon may, subject to certain conditions, be
adjusted. In such event, the Company will, at the request of the holder, issue
a new Warrant Certificate evidencing the adjustment in the exercise price and
the number and/or type of securities issuable upon the exercise of the
Warrants; provided, however, that the failure of the Company to issue such new
Warrant Certificates shall not in any way change, alter, or otherwise impair,
the rights of the holder as set forth in the Representative's Warrant
Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates
24
<PAGE> 25
of like tenor and evidencing in the aggregate a like number of Warrants shall
be issued to the transferees) in exchange for this Warrant Certificate, subject
to the limitations provided herein and in the Representative's Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the Holder hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Representative's Warrant Agreement shall have the meanings assigned to them in
the Representative's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of _______, 1998
Performance Printing Corporation
By:
________________________________
John T. White
Chief Executive Officer
(Seal)
Attest:
________________________________
Russell V. Oesch, Secretary
25
<PAGE> 26
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: Performance Printing Corporation
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing ______________ Common Stock Representative Warrants
and/or __________ Warrant Representative Warrants and/or _______________
Underlying Warrants of Performance Printing Corporation (the "Company"), which
Warrant Certificate is being delivered herewith, hereby irrevocably elects to
exercise the purchase right provided by the Warrant Certificate for, and to
purchase thereunder, _____________ Shares and/or _____________ Underlying
Warrants of the Company, and herewith makes payment of $____________ therefor,
and requests that the certificates for such securities be issued in the name
of, and delivered to,
__________________________________________________________ ________ whose
address is ____________________________________, all in accordance with the
Representative's Warrant Agreement and the Warrant Certificate.
Dated:____________________________
__________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
__________________________________
__________________________________
(Address)
26
<PAGE> 27
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: Performance Printing Corporation
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing ___________ Common Stock Representative Warrants
and/or _________________ Underlying Warrants of Performance Printing
Corporation (the "Company"), which Warrant is being delivered herewith, hereby
irrevocably elects the cashless exercise of the purchase right provided by the
Representative's Warrant Agreement and the Warrant Certificate for, and to
purchase thereunder, Shares of the Company in accordance with the formula
provided at Section Three (3) of the Representative's Warrant Agreement. The
undersigned requests that the certificates for such Shares be issued in the
name of, and delivered to,
_____________________________________________________ whose address is,
______________________________________________________________ all in
accordance with the Warrant Certificate.
Dated:____________________________
__________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
__________________________________
__________________________________
(Address)
27
<PAGE> 28
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED____________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________________
_______________________ Attorney, to transfer the within Warrant Certificate
on the books of the within-named Company, and full power of substitution.
Dated: Signature:
_______________________ ______________________________
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
______________________________
(Insert Social Security or
Other Identifying Number of
Assignee)
28
<PAGE> 1
EXHIBIT 10.7
COMMERCIAL LEASE AGREEMENT
<TABLE>
<S> <C>
TABLE OF CONTENTS EXHIBITS AND ADDENDA. Any exhibit or addendum attached to
Article this Lease is incorporated as a part of this Lease for all
1 Defined Terms purposes. Any term not specifically defined in the Addenda
2 Lease and Lease Term shall have the same meanings given to it in the body of this
3. Rent and Security Deposit Lease. To the extent any provisions in the body of this
4. Taxes Lease conflict with the Addenda, the Addenda shall control.
5. Insurance and Indemnity
6. Use of Demised Premises [Check all boxes which apply. Boxes not checked do not apply.]
7. Property Condition, Maintenance, Repairs and Alterations
8. Damage of Destruction Exhibit A Expense Reimbursement
9. Condemnation [X] Exhibit B Survey and/or Legal Description of the Property
10. Assignment and Subletting
11. Default and Remedies [X] Addendum A Expense Reimbursement
12. Landlord's Contractual Lien [X] Addendum B Renewal Options
13. Protection of Lenders Addendum C Right of First Refusal for additional Space
14. Environmental Representations and Indemnity Addendum D Percentage Rental
15. Professional Service Fees Addendum E Guarantee
16. Miscellaneous Addendum F Construction of Improvements
17. additional Provisions Addendum G Rules and Regulations
Addendum H Other
</TABLE>
IN CONSIDERATION of all agreements set forth in this Lease, the parties agree as
follows:
ARTICLE ONE: DEFINED TERMS. As used in this Commercial Lease Agreement (the
"Lease"), the terms set forth in this Article One have the following respective
meanings:
ARTICLE ONE: DEFINED TERMS. As used in this Commercial Lease Agreement (the
"Lease"), the terms set forth in this Article One have the following respective
meanings:
1.01. EFFECTIVE DATE: The last date set forth by the signatures of Landlord and
Tenant on page 10 below.
1.02 LANDLORD: The Sigma Joint Venture
-----------------------------------------------------------
Address: 5930 I LBJ Freeway Suite 200
-----------------------------------------------------------
Dallas, Texas 75240 Telephone (972) 247-5633
-----------------------------------------------------------
1.03. TENANT: Performance Printing Corporation L.L.C.
--------------------------------------------------------------
Address: 3012 Fairmount
--------------------------------------------------------------
Dallas Texas Telephone: (214) 665-1000 Fax: (214) 665-1099
- --------------------------------------------------------------------------------
1.04 DEMISED PREMISES:
A. Street Address: 999 Regal Row
-------------------------------------------------------
Dallas in Dallas County, Texas
- --------------------------------------------------------------------------------
B. Floor Plan or Site Plan: Being a floor area of approximately 75,870
square feet and being approximately __________ feet by ____________ feet
(measured) to the exterior of outside walls and to the center of the interior
walls) and being more particularly shown in outline form on Exhibit A, FLOOR
PLAN OR SITE PLAN.
C. Legal description: The property on which the Demised Premises is situated
(the "Property") is more particularly described as:
________________________________________________________________________________
or is described in Exhibit B, SURVEY AND/OR LEGAL DESCRIPTION.
D. Tenant's pro rata share of the Property is 100% [See Addendum A, if
applicable]
1.05 LEASE TERM: on 05/01/97 years and 0 months beginning on 05/01/97 If ready
(the "Commencement Date") and ending on 04/30/2002 (the "Expiration Date")
subject to extension as herein provided.
1.06 BASE RENT: $1,138,050.00 total Base Rent for the Lease Term payable in
monthly installments of $ 18,967.50 per month in advance. (The total
amount of Rent is defined in Section 3.01.)
1.07 PERCENTAGE RENTAL RATE: N/A % [See Addendum 1] (applicable)
1.08 SECURITY DEPOSIT: $18,067.50 (due upon execution of this Lease).) [See
Section] 3.04]
1.09 PERMITTED USE: Receiving, storing, shipping, and selling products,
materials and merchandise made and/or distributed by Tenant, and for all
other lawful purposes approved in writing by landlord in advance. [See
Section 6.01]
1.10 Party to whom Tenant is to deliver payments under this Lease [check one];
[ ] Landlord
1.11 PRINCIPAL BROKER: Robert Lyon Co. acting as agent for [check one for
Landlord exclusively, or the Tenant exclusively, x both Landlord and
Tenant as dual agent Principal Brokers Address: 3030 LBJ Freeway, Suite
1600, Dallas, Texas 75234 Telephone: (972) 637-1770 Fax: (972) 241-8118
<PAGE> 2
1.12. COOPERATING BROKER:
acting as agent for (check one): [ ] the Landlord exclusively, [ ] the Tenant
exclusively, [ ] both Landlord and Tenant as dual agent Cooperating brokers
Address:
------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
Fax:
---------------------------------------------------------------------------
1.13. THE FEE: The Professional Service Fee as set forth in (check one):
[ ] Paragraph A, or [ ] Paragraph B of Section 15.01
A. The percentage applicable for leases in Sections 15.01 and 15.03 shall
be N/A percent ( %)
B. The percentage applicable in Sections 15.04 in the event of a sale
shall be N/A percent ( %)
1.14. ACCEPTANCE: The number of days for acceptance of this offer is 10 days
(See Section 16.14)
ARTICLE TWO: LEASE AND LEASE TERM
2.01. LEASE OF DEMISED PREMISES FOR LEASE TERM. Landlord leases the Demised
Premises to Tenant and Tenant leases the Demised Premises from Landlord for the
Lease Term stated in Section 1.05. The commencement Date is the date specified
in Section 1.05, unless advanced or delayed under any provision of this Lease.
2.02. EARLY OCCUPANCY. Landlord hereby authorizes Tenant to occupy the Demised
Premises and to commence making Tenant's Improvements (as herein defined) on
4-15-97 (not until closing). If Tenant occupies the Demised Premises prior to
the Commencement Date, Tenant's occupancy of the Demised Premises shall be
subject to all of the provisions of this Lease. Early occupancy of the Demised
Premises shall not advance the Expiration Date. Notwithstanding anything to the
contrary contained herein, Tenant's occupancy prior to the Commencement Date
shall be rent free and Tenant's first installment of Base Rent shall be due on
5-1-97.
2.03. HOLDING OVER. Tenant shall vacate the Demised Premises immediately upon
the expiration of the Lease Term or earlier termination of this Lease. Tenant
shall reimburse Landlord for and indemnify Landlord against all damages incurred
by Landlord as a result of any delay by Tenant in vacating the Demised Premises.
If Tenant does not vacate the Demised Premises upon the expiration of the Lease
or earlier termination of this Lease, Tenant's occupancy of the Demised Premises
shall be a day-to-day tenancy, subject to all of the terms of this Lease, except
that the Base Rent during the holdover period shall be increased to an amount
which is one-and-one half times the Base Rent in effect on the expiration or
termination of this Lease, computed on a daily basis for each day of the
holdover period, plus all additional sums due under this Lease. Tenant agrees to
vacate and deliver the Demised Premises to Landlord upon receipt of notice from
Landlord to vacate. This paragraph shall not be construed as Landlord's consent
for Tenant to hold over or to extend this Lease.
ARTICLE THREE: RENT AND SECURITY DEPOSIT
3.01. MANNER OF PAYMENT. All sums payable under this Lease by Tenant (the
"Rent") shall be made to the Landlord at the address designated in Section
1.02. Unless another person is designated in Section 1.10, or to any other
party or address as Landlord may designate in writing. Any and all payments made
to a designated third party for the account of the Landlord shall be deemed made
to Landlord when received by the designated their party. All sums payable by
Tenant under this Lease, whether or not expressly denominated as rent, shall
constitute rent for purposes of Section 5.02(b)(6) of the Bankruptcy Code and
for all other purposes. The Base Rent is the minimum rent for the Demised
Premises and is subject to the terms and conditions contained in this Lease,
together with the attached Addenda, if any.
3.02. TIME OF PAYMENT. Upon execution of this Lease, Tenant shall pay the
installment of Base Rent for the first month of the Lease Term. On or before the
first day of the second month of the Lease Term and of each month thereafter,
the installment of Base Rent and other sums due under this Lease shall be due
and payable, in advance, without off-set, deduction or prior demand unless
otherwise provided herein. Notwithstanding anything to the contrary obtained
herein, in the event Landlord fails to provide the services required here under
or otherwise breaches its obligations under this Lease, Tenant may, at its
option perform such obligations and withhold or offset the cost thereof,
together with interest thereon at the rate of 12% per annum, from the Rent due
hereunder. If the Lease Term commences or ends on a day other than the first or
last day of a calendar month, the rent for any fractional calendar month
following the Commencement Date or preceding the end of the Lease Term shall be
prorated by days.
3.03 SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall deposit with
Landlord a cash Security Deposit in the amount state in Section 1.08. Landlord
may apply all or part of the Security Deposit to any unpaid Rent or other
charges due from Tenant or to cure any other defaults of Tenant. No interest
will be paid on the Security Deposit. Landlord will not be required to keep the
Security Deposit separate from its other accounts. Upon any termination of this
Lease not resulting from Tenant's default, and after Tenant has vacated the
property and cleaned and restored the Demised Premises in the manner required by
this Lease, Landlord shall refund the unused portion of the Security Deposit to
Tenant within thirty days after the Expiration Date or thirty days after Tenant
fully complies with the conditions of termination as required in Section 7.05.
3.04. GOOD FUNDS PAYMENT. If, for any reason whatsoever, any two or more
payments by check from Tenant to Landlord for Rent are dishonored and returned
unpaid, thereafter Landlord may, at Landlord's sole option, upon written notice
to Tenant, require that all future payments of Rent for the remaining term of
the Lease must be made by cash, certified check, cashiers check, or money order
("Good Funds" and that the delivery of Tenant's personal or corporate check will
no longer constitute payment of Rent under this Lease. Any acceptance by
Landlord of a payment for Rent by Tenant's personal or corporate check
thereafter shall not be construed as a waiver of Landlord's right to insist upon
payment of Good Funds as set forth herein.
3.05. LATE PAYMENT. In the event the monthly Rent payment is not received by
Landlord on or before the fifth (5th) day of the month such Rent is due, or if
any other payment due Landlord by Tenant is not received by Landlord on or
before the fifth (5th) day following Landlord's written notice to Tenant that
the payment is past due, a service charge of five percent (5%) of such past due
amount shall become due and payable on addition to such amount owned under this
Lease. No written notice from Landlord shall be made or required in the event
monthly Rent is not timely paid by Tenant, to impose the service charges
referenced above.
ARTICLE FOUR: TAXES
4.01. PAYMENT BY LANDLORD. Landlord shall pay the real estate taxes on the
Demised Premises during the Lease Term.
4.02. IMPROVEMENTS BY TENANT. If the real taxes levied against the Demised
Premises for the real estate tax year in which the Lease Term commences are
increased as a result of any alterations, additions or improvements made by
Tenant or by Landlord at the request of Tenant. Tenant shall pay to Landlord
upon demand the amount of the increase and continue to pay the increase during
the Lease Term. Landlord shall use reasonable efforts to obtain from the tax
assessor or assessors a written statement of the total amount of the increase.
2
<PAGE> 3
4.03. JOINT ASSESSMENT. If the real estate taxes are assessed against the
Demised Premises jointly and other property not constituting a part of the
Demised Premises, the real estate taxes applicable to the Demised Premises shall
be equal to the amount bearing the same proportion to the aggregate assessment
that the total square feet of building area in the Demised Premises bears to the
total square feet of building area included in the joint assessment.
4.04. PERSONAL PROPERTY TAXES. Tenant shall pay all taxes assessed against trade
fixtures, furnishings, equipment, inventory, products, or any other personal
property belonging to Tenant. Tenant shall use reasonable efforts to have
Tenant's personal property taxed separately from the Demised Premises. If any of
Tenant's personal property is taxed with the Demised Premises, Tenant shall pay
the taxes for the personal property to Landlord within fifteen (15) days after
Tenant receives a written statement from Landlord for the personal property
taxes.
ARTICLE FIVE: INSURANCE AND INDEMNITY
5.01. CASUALTY INSURANCE. During the Lease Term, Landlord shall maintain
policies of insurance covering loss of or damage to the Demises Premises in an
amount or percentage of replacement value as Tenant deems reasonable in relation
to the age, location, type of construction and physical condition of the Demised
Premises and the availability of insurance at reasonable rates. The policies
shall provide protection against all perils included within the classification
of fire and extended coverage. Landlord may, at Landlord's option, obtain
insurance coverage for Tenant's fixtures, equipment or building improvements
installed by Tenant in or on the Demised Premises. Tenant shall, at Tenant's
expense, maintain insurance on its fixtures, equipment and building improvements
as Tenant deems necessary to protect Tenant's interest. Tenant shall not do or
permit to be done anything which invalidates any insurance policies. Any
casualty insurance carried by Landlord or Tenant shall be for the sole benefit
of the party carrying the insurance and under its sole control.
5.02. INCREASE IN PREMIUMS. Tenant shall not permit any operation or activity to
be conducted, or storage or use of any volatile or any other materials, on or
about the Demised Premises that would cause suspension or cancellation of any
fire and extended coverage insurance policy carried by Landlord, or increase the
premiums therefor, without the prior written consent of Landlord. If Tenant's
use and occupancy of the Demised Premises causes an increase in the premiums for
any fire and extended coverage insurance policy carried by Landlord, Tenant
shall pay to Landlord, as additional rental, the amount of the increase within
ten days after demand and presentation by Landlord of written evidence of the
increase.
5.03. LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain a
commercial general liability policy of insurance, at Tenant's expense, insuring
Landlord against liability arising out of the ownership, use, occupancy, or
maintenance of the Demised Premises. The initial amounts of the insurance must
be at least: $500,000 for Each Occurrence, $1,000,000 General Aggregate per
policy year, $100,000 Property Damage for the Demised Premises, and $10,000
Medical Expense; The policies must contain cross-liability endorsements, if
applicable. The policies must contain a provision which prohibits cancellation
or modification of the policy except upon thirty (30) days prior written notice
to Landlord. Tenant may discharge Tenant's obligations under this Section by
naming Landlord as an additional insured under a comprehensive policy of
commercial general liability insurance maintained by Tenant and containing the
coverage and provisions described in this Section. Tenant shall deliver a copy
of the policy or certificate (or a renewal) to Landlord prior to the
Commencement Date and prior to the expiration of the policy during the Lease
Term. If Tenant fails to maintain the policy, Landlord may elect to maintain the
insurance at Tenant's expense. Tenant may, at Tenant's expense, maintain other
liability insurance as Tenant deems necessary to protect Tenant.
5.04. INDEMNITY. Landlord shall not be liable to Tenant or to Tenant's
employees, agents, invitees or visitors, or to any other person, for any injury
to persons or damage to property on or about the Demised Premises or any
adjacent area owned Landlord caused by the negligence or misconduct of Tenant,
Tenant's employees, subtenant's, agents, licensees or concessionaires or any
other person entering the Demised Premises under express or implied invitation
of Tenant, or arising out of the use by Tenant and the conduct of Tenant's
business, or arising out of any breach or default by Tenant in the performance
of Tenant's obligations under this Lease; and Tenant hereby agrees to indemnity
and hold Landlord harmless from any loss, expense or claims arising out of such
damage or injury except and to the extent any such claim, injury or damage or
damage is caused by the negligent act omission or misconduct of Landlord, or
Landlord's employees or agents, and Landlord agrees to indemnify and hold Tenant
harmless from any loss, expense or damage arising out of such damage or injury.
5.05. COMPARATIVE NEGLIGENCE. Tenant and Landlord hereby unconditionally and
irrevocably agree to indemnify, defend and hold each other and their officers,
agents, directors, subsidiaries, partners, employees, licensees and counsel
harmless, to the extent of each party's comparative negligence, if any, from and
against any and all loss, liability, demand, damage, judgment, suit, claim,
deficiency, interest, fee, charge cost or expense (including, without
limitation, interest, court costs and penalties, reasonable attorneys fees and
disbursements and amounts paid in settlement, or liabilities resulting from any
change in federal, state or local law or regulation or interpretation of this
Lease) of whatever nature, on a comparative negligence basis, even when caused
in part by Landlord's or Tenant's negligence or the joint or concurring
negligence of Landlord, Tenant, and any other person or entity, which may result
or to which Landlord or Tenant and/or any of their officers, agents, directors,
employees, subsidiaries, partners, licensees and counsel may sustain, suffer,
incur or become subject to in connection with or arising in any way whatsoever
out of the leasing, operation, promotion, management, maintenance, repair, use
or occupation of the Demised Premises, or any other activity of whatever nature
in connection therewith, or arising out of or by reason of any investigation,
litigation or other proceedings brought or threatened, arising out of or based
upon the leasing, operation, promotion, management, maintenance, repair, use or
occupancy of the Demised Premises, or any other activity on the Demised
Premises. This provision shall survive the expiration or termination of this
Lease.
5.06. WAIVER OF SUBROGATION. Each party to this Lease waives any and every claim
which arises or may arise in its favor against the other party during the term
of this Lease or any renewal or extension of this Lease for any and all loss of,
or damage to, any of its property located within or upon, or constituting a part
of, the Demised Premises, which loss or damage is covered valid and collectible
fire and extended coverage insurance policies, to the extent that such loss or
damage is recoverable under such insurance policies. These mutual waivers shall
be in addition to, and not in limitation or derogation of, any other waiver or
release contained in this Lease with respect to any loss of, or damage to,
property of the parties. Inasmuch as these mutual waivers will preclude the
assignment of any aforesaid claim by way of subrogation or otherwise to an
insurance company (or any other person), each party hereby agrees to give
immediately to each insurance company (which has issued to such party policies
of fire and extended coverage insurance) written notice of the terms of such
mutual waivers, and to cause such insurance policies to be properly endorsed to
prevent the invalidation of the insurance coverage by reason of these waivers.
ARTICLE SIX: USE OF DEMISED PREMISES
6.01. PERMITTED USE. Tenant may use the Demised Premises only for the Permitted
Use stated in Section 1.09. The parties to this Lease acknowledge that the
current use of the Demised Premises or the improvements located on the Demised
Premises, or both, may or may not conform to the city zoning ordinance with
respect to the permitted use, height, setback requirements, minimum parking
requirements, coverage ratio of improvements to total area of land, and other
matters which may have a significant economic impact upon the Tenant's intended
use of the Demised Premises. Tenant acknowledges that Tenant has or will
independently investigate and verify to Tenant's satisfaction the extent of any
limitations or non-conforming uses of the Demised Premises. Tenant further
acknowledges that Tenant is not relying upon any warranties or representations
of Landlord or the Brokers who are participating in the negotiation of this
Lease concerning the Permitted Use of the Demised Premises, or with respect to
any uses of the improvements located on the Demised Premises.
6.02. COMPLIANCE WITH LAW. Tenant shall comply with all governmental laws,
ordinances and regulations applicable to the use of the Demised Premises, and
shall promptly comply with all governmental orders and directives for the
correction, prevention and abatement of nuisances and other activities in or
upon, or connected with Demised Premises, all at Tenant's sole expense including
any expense or cost
3
<PAGE> 4
resulting from the construction or installation of fixtures and improvements or
other accommodations for handicapped or disabled persons required for compliance
with governmental laws and regulations, including but not limited to the Texas
Architectural Barriers Act (Article 9102 and any successor statute and the
Americans with Disabilities Act (the "ADA"). To the extent any alterations to
the Demised Premises are required by the ADA or other applicable laws or
regulations, Tenant shall bear the expense of the alterations. To the extent any
alterations to areas of the Property outside the Demised Premises are required
by Title III of the ADA or other applicable laws or regulations (for "path of
travel" requirements or otherwise), Landlord shall bear the expense of the
alterations.
6.03. CERTIFICATE OF OCCUPANCY. If required Tenant shall obtain a Certificate of
Occupancy from the municipality in which the Property is located prior to
occupancy of the Demised Premises. Tenant may apply for a Certificate of
Occupancy prior to the Commencement Date and, if Tenant is unable to obtain a
Certificate of Occupancy, Tenant shall have the right to terminate this Lease by
written notice to Landlord if Landlord or Tenant is unwilling or unable to cure
the defects which prevented the issuance of the Certificate of Occupancy.
Landlord may, but has no obligation to, cure any such defects, including any
repairs, installations, or replacements of any items which are not presently
existing on the Demised Premises, or which have not been expressly agreed upon
by Landlord in writing.
6.04. SIGNS. Without the prior written consent of Landlord which consent shall
not be unreasonably withheld or delayed. Tenant may not place any signs,
ornaments or other objects upon the Demised Premises or on the Property,
including but not limited to the roof or exterior of the building or other
improvements on the Property, or paint or otherwise decorate or defect the
exterior of the building. Any signs installed by Tenant must conform with
applicable laws, deed restrictions on the Property, and other applicable
requirements. Tenant must remove all signs, decorations and ornaments at the
expiration or termination of this Lease and must repair any damage and close any
holes caused by the removal.
6.05. UTILITY SERVICES. Tenant shall pay the cost of all utility services,
including but not limited to initial connection charges, all charges for gas,
water, sewerage, storm water disposal, communications and electricity used on
the Demised Premises, and for replacing all electric lights lamps and
tubes.
6.06. LANDLORD'S ACCESS. Landlord and Landlord's agents shall have the right to,
during normal business hours and upon reasonable advance notice, and without
unreasonably interfering with Tenant s business, enter the Demised Premises (a)
to inspect the general condition and state of repair of the Demised Premises,
(b) to make repairs required or permitted under this Lease and (e) to show the
Demised Premises or the Property to any prospective tenant or purchaser (during
the last 90 days of the Lease Term or applicable Renewal term only). If Tenant
changes the locks on the Demised Premises, Tenant must provide Landlord with a
copy of each separate key. During the Lease Term, Landlord and Landlord's agents
shall not erect on or about the Demised Premises signs advertising the Demised
Premises for lease or for sale without the prior written consent of Tenant while
consent may be withheld in Tenant's sole discretion
6.07. POSSESSION. If Tenant pays the rent, properly maintains the Demised
Premises, and complies with all other terms of this Lease, Tenant may occupy and
enjoy the Demised Premises for the full Lease Term, subject to the provisions of
this Lease.6.06. Exemptions from Liability. Except and to the extent caused by
Landlord's negligent act or omission, Landlord shall not be liable for any
damage or injury to the persons, business (or any loss of income), goods,
inventory, furnishings, fixtures, equipment, merchandise or other property of
Tenant, Tenant's employees, invitees, customers or any other person in or about
the Demised Premises, whether the damage or injury is caused by or results from:
(a) fire, steam. electricity, water, gas or wind; (b) the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures or any other cause; (c) conditions arising
on or about the Demised Premises or upon other portions of any building of which
the Demised Premises is a part, or from other sources or places: or (d) any act
or omission of any other tenant of any building on the Property Landlord shall
not be liable for any damage or injury even though the cause of or the means of
repairing the damage or injury are not accessible to Tenant.
ARTICLE SEVEN: PROPERTY CONDITION, MAINTENANCE, REPAIRS AND ALTERATIONS
7.01. PROPERTY CONDITION. Except as disclosed in writing by Landlord to Tenant
contemporaneously with the execution of this Lease, to the best of Landlord's
actual knowledge the Demised Premises has no known latent structural defects,
construction defects of a material nature, and to the best of Landlord's actual
knowledge none of the improvements has been constructed with materials known to
be a potential health hazard to occupants of the Demised Premises Tenant
acknowledges that neither the Principal Broker nor any Cooperating Broker has
made any warranty or representation to Tenant with respect to the condition of
the Demised Premises, and that Tenant is relying exclusively upon Tenant's own
investigations and the representations of Landlord, if any, with respect to the
condition of the Demised Premises. Landlord and Tenant agree to hold the Brokers
harmless of and from any and all damages, claims, costs and expenses of every
kind and character resulting from or related to Landlord's furnishing to the
Brokers any false, incorrect or inaccurate information with respect to the
Demised Premises, or Landlord's concealing any material information with respect
to the condition of the Demised Premises. Other than as expressly set forth in
this Lease. Landlord represents that on the Commencement Date (and for a period
of thirty (30) days thereafter) the building fixtures and equipment, plumbing
and plumbing fixtures, electrical and lighting system, any fire protection
sprinkler system, ventilating equipment, roof, skylights, doors, overhead doors,
windows, dock levelers, elevators, and the interior of the Demised Premises in
general are in good operating condition. Landlord represents and warrants that
the HVAC system shall be in good working condition for a period of twelve (12)
months following the Commencement Date. Landlord shall, at Landlord s expense,
make all required repairs during such 12-month period. Tenant shall have a
period of thirty (30) days following the Commencement Date in which to inspect
the Demised Premises and to notify Landlord in writing of any defects and
maintenance, repairs or replacements required to the above named equipment,
fixtures, systems and interior. Within a reasonable period of time after the
timely receipt of any such written notice from Tenant, Landlord shall, at
Landlord expense, correct the defects and perform the maintenance, repairs and
replacements.
7.02. ACCEPTANCE OF DEMISED PREMISES. Subject to the provisions in Section 7.01
and Section 7.03 below, Tenant acknowledges that (a) a full and complete
inspection of the Demised Premises and adjacent common areas has been made and
Landlord has fully and adequately disclosed the existence of any defects which
would interfere with Tenant's use of the Demised Premises for their intended
commercial purpose, and (b) as a result of such inspection and disclosure,
Tenant has taken possession of the Demised Premises and accepts the Demised
Premises in its "As Is" condition.
7.03. MAINTENANCE AND REPAIR. Except as otherwise provided in this Lease,
Landlord shall be under no obligation to perform any repair, maintenance or
management service the Demised Premises or adjacent common areas.
A. Landlord's Obligation.
(1) Subject to the provisions of Article Eight (Damage or Destruction) and
Article Nine (Condemnation) and except for damage causes by any act or omission
of Tenant, Landlord shall keep the roof, skylight, foundation, structural
components and the structural portions of exterior walls of the Demised Premises
in good order, condition and repair. Landlord shall not be obligated to maintain
or repair windows, doors, overhead doors, plate glass or the surfaces of walls.
In addition, if any repairs are required to be made by Landlord, Tenant shall,
at Tenant's sole cost and expense, promptly remove Tenant's furnishings,
fixtures, inventory, equipment and other property, to the extent required to
enable Landlord to make repairs. Landlord's liability under this Section shall
be limited to the cost of those repairs or corrections.
4
<PAGE> 5
(2) Notwithstanding anything to the contrary contained herein, Landlord, at
Landlord's expense, shall on or before the Commencement Date (i) replace the
roof where necessary so as to cause the roof to be water tight and in good
repair; (ii) install, in a good and workmanlike manner, 80 tons of new air
conditioning units in the production area; (iii) if said 80 tons are not
sufficient to keep the production area at least 25 degrees cooler than the
outside temperature throughout 1997, install all additional tonnage as required
to meet such temperatures (but not in excess of twenty additional tons); and
(iv) place the existing HVAC, plumbing and electrical systems in good working
order. Landlord shall warrant that the HVAC system in the Office be in good
repair for twelve months following the Commencement Date.
B. Tenant's Obligation.
(1) Tenant, at its sole cost, shall maintain the grounds and exterior
landscaping. Tenant may, but shall not be obligated to (i) maintain the HVAC
system after the Landlord's 12-month warranty period; and (ii) maintain the
parking and driveway surfaces. Tenant may, at Tenant's option and expense, add
additional HVAC units (the "additional Units") at any time. Upon termination of
the Lease, by expiration or otherwise. Tenant may remove the additional Units
but in the event of such removal, shall cause the area where such additional
Units were located to be repaired, as much as is reasonably possible, to its
original condition.
(2) Subject to the provisions of Section 7.01 Section 7.03. Article Eight
(Damage or Destruction) and Article Nine (Condemnation). and Section 7.03(B)(3).
Tenant shall at all times, keep all other portions of the Demised Premises in
good order, condition and repair, ordinary wear and tear excepted. Tenant shall,
at Tenant's expense repair; any damage to any portion of the Property,
including, the roof skylights foundation, or structural components and exterior
walls of the Demised Premises, caused by Tenant's acts or omissions. ,If Tenant
fails to maintain and repair the Property as required by this Section Landlord
may, on ten (10) days prior written notice enter the Demised Premises and
perform the maintenance or repair on behalf of Tenant, except that no notice is
required in case of emergency and Tenant shall reimburse Landlord immediately
upon demand for all costs incurred in performing the maintenance or repair, plus
a reasonable service charge.
7.04. ALTERATIONS ADDITIONS AND IMPROVEMENTS. Tenant shall not create any
openings in the roof or exterior walls or make any alterations, additions or
improvements to the Demised Premises without the prior written consent of
Landlord. Consent for structural and non-structural alterations, additions or
improvements shall not be unreasonably withheld by Landlord. Landlord hereby
agrees that Tenant may alter the office area of the Demised Premises at Tenant's
expense in such manner as Tenant shall require ("Tenant Improvements )
Notwithstanding anything to the contrary contained herein. Tenant shall not be
obligated to remove the Tenant Improvements or restore the office area to its
previous condition upon termination of this Lease. Tenant may erect or install
trade fixtures, shelves, bins, machinery, heating, ventilating and air
conditioning equipment, and provided that Tenant complies with all applicable
governmental laws ordinances, codes, and regulations. At the expiration or
termination of this lease Tenant shall subject to the restrictions of Section
7.05 below have the right to remove items installed by Tenant, provided Tenant
is not in default at the time of the removal and provided further that Tenant
shall at the time of removal of the items, repair in a good and workmanlike
manner any damage caused by the installation or removal. Tenant shall pay for
all costs incurred or arising out of alterations, additions or improvements in
or to the Demised Premises and shall not permit any mechanics or materialmans
lien to be filed against the Demised Premises or the Property. Upon request by
Landlord Tenant shall deliver to Landlord proof of payment reasonably
satisfactory to Landlord of all costs incurred or arising out of any
alterations, additions or improvements.
7.05. CONDITION UPON TERMINATION. Upon the expiration or termination of this
Lease, Tenant shall surrender the Demised Premises to Landlord broom clean and
in the same condition as received except for ordinary wear and tear which Tenant
is not otherwise obligated to remedy under any provision of this Lease.
Notwithstanding anything to the contrary contained herein Tenant shall not be
obligated to repair the HVAC (roof, plumbing or systems parking and driveway
surfaces or any damage which Landlord is required to repair under Article Seven
(Property Condition) or Article Eight (Damage or Destruction). In addition
except as otherwise provided herein, Landlord may require Tenant to remove any
alterations additions or improvements (whether or not made with Landlord's
consent) prior to the expiration or termination of this Lease and to restore the
Demised Premises near as is reasonably possible to its prior condition all at
Tenant's expense. All alterations additions and improvements which Landlord has
not required Tenant to remove shall become Landlord's property and shall be
surrendered to Landlord upon the expiration or termination of this Lease. In no
event however, shall Tenant remove or be required to remove any of the following
materials or equipment without Landlord prior written consent: (i) any
electrical wiring or power panels; (ii) lighting or lighting fixtures: (iii)
wall coverings, drapes blinds or other window coverings: (iv) carpets or other
floor coverings: (v) heating ventilating, or air conditioning equipment
(provided, however Tenant may remove such equipment so long as Tenant restores
the Demised Premises as near as reasonably possible to its prior condition):
(vi) fencing or security gates; or (vii) any other fixtures equipment or items
which, if removed would affect the operation or the exterior appearance of the
Property.
ARTICLE EIGHT: DAMAGE OR DESTRUCTION
8.01. NOTICE. If any buildings or other improvements situated on Property are
damaged or destroyed by fire, flood, windstorm, tornado or other casualty,
Tenant shall immediately give written notice of the damage or destruction to
Landlord.
8.02. PARTIAL DAMAGE. If the building or other improvements situated on the
Demised Premises are damaged by fire, tornado, or other casualty but not to such
an extent that rebuilding or repairs cannot reasonably by completed within one
hundred twenty (120) days from the date Landlord receives written notification
by Tenant of the occurrence of the damage, this Lease shall not terminate, but
Landlord shall proceed with reasonable diligence to rebuild or repair the
building and other improvements on the Demised Premises (other than leasehold
improvements made by Tenant or any assignee, subtenant or other occupant of the
Demised Premises) to substantially the condition in which they existed prior to
the damage and complete such repairs within 120 days following the date of such
casualty. If the casualty occurs during the final eighteen (18) months of the
Lease Term, Landlord shall not be required to rebuild or repair the damage
unless Tenant exercises Tenant's renewal option (if any) within fifteen (15)
days after the date of receipt by Landlord of the notification of the occurrence
of the damage. If Tenant does not exercise its renewal option, or days after the
date of receipt by Landlord of the notification of the occurrence of the damage.
If Tenant does not exercise its renewal option, or if there is no renewal option
contained in this Lease, Landlord may, at Landlord's option, terminate this
Lease by promptly delivering a written termination notice to Tenant, in which
event the Rent shall be abated for the unexpired portion of the Lease Term,
effective from the date of receipt by Landlord of the written notification of
the damage. To the extent the Demised Premises cannot by occupied (in whole or
in part) following the casualty, the Rent payable under this Lease during the
period in which the Demised Premises cannot by fully occupied shall by adjusted
equitably.
8.03. SUBSTANTIAL OR TOTAL DESTRUCTION. If the building or other improvements
situated on the Demised Premises are substantially or totally destroyed by fire,
tornado, or other casualty, or so damaged that rebuilding or repairs cannot
reasonably be completed within one hundred twenty (120) days from the date
Landlord receives written notification by Tenant of the occurrence of the
damage, wither Landlord or Tenant may terminate this Lease by promptly
delivering a written termination notice to the other party, in which event the
monthly installments of Rent shall be abated for the unexpired portion of the
Lease Term, effective from the date of the damage or destruction. If neither
party promptly terminates this Lease. Landlord shall proceed with reasonable
diligence to rebuild and repair the building and other improvements (except that
Tenant shall rebuild and repair Tenant's fixtures and improvements in the
Demised Premises). To the extent the Demised Premises cannot be occupied (in
while or in part) following the casualty, the Rent payable under this Lease
during the period in which the Demised Premises cannot be fully occupied shall
be adjusted equitably.
5
<PAGE> 6
ARTICLE NINE: CONDEMNATION
If during the Lease Term or any extension thereof, all or a substantial part of
the Demised Premises are taken for any public or quasi-public use under any
governmental law, ordinance or regulation or by right of eminent domain, or are
conveyed to the condemning authority under threat of condemnation, this Lease
shall terminate and the monthly installments of Rent shall be abated during the
unexpired portion of the Lease Term effective from the date of the taking. If
less than a substantial part of the Demised Premises is taken for public or
quasi-public use under any governmental law, ordinance or regulation or by right
of eminent domain, or is conveyed to the condemning authority under threat of
condemnation, Landlord, at its option, may by written notice terminate this
Lease. If Landlord does not terminate this Lease Landlord shall promptly, at
Landlord's expense, restore and reconstruct the building and improvements (other
than leasehold improvements made by Tenant or any assignee, subtenant or other
occupant of the Demised Premises) situated on the Demised Premises in order to
make the same reasonably tenantable and suitable for the use for which the
Demised Premises is leased as defined in Section 6.01. The monthly installments
of Rent payable under this Lease during the unexpired portion of the Lease Term
shall be adjusted equitably. Landlord and Tenant shall each be entitled to
receive and retain such separate awards and portion of lump sum awards as may be
allocated to their respective interests in any condemnation proceeding. The
termination of this Lease shall not affect the rights of the parties to such
awards.
ARTICLE TEN: ASSIGNMENT AND SUBLETTING
Tenant may, with the prior written consent of Landlord, written consent shall
not be unreasonably withheld or delayed, assign this Lease or sublet the Demised
Premises or any portion thereof. Any assignment or subletting shall be expressly
subject to all terms and provisions of this Lease, including the provisions of
Section 6.01 pertaining to the use of the Demised Premises. In the event of any
assignment or subletting, Tenant shall remain fully liable for the full
performance of all Tenant's obligation under this Lease. Tenant shall not assign
its right under the Lease or sublet the Demised Premises without first obtaining
a written agreement from the assignee or sublessee whereby the assignee or
sublessee agrees to assume the obligations of Tenant under this Lease and to be
bound by the terms of this Lease. If an event of default occurs while the
Demised Premises of assigned sublet, Landlord may, at Landlord's option, in
addition to any other remedies provided in this Lease or by law, collect
directly from the assignee or subtenant all rents becoming due under the terms
of the assignment or subletting and apply the rent against any sums due the
Landlord under this Lease. No direct collection by Landlord from any assignee or
subtenant will release Tenant from Tenant's obligation under this Lease.
ARTICLE ELEVEN: DEFAULT AND REMEDIES
11.01. DEFAULT EACH OF THE FOLLOWING EVENTS IS AN EVENT OF DEFAULT UNDER THIS
LEASE:
A. Failure of Tenant to pay any installment of the Rent or other sum
payable to Landlord under this Lease on the date that it is due and the
continuance of that failure for a period of ten (10) days after Landlord
delivers written notice of the failure to Tenant. This clause shall not be
construed to permit or allow a delay in paying Rent beyond the due date.
B. Failure of Tenant to comply with any term, condition or covenant of
this Lease, other that the payment of Rent or other sum of money and the
continuance of that failure for a period of thirty (30) days after Landlord
delivers written notice of the failure to Tenant, provided, however if such
failure cannot be cured within thirty (30) days, there shall be no event of
default so long as Tenant commences the cure within such 30-day period and
diligently proceeds toward the completion thereof.
C. Failure of Tenant or any guarantor of Tenant's obligations under this
lease to pay its debts as they become due or an admission in w rising of
inability to pay its debts. or the making of a general assignment for the
benefit of creditors;
D. The commencement by Tenant or any guarantor of Tenant's obligations
under this Lease of any case. proceeding or other action seeking reorganization,
arrangement, adjustment, liquidation. dissolution or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property; and
E. The commencement of any case, proceeding or other action against
Tenant or any guarantor of Tenants under this Lease seeking to have an order for
relief entered against it as debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property, and Tenant or any
guarantor (i) fails to obtain a dismissal of such case, proceeding, or other
action within sixty (60) days of its commencement; or (ii) converts the case
from one chapter of the Federal Bankruptcy Code to another chapter; or (iii) is
the subject of an order of relief which is not fully stayed v. within seven (7)
business days after the entry thereof.
11.02. REMEDIES. Upon the occurrence of any of the events of default listed in
Section 11.01, Landlord shall have the option to pursue any one or more of the
following remedies without any prior notice or demand.
A. Terminate this Lease, in which event Tenant shall immediately
surrender the Demised Premises to Landlord. If Tenant fails to so surrender the
Demised Premises, Landlord may, without prejudice to any other remedy which it
may have for possession of the Demised Premises or Rent in arrears, enter upon
and take possession of the Demised Premises and expel or remove Tenant and any
other person who may be occupying the Demised Premises or any part thereof, by
force if necessary, without being liable for prosecution or any claim for
damages. Tenant shall pay Landlord on demand the amount of all loss and damage
which Landlord may suffer by reason of the termination, whether through
inability to relet the Demised Premises on satisfactory terms or otherwise.
B. Enter upon and take possessions of the Demised Premises, by force if
necessary, without terminating this lease and without being liable for
prosecution or for any claim for damages, and expel or remove Tenant and any
other person who may be occupying the Demised Premises or any part thereof.
Landlord may relet the Demised Premises and receive the rent therefor. Tenant
agrees to pay to Landlord monthly or on demand from time to time any deficiency
that may arise by reason of any such reletting. In determining the amount of the
deficiency. the professional service fees, reasonable attorneys fees, court
costs, and other reasonable costs of reletting shall be subtracted from the
amount of rent received under the reletting.
C. Enter upon the Demised Premises, by force if necessary, without
terminating this Lease and without being liable for prosecution or for any claim
for damages, and do whatever Tenant is obligated to do under the terms of this
Lease. Tenant agrees to pay Landlord on demand for expenses which Landlord may
incur in thus effecting compliance with Tenant's obligations under this lease,
together with interest thereon at the rate of twelve percent (12%) per annum
from the date expended until paid. Landlord shall not be liable for any damages
resulting to Tenant from such action, whether caused by negligence of Landlord
or otherwise.
D. Accelerate and declare the Rent for the entire Lease Term, and all
other amounts due under this Lease, at once due and payable, and proceed by
attachment, suit or otherwise, to collect all amounts in the same manner as if
all such amounts due or to become due during the entire Lease Term were payable
in advance by the terms of this Lease, and neither the enforcement or collection
by landlord of such amount not the payment by Tenant of such amounts shall
constitute a waiver by Landlord of any breach, existing or in the future. of any
of the terms or provisions of this Lease by Tenant or a waiver of any fights or
remedies which the Landlord may have with respect to any such breach.
E. In addition to the foregoing remedies shall have the right to change
or modify the locks on the Demised Premises in the event
6
<PAGE> 7
Tenant fails to pay the monthly installment of Rent when due. Landlord shall not
be obligated to provide another key to Tenant or allow Tenant to regain entry to
the Demises unless and until Tenant pays landlord all Rent, and other charges,
costs or fees incurred in pursuit of collection of Rent which is delinquent.
Tenant agrees Landlord shall not be liable for any damages resulting from the
lockout. At such time that Landlord changes or modifies the lock, Landlord shall
post a "Notice of Change of Locks" on the front of the Demised Premises. Such
Notice shall state that:
(1) Tenant's monthly installment of Rent is delinquent. and therefore,
under authority of Section 11.02.E of Tenant's Lease, the Landlord has
exercised its contractual right to change or modify Tenant's door
locks;
(2) The Notice has been posted on the Tenant's front door by a
representative of Landlord and Tenant should make arrangements with the
representative to pay the delinquent installments of Rent when Tenant
picks up the key, and
(3) The Failure of Tenant to comply with the provisions of the Lease
and the Notice and/or tampering with or changing the door lock(s) by
Tenant may subject Tenant to legal liability.
F. No re-entry or taking possession of the Demised Premises by Landlord
shall be construed as an election to terminate this Lease, unless a written
notice of that intention is given to Tenant. Notwithstanding any such reletting
or re-entry or taking possession, Landlord may, at any time, thereafter elect to
terminate this Lease for a previous default. Pursuit of any of the foregoing
remedies shall not preclude pursuit of any other remedies provided by law, nor
shall pursuit of any remedy provided in this Lease constitute a forfeiture or
waiver of any monthly installment of Rent due to Landlord under this Lease or of
any damages accruing to Landlord by reason of the violation of any of its terms,
provisions and covenants contained in this Lease. Failure of Landlord to declare
any default immediately upon its occurrence, or failure to enforce one or more
of Landlord's remedies, or forbearance by Landlord to enforce one or more of
Landlord's remedies upon an event of default shall not or construed to
constitute a waiver of any violation or breach of the terms of this Lease.
Pursuit of any one of the above remedies shall not preclude pursuit by Landlord
of any of the other remedies provided in this Lease. The loss or damage that
landlord may suffer by reason of termination of this Lease or the deficiency
from any reletting as provided for above shall include the expense of
repossession and any repairs or remodeling undertaken by Landlord following
possession. If Landlord terminates this Lease at any time for any default, in
addition to other remedies Landlord may have, Landlord may recover from Tenant
all (actual but not consequential) damages landlord may incur by reason of the
default, including the cost of recovering the Demised Premises and the cost of
the Rent then remaining unpaid.
11.03. NOTICE OF DEFAULT. Tenant shall give written notice (in non-emergency
circumstances) of any failure by Landlord to perform any of Landlord's
obligations under this Lease to Landlord and to any ground Lessor, mortgagee or
beneficiary under any deed of trust encumbering the Demised Premises whose name
and address have been furnished to Tenant in writing. Landlord shall not be in
default under this Lease (in non-emergency circumstances) unless Landlord (or
such ground lessor, mortgagee or beneficiary) fails to cure the nonperformance
within thirty (30) days after receipt of Tenant's notice. However, if the
nonperformance reasonably requires more than thirty (30) days to cure. Landlord
shall not be in default if the cure is commenced within the 30-day period and is
thereafter diligently pursued to completion. Landlord shall exercise due
diligence to cure any defaults (in emergency circumstances) as soon as is
reasonably possible after Landlord becomes aware of such default.
11.04. LIMITATION OF LANDLORD'S LIABILITY. As used in this Lease, the term
"Landlord" means only the current owner or owners of the fee title to the
Demised Premises or the leasehold estate under a ground lease of the Demised
Premises at the time in question. Each Landlord is obligated to perform the
obligations of Landlord under this Lease only during the time such Landlord owns
such interest or title. Any Landlord who transfers its title or interest is
relieved of all liability with respect to the obligations of Landlord under this
Lease accruing on or alter the date of transfer, and Tenant agrees to recognize
the transferee as Landlord under this Lease. However, each Landlord shall
deliver to its transferee the Security Deposit held by Landlord if such Security
Deposit has not then been applied under the terms of this Lease.
ARTICLE TWELVE: PROTECTION OF LENDERS
12.01. SUBORDINATION AND ATTORNMENT. Landlord represents and warrants that there
is no existing deeds of trust or mortgage encumbering the Demised Premises
Landlord shall have the right to subordinate this Lease to any future ground
Lease, deed of trust or mortgage encumbering the Demised Premises, and advances
made on the security thereof and any renewals, modifications, consolidations,
replacements or extensions thereof, whenever made or recorded. Landlord's right
to obtain such a subordination is subject to Landlord's providing Tenant with a
written Subordination, Nondisturbance and Attornment Agreement from the ground
lessor, beneficiary or mortgagee (in form reasonably acceptable to Tenant)
wherein Tenant's fight to peaceable possession of the Demised Premises during
the Lease Term shall not be disturbed if Tenant pays the Rent and performs all
of Tenant's obligations under this Lease and is not otherwise in default, in
which case Tenant shall attorn to the transferee of or successor to Landlord's
interest in the Demised Premises and recognize the transferee or successor as
Landlord under this Lease. If any ground lessor, beneficiary or mortgagee elects
to have this Lease superior to the lien of its ground lease, deed of trust or
mortgage and gives Tenant written notice thereof this Lease shall be deemed
superior to the ground lease, deed of trust or mortgage whether this Lease is
dated prior or subsequent the date of the ground lease, deed of trust or
mortgage or the date of recording thereof.
12.02. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any instruments or
documents reasonably necessary or appropriate evidence any attornment or
subordination or any agreement to attorn or subordinate. If Tenant fails to do
so within ten (10) days alter written request. Tenant hereby makes, constitutes
and irrevocably appoints Landlord, or any transferee or successor of Landlord,
the attorney-in-fact of Tenant execute and deliver the attornment or
subordination document or agreement. Upon request from Tenant, Landlord shall
sign and deliver such documents as may be reasonably requested by Tenant or any
third party, stating that Tenant's equipment and inventory (including but not
limited to material, supplies, finished products, presses, photographic
equipment, displays, electronic devices, material moving equipment, tools,
furniture, lilts. and similar equipment now or hereafter being used by Tenant)
are not encumbered by or subject to any liens arising in favor of Landlord as a
result of this Lease, and authorizing reasonable access to the Demised Premises
by other lienholders to permit removal of that portion of Tenant's equipment and
inventory on which they hold liens.
12.03. ESTOPPEL CERTIFICATES.
A. Upon Landlord's written request Tenant shall execute acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this lease have been changed (or if they have been change,
stating how they have been changed): (ii) that this Lease has not been canceled
or terminated (iii) the last date of payment of the Base Rent and other charges
and the time period covered by that payment: and (iv) that Landlord is not in
default under this lease (or it landlord is claimed to be in default, stating
why). Tenant shall deliver the statement to Landlord within ten (10) days after
Landlord's request. Landlord may forward any such statement to any prospective
purchase or lender of the Demised Premises. The purchaser or lender may rely
conclusively upon the statement as true and correct.
B. If Tenant does not deliver the written statement to Landlord within
the 10-day period Landlord, and; any prospective purchaser or lender may
conclusively presume and rely upon the following facts (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord (ii) that this Lease has not been canceled or terminated except as
otherwise represented by Landlord: (iii) that not snore than one monthly
installment of Base Rent or other charges have been paid in advance; and (iv)
that Landlord is not in default under this Lease. In such event Tenant shall be
estopped from denying the truth of the presumed facts.
7
<PAGE> 8
12.04. TENANT'S FINANCIAL CONDITION. Within ten days after written written
request from Landlord Tenant shall deliver to Landlord statements as are
reasonably required by Landlord to verify the net worth of Tenant, or any
assignee, subtenant, or guarantor of Tenant, in addition, Tenant shall deliver
to any lender designated by Landlord any financial statements required by the
lender to facilitate the financing or refinancing of the Demised Premises.
Tenant represents and warrants to Landlord that each financial statement is a
true complete, and accurate statement in all material respects as of the date of
the statement. All financial statements shall be confidential and shall be used
only for the purposes set forth in this Lease.
ARTICLE THIRTEEN ENVIRONMENTAL REPRESENTATIONS AND INDEMNITY
13.01. TENANT'S COMPLIANCE WITH ENVIRONMENTAL LAWS. Tenant, at Tenant's expense,
shall comply with all laws, rules, orders, ordinances directions, regulations
and requirements of Federal, State, county and municipal authorities pertaining
to Tenant's use of the Property and the recorded covenants, conditions and
restrictions, regardless of when they become effective, including, without
limitation, all applicable Federal, State and local laws, regulations or
ordinances pertaining to air and water quality. Hazardous Materials (as defined
in Section 14.05). waste disposal. air emissions and other environmental
matters, and with any direction of any public officer or officers, pursuant to
law. which impose any duty upon Landlord Tenant with respect to the use or
occupancy of the Property.
13.02. TENANT'S INDEMNIFICATION. Tenant shall not cause or permit any Hazardous
Materials to be brought upon, kept or used in or about the Property by Tenant,
its agents, employees. contractors or invitees except in the ordinary course of
Tenant's business and incompliance with applicable law without the prior written
consent of Landlord Tenant reaches the obligations stated in the preceding
Section or sentence, or in the presence of Hazardous Materials on the Property
caused or permitted by Tenant results in contamination of the Property or any
other property. or if contamination of the Property or any other property by
Hazardous Materials otherwise occurs for which Tenant is legally liable,
Landlord for damage resulting therefrom, then Tenant shall indemnify, defend and
hold Landlord harmless from any and all claims, judgments, damages, penalties,
fines, costs, liabilities or losses (including, without limitation, reasonable
attorneys fees, court costs. consultant ices and expert fees, which arise during
or after the Lease Term as a result of the contamination. This indemnification
of Landlord by Tenant includes without limitation costs incurred in connection
with any investigation of site conditions or any clean-up, remedial work,
removal or restoration work required by any Federal, State or local governmental
agency because of Hazardous Materials present in the soil or ground water on or
under the Property Without limiting the foregoing, if the presence of any
Hazardous Materials on the Property (or any other property) caused or permitted
by Tenant results in any contamination of the Property, Tenant shall promptly
take all actions at Tenant's sole expense as are required by applicable
governmental authorities with respect to the removal or remediation of such
Hazardous Materials, provided that Landlord's approval of such actions is first
obtained the foregoing indemnity shall survive the expiration or termination of
this Lease for a period of six (6) months.
13.03. LANDLORD'S REPRESENTATIONS AND WARRANTIES. Landlord represents and
warrants, to the best of Landlord's actual knowledge, that: (i) any handling,
transportation, storage, treatment or usage of Hazardous Materials that has
occurred on the Property to date has been in compliance with all applicable
Federal, State, and local laws, regulations and ordinances; and (ii) no leak
spill, release, discharge, emission or disposal of hazardous Materials has
occurred on the Property to date and that the soil or groundwater on or under
the Property is free of Hazardous Materials as of the Commencement Date unless
expressly disclosed by Landlord to Tenant in writing.
13.04. LANDLORD'S INDEMNIFICATION. Landlord hereby indemnifies, defends and
holds Tenant harmless from any claims, judgements, damages, penalties, fines,
costs, liabilities, (including sums paid in settlements of claims) or loss,
including, without limitation, attorneys fees, court costs, consultant fees. and
expert fees. which arise during or after the term of this Lease from or in
connection with the presence or suspected presence of Hazardous Materials in the
soil or groundwater on or under the Property, unless the Hazardous Material is
released by Tenant or is present solely as a result of the negligence or willful
conduct of Tenant, without limiting the generality of the foregoing, the
indemnification provided by this Section 13.04 shall specifically cover costs
incurred in connection with any investigation of site conditions or any
clean-up, remedial work, removal or restoration work required by any Federal,
State or local governmental authority.
13.05. DEFINITION. For purposes of this Lease, the term "Hazardous Materials"
means any one or more pollutants, toxic substance, hazardous waste, hazardous
material, hazardous substance, solvent or oil as defined in or pursuant to the
Resource Conservation and Recovery Act, as amended, the Comprehensive
Environment Responses, Compensation and Liability Act, as amended. the Federal
Clean Water Act, as amended, or any other Federal, State or local environmental
law, regulation, ordinance, or rule, whether existing as of the date of this
Lease or subsequent enacted.
13.06. SURVIVAL. The representations and indemnities contained in this Article
13 shall survive the expiration or termination of this Lease for a period of six
(6) months.
ARTICLE FOURTEEN: PROFESSIONAL SERVICE FEES
14.01. AMOUNT AND MANNER OF PAYMENT. Professional service fees due to the
Principal Broker shall be calculated and paid as follows:
A. Landlord agrees to pay to the Principal Broker a monthly professional service
fee (the "Fee") for negotiating this Lease, plus any applicable sales taxes
equal to the percentage stated in Section 1.13.A of each monthly Rent payment at
the time the payment is due.
B. Landlord agrees to pay to the Principal Broker a lump sum professional
service fee (the "Fee") for negotiating this Lease, plus any applicable sales
taxes, equal to the percentage stated in Section 1.12A of the total Rent to
become due to Landlord during the Lease Term. The Fee shall be paid to the
Principal Broker (i) one-half on the date of final execution of this Lease, and
(ii) the balance on the Commencement Date of this Lease.
14.02. OTHER BROKERS. Both Landlord and Tenant represent and warrant to the
other party that they have had no dealings with any person. firm or agent in the
negotiation of this Lease other than the Broker(s) named in this Lease. and no
other broker, agent, person, firm or entity other than the Broker(s) is entitled
to any commission or fee in connection with this Lease.
14.03 PAYMENTS ON RENEWAL, EXPANSION, EXTENSION OR NEW LEASE. If during the
Lease Term (as may be renewed or extended) or within ten (10) years from the
Commencement Date, whichever is the greater period of time, Tenant, Tenant's
successors or assigns: (a) exercises any right or option to renew or extend the
Lease Term (whether contained in this Lease or in any amendment, supplement or
other agreement pertaining to this Lease) or enters into a new lease or rental
agreement with Landlord covering the Demised Premises: or (b) enters into any
lease, extension, renewal, expansion or other rental agreement with Landlord
demising to Tenant any premises located on or constituting all or part of any
tract or parcel of real property adjoining, adjacent to or contiguous to the
Demised Premises and owned by Landlord on the Commencement Date, Landlord shall
pay to the Principal Broker an additional Fee covering the full period of the
renewal, extension, lease, expansion or other rental agreement which shall be
due on the date of exercise of a renewal option, or the date of execution in the
case of an extension, new lease, expansion or other agreement. The additional
Fee shall be computed under Section 14.01.A or 14.01.B above (whichever has been
made applicable under Section 1.13) as if a new lease had been made for such
period of time.
14.04. PAYMENTS OF SALE. If Tenant, Tenant's successors or assigns, purchases
the Demised Premises at any time, pursuant to a purchase option contained in
this Lease (or any lease, extension, renewal, expansion or other rental
agrement) or, in the absence of any purchase option
8
<PAGE> 9
or exercise thereof, purchases the Demised Premises within ten (10) years from
the Commencement Date, Landlord shall pay to the Principal Broker a (there was
nothing after this to type to end the sentence)
14.05. LANDLORD'S LIABILITY. II this Lease as negotiated by Principal Broker in
cooperation with another Landlord shall be liable payment of all Professional
Service Fees to Principal Broker only, whereupon Landlord shall be protected
from any claims from a Cooperating Broker. The Principal Broker may pay a
portion of the Fee to any Cooperating Broker pursuant to a separate agreement
between the Brokers.
14.06. ASSUMPTION ON SALE. In the event of a sale of the Demised Premises or the
assignment of this Lease by Landlord, and Landlord shall obtain from the
purchaser or assignee an Assumption Agreement in recordable form whereby the
purchaser or assignee agrees to pay the Principal Broker all Professional
Service Fees payable under this Lease and shall deliver a fully executed
original counterpart thereof to Principal Broker on the date of closing of the
sale of the Demised Premises or assignment of this Lease. Landlord shall be
released from personal liability for subsequent payments only upon the delivery
to Principal Broker of that counterpart of the Assumption Agreement.
14.07. TERMINATION. The termination of this Lease by the mutual agreement of
Landlord and Tenant after the Commencement Date shall not affect the right of
the Principal Broker to continue to receive the Fees agreed to be paid under
this Lease, just as if Tenant had continued to occupy the Demised Premises and
had paid the Rent during the entire Lease Term. Termination of this lease under
Article Eight or Article Nine shall not terminate the Principal Broker right to
collect the Fees.
14.08. DUAL AGENCY. If either Principal Broker and/or Cooperating Broker
(together, the "Brokers") has indicated in Sections 1.11 and 1.12 that they are
representing both Landlord and Tenant, then Landlord and Tenant hereby consent
to the dual agency, authorize the applicable Broker(s) to represent more than
one party to this Lease, and acknowledge that the source of any expected
compensation other Brokers will be Landlord, and the Brokers may also be paid a
fee by the Tenant If the Broker(s) arc acting in a dual agency capacity, the
Broker(s) shall
(1) Not disclose to Tenant that Landlord will accept a rent less
than the asking rent unless otherwise instructed in a separate writing by
Landlords:
(2) Not disclose to Landlord that Tenant will pay a rent greater than
the rental submitted in a written offer to Landlord unless otherwise instructed
in a separate writing by Tenant:
(3) Not disclose any confidential information, or any information a party
specifically instructs the broker(s) in writing not to disclose, unless
otherwise instructed in a separate writing by the respective party or required
to disclose such information by law;
(4) Treat all parties to the transaction honestly and impartially so as not to
favor one party or work to the disadvantage of any, party
ARTICLE FIFTEEN: MISCELLANEOUS
15.01. DISCLOSURE. Landlord and Tenant understand that a real estate broker is
qualified to advise on matters concerning real estate and is not expert in
matters of law, tax, financing, surveying, hazardous materials, engineering,
construction, safety, zoning, land planning, architecture or the ADA The Brokers
hereby advise Tenant to seek expert assistance on such matters. Brokers do not
investigate a property's compliance with building codes governmental ordinances,
statutes and laws that relate to the use or condition of a property and its
construction, or that relate to its acquisition. If Brokers provide names of
consultants or sources for advice or assistance, Tenant acknowledges that the
Brokers do not warrant the services of the advisors or their products and cannot
warrant the suitability of property to be acquired or leased. Furthermore, the
Brokers do not warrant that the Landlord will disclose any or all property
defects, although the Brokers will disclose to Tenant any actual knowledge
possessed by Brokers regarding defects of the Demised Premises and the Property.
In this regard, Tenant agrees to make all necessary and appropriate inquiries
and to use diligence in investigating the Demised Premises and the Property
before consummating this Lease. Landlord and Tenant hereby agree to indemnity,
defend, and hold the Brokers harmless of and from any and all liabilities,
claims, debts, damages, costs, or expenses, including but not limited to
reasonable attorneys fees and court costs, related to or arising out of or in
any way connected to representations concerning matters properly the subject of
advice by experts. In addition, to the extent permitted by applicable law, the
Broker's liability for errors or omissions, negligence, or otherwise, is limited
to the return of the Fee, if any, paid to the Brokers pursuant to this
Lease
15.02. FORCE MAJEURE. If performance by Landlord or Tenant of any term,
condition or covenant in this Lease is delayed or prevented by any, Act of God,
strike, lockout, shortage of material or labor, restriction by any governmental
authority, civil riot, flood, or any other cause not within the control of
Landlord or Tenant, as applicable, the period for performance of the term,
condition or covenant shall be extended for a period equal to the period
Landlord or Tenant is so delayed or prevented.
15.03. INTERPRETATION. The captions of the Articles or Sections of this Lease
are to assist the parties in reading this Lease and are not a part of their
terms or provisions of this Lease. Tenant shall be responsible for the conduct,
acts and omissions of Tenant's agents, employees, customers, contractors,
invitees, agents, successors or others using the Demised Premises with Tenant's
expressed or implied permission. Landlord shall be responsible for the conduct,
acts and omissions of Landlord's agents, employees, contractors, and invitees.
Whenever required by the context this Lease, the singular shall include the
plural and the plural shall include the singular, and the masculine, feminine
and neuter genders shall each include the other.
15.04. WAIVERS. All waivers to provisions of this Lease must be in writing and
signed by the waiving party Landlord's delay or failure to enforce any
provisions of this Lease or its acceptance of late installments of Rent shall
not be a waiver and shall not prevent Landlord from enforcing that provision or
any other provision of this Lease in the future. No statement on a payment check
from Tenant or in a letter accompanying a payment check shall be binding on
Landlord. Landlord may, with or without notice to Tenant, negotiate, cash, or
endorse the check without being bound to the conditions of any such
statement.
15.05. SEVERABILITY. A determination by a court of competent jurisdiction that
any provision of this Lease is invalid or unenforceable shall not cancel or
invalidate the remainder of that provision or this Lease, which shall remain in
full force and effect.
15.06. JOINT AND SEVERAL LIABILITY. All parties signing this Lease as Tenant
shall be jointly and severally liable for all obligations of Tenant.
15.07. AMENDMENTS OR MODIFICATIONS. This Lease is the only agreement between the
parties pertaining to the lease of the Demised Premises and no other agreements
are effective unless made a part of this Lease. All amendments to this Lease
must be in writing and signed by all parties. Any other attempted amendment
shall be void.
15.08. NOTICES. All notices and other communications required or permitted under
this Lease must be in writing and shall be deemed delivered, whether actually
received or not, on the earlier of: (i) actual receipt if delivered in person or
by messenger with evidence of delivery; or (ii) receipt of an electronic
facsimile transmission ("Fax"), or (iii) upon deposit in the United States Mail
as required below. Notices may be transmitted by Fax to the Fax telephone
numbers specified in Article One on the first page of this Lease, if any.
Notices delivered by mail must be deposited in the U.S. Postal Service, first
class postage prepaid, and properly addressed to the intended recipient as set
forth in Article One. After possession of the Demised Premises by Tenant,
Tenant's address for notice purposes will be the address of the Demised Premises
unless Tenant notifies Landlord in writing of a different address to be used for
that purpose. Any party may change its address for notice by delivering written
notice of its new address to all other parties in the manner set forth above.
Copies of all notices should also be delivered to the Principal Broker, but
failure to notify the Principal Broker will not cause an otherwise property
delivered notice to be ineffective.
9
<PAGE> 10
15.09. ATTORNEYS FEES. If on account of any breach or default by any party to
this Lease, ????? obligations any party to Lease (including but not limited to
the Principal Broker), it becomes necessary for a party to employ an attorney to
enforce or defend any of its fights or remedies under this Lease, the
non-prevailing party agrees to pay the prevailing party its reasonable attorneys
fees and court costs, if any, whether or not suit is instituted in connection
with the enforcement or defense.
15.10. VENUE. All obligations under this Lease, including but not limited to the
payment of Fees to the Principal Broker, shall be performable and payable in the
county in which the Properly is located. The laws of the State of Texas shall
govern this Lease.
15.11. SURVIVAL. All obligations of any party to this Lease which are not
fulfilled at the expiration or the termination of this Lease shall survive such
expiration or termination as continuing obligations of the party.
15.12. BINDING EFFECT. This Lease shall insure to the benefit of, and be binding
upon each of the parties to this Lease and their respective heirs,
representatives, successors and assigns. However, Landlord shall not have any
obligation to Tenant's successors or assigns unless the rights or interests of
the successors or assigns are acquired in accordance with the terms of this
Lease.
15.13. CONSULT AN ATTORNEY. This Lease is an enforceable, legally binding
agreement. Read it carefully The brokers involved in the negotiation of this
Lease cannot give you legal advice. The parties to this Lease acknowledge that
they have been advised by the Brokers to have this Lease reviewed by competent
legal counsel of their choice before signing this Lease. By executing this
Lease, Landlord and Tenant each agree to the provisions, terms, covenants and
conditions contained in this Lease.
15.14. OFFER: The execution of this Lease by the first party to do so
constitutes an offer to lease the Demised Premises. Unless within the number of
days stated in Section 1.14 above after the date of its execution by the first
party to do so, this Lease is signed by the other party and a full executed copy
is delivered to the first party, such offer to lease shall be automatically
withdrawn and terminated.
ARTICLE SIXTEEN: additional PROVISIONS [additional PROVISIONS AS DIRECTED BY THE
PARTIES MAY BE SET FORTH BELOW.]
16.01. TENANT'S CANCELLATION RIGHT: Notwithstanding anything to the contrary
contained herein. Tenant may cancel this lease by written notice to Landlord in
the event Landlord fails to obtain fee simple We to the property described on
Exhibit B on or before April 1 1997. in which event thereafter neither parry
shall have any further rights or obligations hereunder.
LANDLORD: THE SIGMA JOINT VENTURE TENANT: PERFORMANCE PACKAGING
/S/ABRAHAM TOOBIAN/S/ /S/JOHN T. WHITE /S/
- --------------------------------- --------------------------------------
By [Signature]: By [Signature]:
Name: ABRAHAM TOOBIAN Name: John T. White
---------------------------- ---------------------------------
Title: Partner Title: President
--------------------------- --------------------------------
Date of Execution: 4/16/97 Date of Execution: 4/10/97
--------------- --------------------
PRINCIPAL BROKER PRINCIPAL BROKER
/S/THOMAS T. LYNN /S/ /S/MATTHEW J. MIDDENDORF /S/
- --------------------------------- --------------------------------------
Name: Thomas T. Lynn Name: Matthew J. Middendorf
- --------------------------------- -----------------------------
Title: President Title: Associate
--------------------------- -----------------------------
Date of Execution: 4/17/97 Date of Execution: 4/17/97
--------------- ---------------------
Copyright Notice: This form is provided for the use of members of the North
Texas Commercial Association of Realtors, Inc permission is hereby granted to
make limited copies of this form for use in a particular Texas real estate
transaction. Contact the NTCAR office to confirm that you are using the current
version of this form
10
<PAGE> 11
ADDENDUM A TO LEASE
EXPENSE REIMBURSEMENT
Demised Premises and Address: 999 Regal Row
[Check all boxes which apply. Boxes not checked do not apply to this Lease.]
1. EXPENSE REIMBURSEMENT. Tenant shall pay the Landlord as additional Rent a
portion of the following expenses (collectively called "Reimbursement"} which
are incurred by or assessed against the Demised Premises [cheek all that are
to apply]:
[X] AD Valorem Taxes;
[X] Insurance Premiums:
Common Area Maintenance (CAM) Expenses;
Operating Expenses:
Roof and Structural Maintenance Expenses.
2. EXPENSE REIMBURSEMENT LIMITATIONS. The amount of Tenant's Reimbursement
shall be determined by one of the following methods as described in Section
4 below [check only one/:
[X] Base Year/Expense Stop Adjustment:
Pro Rata Adjustment:
Fixed Amount Adjustment:
Net Lease Provisions.
3. EXPENSE REIMBURSEMENT PAYMENTS. Tenant agrees to pay any end-of-year lump
sum Reimbursement within thirty (30) days after receiving an invoice from
Landlord. Any time during the Lease Term (or any renewals or extensions)
Landlord may direct Tenant In pay monthly an estimated portion of the
projected future Reimbursement amount. Any such payment directed by
Landlord shall be due and payable monthly on the same day that the Base
Rent is due. Any Reimbursement relating to partial calendar years shall be
prorated accordingly. Tenants Pro Rata Share of such Reimbursements shall
be based on the square footage of usable area contained in the Demised
Premises in proportion to the square footage of usable building area of
the Property. Tenant may audit or examine those items of expense in
Landlords records which relate to Tenants obligations under this Lease.
Landlord shall promptly returned to Tenant any overpayment which is
established by an audit or examination. If the audit or examination reveals
an error of more than five percent (5%) over the figures billed to Tenant.
Landlord shall pay the reasonable cost of the audit or examination.
4. DEFINITIONS.
A. AD VALOREM TAXES. All general real estate taxes. general and special
assessments parking surcharges. rent taxes. and other similar governmental
charges levied against the Property for each calendar year.
B. INSURANCE PREMIUMS. All Landlord's insurance premiums attributable to
the Property. including hut not limited to insurance for fire casualty. general
liability. property damage, medical expenses. and extended coverage and loss of
rents coverage for six months Rent
C. Common Area Maintenance Charges. Common area maintenance expenses
("CAM") means all costs of maintenance, inspection and repairs of the common
areas of the Property, including but not limited to those costs for security,
lighting, painting, cleaning, decoration and fixtures, utilities, ice and snow
removal, trash disposal, project signs, minor roof defects, pest control,
project promotional expenses, property owners association dues, wages and salary
costs of maintenance personnel, and other expenses benefiting all the Property
which may be incurred by Landlord, in its discretion, including sales taxes and
a reasonable service charge for the administration thereof. The "common area. is
defined as that part of the Property intended for the collective use of all
Tenants including, hut not limited to, the parking areas, driveways, loading
areas, landscaping, gutters and downspouts, plumbing, electrical systems, roof,
exterior walls, sidewalks, malls, promenades (enclosed or otherwise), meeting
rooms, doors, windows, corridors and public rest rooms. CAM does not include
depreciation on Landlord's original investment, cost of tenant improvements,
real estate brokers fees, Landlord's management office and overhead expenses, or
interest or depreciation on capital investments.
D. OPERATING EXPENSES. All costs of ownership, building management,
maintenance, repairs and operation of the Property, including, but not limited
to taxes, insurance, CAM, reasonable management fees, wages and salary costs of
building management personnel, overhead and operational costs of a management
office, janitorial, utilities, and professional services such as accounting and
legal fees. Operating Expenses, not include the capital cost of management
office equipment and furnishings, depreciation on Landlord's original
investment, roof and structural maintenance, the cost of tenant improvements,
real estate brokers fees, advertising, or interest or depreciation on capital
investments.
E. ROOF AND STRUCTURAL MAINTENANCE EXPENSES. All costs of maintenance,
repair and replacement of the roof, roof deck, flashings, skylights, foundation,
floor slabs, structural components and the structural soundness of the building
in general.
F. BASE YEAR/EXPENSE STOP ADJUSTMENT. Tenant shall pay to Landlord as
additional rent Tenants Pro Rata Share of increases in Landlord's Ad Valorem
Taxes. Insurance Premiums. CAM Expenses. Operating Expenses, and/or Roof and
Structural Maintenance Expenses, whichever are applicable, for the Property for
any calendar year during the Lease Term or during any extension of this Lease,
over [check only one]:
[X] (1) Such amounts paid by Landlord for the Base Year 1997, or
(2) $ per square foot per year.
G. PRO RATA ADJUSTMENT. Tenant shall pay to Landlord as additional Rent
Tenant's Pro Rata Share of the total amount of Landlord's Ad Valorem Taxes,
Insurance Premiums, CAM, Operating Expenses, and/or Roof and Structural
Maintenance Expenses, whichever are applicable, for every calendar year during
the Lease Term and during any extension of this Lease.
H. FIXED AMOUNT ADJUSTMENT. Tenant shall pay to Landlord as additional
Rent the following monthly amounts as Tenant's Reimbursement to Landlord for
the applicable expenses which are incurred by or assessed against the
Property:
AD Valorem Taxes $ N/A per month
----------------
Insurance Premiums $ N/A per month
----------------
(CAM) Expenses $ N/A per month
----------------
Operating Expenses $ N/A per month
----------------
Roof and Structural Maintenance Expenses $ N/A per month
----------------
11
<PAGE> 12
5. Gross-Up Provisions. [Check this only if applicable.] If the property is a
multi-tenant building and is not fully occupied during the Base year or any
portion of the Lease Term, an adjustment shall be made in computing the
variable costs for each applicable calendar year Variable costs shall include
only those items of expense that vary directly proportionately to the
occupancy of the Property Variable costs which are included in the CAM and
Operation Expenses shall be increased proportionately to the amounts that,
in Landlord's reasonable judgement, would have been incurred had ninety
percent (90%) of the useable area of the Property been occupied during those
years.
Initials: Landlord s/AT/s Tenant s/JW/s
------------------- -----------------
12
<PAGE> 13
ADDENDUM B TO LEASE
RENEWAL OPTIONS
1. OPTION TO EXTEND TERM.
Landlord grants to Tenant one (1) option(s) (the "Option") to extend the Lease
Term for additional term of 60 months each (the "Extension") on the same terms
conditions and covenants set forth in this Lease except as provided below. Each
Option may be exercised only by written notice delivered to the Landlord no
earlier than one hundred eighty ( 180 ) days before, and no later than thirty
(30) days before. The expiration of the Lease Term or the preceding Extension of
the Lease Term, whichever is applicable. If Tenant fails to deliver Landlord
written notice of the exercise of an Option within the prescribed time period,
such Option and any succeeding Options shall lapse and there shall be no further
right to extend the Lease Term. Each option may only be exercised Tenant on the
express condition that, at the time of the exercise, tenant is not in default
under any of the provisions of this Lease. The foregoing Option(s) are personal
to Tenant and may not be exercised by and assignee or subtenant without
Landlord's written consent.
2. CALCULATION OF RENT. The Base Rent during the Extension(s) shall be
determined by one of the following methods [check only one]:
A. CONSUMER PRICE INDEX ADJUSTMENT. The monthly Base Rent during the
Extension shall be determined by multiplying the monthly installment of Base
Rent during the last month of the Lease Term by a fraction determined as
follows:
(1) The numerator shall be the Latest Index which means either:
[check one]
(a) the Index published for the nearest calendar month preceding the first
day of the Extension or
(b) the Index for the month of _________________ preceding the Extension.
(2) The denominator shall be the Initial Index which means either:
[check one]
(a) the Index published for the nearest calendar month preceding the
Commencement Date or
(b) the Index for the month of __________________ preceding the
Commencement Date.
[If no blanks are filed in above, the choice (a) which includes the phrase, "the
nearest calendar month preceding," shall apply.]
The Index as defined herein, means the Consumer Price Index for All Urban
Consumers (All Items) for the Dallas/Fort Worth Consolidated Metropolitan
Statistical Area, published by the U.S. Department of Labor, Bureau of Labor
Statistics (base Index of 1982-84 = 100) If the Index is discontinued or
revised, the new index or computation which replaces the Index shall be used in
order to obtain substantially the same result would have been obtained it if had
not been discontinued or revised.
If such computation would reduce the Rent for the particular Extension, it shall
be disregarded, and the Rent during the immediately preceding period shall apply
instead.
B. FAIR MARKET RENTAL VALUE. The Base Rent during the Extension shall be the
Fair Market Rental amount of the Demised Premises determined in the following
manner:
(1) The Fair Market Rental" of the Demised Premises means the price that a
ready and willing tenant would pay as of the commencement of the Extension as
monthly rent to a ready and willing landlord of demised premises comparable to
the Demised Premises if the property were exposed for lease on the open market
for a reasonable period of time, and taking into account the term of the
Extension, the amount of improvements made by Tenant at its expense, the
creditworthiness of the Tenant, and all of the purposes for which the property
may be used and not just the use proposed to be made of the Demised Premises by
Tenant. Upon proper written notice by Tenant to Landlord of Tenant's election to
exercise the renewal Option, Landlord shall within fifteen (15) days thereafter
notify Tenant in writing of Landlord's proposed Fair Market Rental amount and
Tenant shall thereupon notify Landlord of Tenant s acceptance or rejection of
Landlord's proposed amount. Failure of Tenant to reject Landlord's Fair Market
Rental amount within fifteen (15) days after receipt of Landlord's notice shall
be deemed Tenant s acceptance of Landlord's proposed Fair Market Rental amount.
(2) If Landlord and Tenant have not been able to agree on the Fair Market
Rental amount prior to the date the option is required to be exercised the rent
for the Extension shall be determined as follows: Within thirty (30) days
following the exercise of the option, Landlord and Tenant shall endeavor in good
faith to agree upon a single Appraiser (defined below). If Landlord and Tenant
are unable agree upon a single Appraiser within the thirty day period, each
shall then appoint one Appraiser by written notice to the other, given within
ten (10) days after the thirty day period. Within ten (10) days after the two
Appraisers are appointed the two Appraisers shall appoint a third Appraiser. If
either Landlord or Tenant fails to appoint its Appraiser within the prescribed
time period, the single Appraiser appointed shall determine the Fair Market
Rental amount of the Demised Premises Each party shall hear the cost of the
appraiser appointed by it and the parties shall share equally the cost of the
third appraiser. The term "Appraiser" means a State Certified Real Estate
Appraiser licensed by the State of Texas to value commercial property.
(3) The Fair Market Rental Value of the Demised Premises shall be the
average of two of the three appraisals which are closest in amount as described
below, and the third appraisal shall be disregarded. In no event shall the Rent
be reduced by reason of such computation. If the Fair Market Rental is not
determined prior to the commencement of the Extension then Tenant shall continue
to pay to Landlord the Rent applicable to the Demised Premises immediately prior
to the Extension until the Fair Market Rental amount is determined, and when it
is determined, Tenant shall pay to Landlord within ten (10) days after receipt
of such notice the difference between the Rent actually paid by Tenant to
Landlord and the new Rent determined under this Lease.
C. FIXED RENTAL ADJUSTMENTS. The Base Rent shall be increased to the
following amounts on the following dates.
Date Amount
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
s/AT/s Tenant s/JW/s
------------------ ------------------
13
<PAGE> 1
EXHIBIT 10.8
STANDARD COMMERCIAL LEASE
ARTICLE 1.00 BASIC LEASE TERMS
1.01 PARTIES. This lease agreement ("Lease") is entered in to by and between the
following Lessor and Lessee:
BELTLINE QUAKER LIMITED PARTNERSHIP ("Lessor")
- --------------------------------------------------------------------------------
PERFORMANCE PRINTING CORPORATION, a Texas corporation ("Lessee")
- --------------------------------------------------------------------------------
1.02 LEASED PREMISES. In consideration of the rents, terms, provisions and
covenants of this Lease, Lessor hereby leases and demises to the Lessee the
following described premises (leased premises)
24,648 (5,226 office) (Approximate sq. ft.) 1197781 (Job no)
- --------------------------------------------------------------------------------
QUAKER COURT I (Name of building or project)
- --------------------------------------------------------------------------------
1174 Quaker (Street address/suite number)
- --------------------------------------------------------------------------------
Dallas, Texas 75207 (City, State, and Zip )
- --------------------------------------------------------------------------------
1.03 TERM. Subject to and upon the conditions set forth herein, the term of this
Lease shall commence on (_____________________the "commencement date") (the
completion date on______________ (the "completion date", which Lessor shall use
its best efforts to establish as October 1, 1994), and shall terminate 38 months
thereafter.
1.04 BASE RENT AND SECURITY DEPOSIT. Base rent is $5,341 per month. Security
Deposit is $5,341
1.05 ADDRESSES. Lessor's Address Lessee's Address
----------------
2777 Stemmons Freeway, 5th Floor 1174 Tucker
----------------------------------- --------------------
Dallas 75207 Dallas, Texas
----------------------------------- ----------------------
1.06 PERMITTED USE SCREEN PRINTING U.V. coating thermo-forming. and
manufacturing of point of purchase displays.
ARTICLE 2.00 RENT
2.01 BASE RENT. Lessee agrees to pay monthly as base rent during the term of
this Lease the sum of money set forth in section 1. 04 of this Lease, which
amount shall be payable to Lessor at the address shown above. One monthly
installment of rent shall be due and payable on the date of execution of this
Lease by Lessee for the first month's rent and a like monthly installment shall
be due and payable on or before the first day of each calendar month succeeding
the commencement date or completion date during the term of this Lease;
provided, if the commencement date or the completion date should be a date other
than the first day of a calendar month, the monthly rental set forth above shall
be prorated to the end of that calendar month, and all succeeding installments
of rent shall be payable on or before the first day of each succeeding calendar
month during the term of this Lease. NOTWITHSTANDING THE FORGOING, LESSOR HEREBY
WAIVES THE BASE MONTHLY RENT FOR MONTHS TWO AND THREE OF THE PRIMARY LEASE.
Lessee shall pay, as additional rent, all other sums due under this Lease.
2.02 OPERATING EXPENSES. In the event Lessor's operating expenses for the
building and/or project of which the leased premises are a part shall, in any
calendar year during the term of this Lease, exceed the sum of $________________
THE ACTUAL OPERATING EXPENSE per square foot FOR THE CALENDAR YEAR 1994,
INCLUDING COMMON AREA MAINTENANCE (CAM), Lessee agrees to pay as additional rent
Lessee's pro rata share of such operating expenses. Lessor may invoice Lessee
monthly for Lessee's pro rata share of the estimated operating expensed for each
calendar year, which amount shall be adjusted each year based upon anticipated
operating expenses. Within four months following the close of each calendar
year, Lessor shall provide Lessee an accounting showing in reasonable detail all
computations of additional rent due under this section. In the event the
accounting shows the total of the monthly payments made by Lessee exceeds the
amount of additional rent due by Lessee under this section, the accounting shall
be accompanied by a refund. In the event the accounting shows that the total of
the monthly payments are made by Lessee is less than the amount of additional
rent due by Lessee under this section, the account shall be accompanied by an
invoice for the additional rent. Notwithstanding any other provision in this
Lease, during the year in which the Lease terminates, Lessor, prior to the
termination date, shall have the option to invoice Lessee for Lessee's pro rata
share of the excess operating expenses based upon the previous year's operating
expenses. If this lease shall terminate on the day other than the last day of a
calendar year, the amount of any additional rent payable by Lessee applicable to
the year in which such termination shall occur shall be prorated on the ratio
that the number of days from the commencement of the calendar year to and
including the termination date bears to 365. Lessee shall have the right, at its
own expense and within a reasonable time, to audit Lessor's books relevant to
the additional rent payable under this section Lessee agrees to pay any
additional rent due under this section within ten days following receipt of the
invoice or accounting showing additional rent due.
2.03 DEFINITION OF OPERATING EXPENSES. The term "operating expenses" includes
all expenses incurred by Lessor with respect to the maintenance and operation of
the building of which the leased premises are a part, including, but not limited
to the following: maintenance, repair and replacement costs; security;
management fees, wages and benefits payable to employees of Lessor whose duties
are directly connected with the operation and maintenance of the building; all
services, utilities, supplies, repairs, replacements or other expends for
maintaining, and operating the common parking and plaza areas: all real property
taxes and installments of special assessments, including dues and assessments by
means of deed restrictions and/or owners' associations which accrue against the
building of which the leased premises are a part during the term of its Lease;
and all insurance premiums Lessor is required to pay or deems necessary to pay,
including public liability insurance, with respect to the building. The term
operating expenses does not include the following repairs, restoration or other
work occasioned by fire, wind, the elements or other casualty; income and
franchise taxes of Lessor expenses incurred in leasing to or procuring of
lessees, leasing commissions, advertising expenses and expenses for the
renovating of space for new lessees; interest or principal payment on any
1
<PAGE> 2
mortgage or other indebtedness of Lessor; compensation paid to any employee of
Lessor above the grade of property manager; any depreciation allowance or
expense; or operating expense which are the responsibility of Lessee.
2.04 LATE PAYMENT CHARGE. Other remedies for nonpayment of rent notwithstanding,
if the monthly rental payment is not received by lessor on or before the tenth
day of the month for which the rent is due, or if any other payment due Lessor
by Lessee is not received by Lessor on or before the tenth day of the month next
following the month in which Lessee was invoiced, a late payment charge of five
percent of such past due amount shall become due and payable in addition to such
amounts owed under this Lease.
2.05 INCREASE IN INSURANCE PREMIUMS. If an increase in any insurance premiums
paid by Lessor for the building is caused by Lessee's use of the leased premises
in a manner other than as set forth in section 1.06, or if Lessee vacates the
leased premises and causes an increase in such premiums, then Lessee shall pay
as additional rent the amount of such increase to Lessor.
2.06 SECURITY DEPOSIT. The security deposit set forth above shall be held by
Lessor for the performance of Lessee's covenants and obligations under this
Lease, it being expressly understood that the deposit shall not be considered an
advance payment of rental or a measure of Lessor's damage in case of default by
Lessee. Upon the occurrence of any event of default by Lessee or breach by
Lessee of Lessee's covenants under this Lease, Lessor may, from time to time,
without prejudice to any other remedy, use the security deposit to the extent
necessary to make good any arrears of rent, or to repair any damage or injury,
or pay any expenses or liability incurred by Lessee as a result of the event of
default or breach of covenant, and any remaining balance of the security deposit
shall be returned by Lessor to Lessee upon termination of this Lease. If any
portion of the security deposit is so used or applied. Lessee shall upon ten
days written notice from Lessor, deposit with Lessor by cash or cashier's check
an amount sufficient to restore the security deposit to its original amount.
2.07 HOLDING OVER. In the event that Lessee does not vacate the leased premises
upon the expiration or termination of this Lease, Lessee shall be a tenant at
will for the holdover period and all of the terms and provisions of this Lease
shall be applicable during that period, except that Lessee shall pay Lessor as
base rental for the period of such holdover an amount equal to one and one half
times the base rent which would have been payable by Lessee had the holdover
period been a part of the original term of this Lease. Lessee agrees to vacate
and deliver the leased premises to Lessor upon Lessee's receipt of notice from
Lessor to vacate. The rental payable during the holdover period shall be payable
to Lessor on demand. No holding over by Lessee, whether with or without the
consent of Lessor, shall operate to extend the term of this Lease.
ARTICLE 3.00 OCCUPANCY AND USE
3.01 USE. Lessee warrants and represents to Lessor that the leased premises
shall be used and occupied only for the purpose as set forth in section 1.06.
Lessee shall occupy the leased premises, conduct its business and control its
agents, employees, invitees and visitors in such a manner as is lawful,
reputable and will not create a nuisance. Lessee shall not permit any operation
which emits any odor or matter which intrudes into other portions of the
building, use any apparatus or machine which makes undue noise or causes
vibration in any portion of the building or otherwise interfere with, annoy or
disturb any other Lessee in its normal business operations or Lessor in its
management of the building. Lessee shall neither permit any waste on the leased
premises nor allow the leased premises to be used in any way which would, in the
opinion of Lessor, be extra hazardous on account of fire or which would in any
way increase or render void the fire insurance on the building. Lessee warrants
to Lessor that the Insurance questionnaire (filled out by Lessee, signed and
presented to Lessor prior to the execution of this Lease) accurately reflects
Lessee's s original intended use of the leased premises. The insurance
questionnaire is made a part of this Lease by reference as though fully copied
herein. If at any time during the term of this Lease the State Board of
Insurance or other insurance authority disallows any of Lessor's sprinkler
credits or imposes an additional penalty or surcharge in Lessor's insurance
premiums because of Lessee's original or subsequent placement or use of storage
racks or bins, method of storage or nature of Lessee's inventory or any other
act of Lessee, Lessee agrees to pay as additional rent the increase (between
fire walls) in Lessor's insurance premiums.
3.02 SIGNS. No sign of any type or description shall be erected, placed or
painted in or about the leased premises or project except those signs submitted
to Lessor in writing and approved by Lessor in writing, and which signs are in
conformance with Lessor's sign criteria established for the project.
3.03 COMPLIANCE WITH LAWS RULES AND REGULATIONS. Lessee, at Lessee's sole cost
and expense shall comply with all laws, ordinances orders, rules and regulations
of state, federal, municipal or other agencies or bodies having jurisdiction
over use, condition and occupancy of the leased premises. Lessee will comply
with the rules and regulations of the building adopted by Lessor which are set
forth on a schedule attached to this Lease. Lessor shall have the right at all
times to change and amend the rules and regulations in any reasonable manner as
may be deemed advisable for the safety, care, cleanliness, preservation of good
order and operation or use of the building or the leased premises. All changes
and amendments to the rules and regulations of the building will be sent by
Lessor to Lessee in writing and shall thereafter be carried out and observed by
Lessee.
3.04 WARRANTY OF POSSESSION. Lessor warrants that it has the right and authority
to execute this Lease, and Lessee, upon payment of the required rents and
subject to the terms, conditions, covenants and agreements contained in this
Lease, shall have possession of the leased premises during the full terms of
this Lease as well as any extension or renewal thereof. Lessor shall not be
responsible for the acts or omissions of any other lessee or third party that
may interfere with Lessee's use and enjoyment of the leased premises.
3.05 INSPECTION Lessor or its authorized agents shall at any and all reasonable
times have the right to enter the leased premises, to inspect the same to supply
janitorial service or any other service to be provided by Lessor, to show the
leased premises to prospective purchasers or lessees, and to alter, improve or
repair the leased premises or any other portion of the building. Lessee hereby
waives any claim for damages for injury or inconvenience to or interference with
Lessee's business, any loss of occupancy or use of the leased premises, and any
other loss occasioned thereby. Lessor shall at all times have and retain a key
with which to unlock all of the doors in, upon and about the leased premises.
Lessee shall not change Lessor's lock system or in any other manner prohibit
Lessor from entering the leased premises. Lessor shall have the right to use any
and all means which Lessor may deem proper to open any door in an emergency
without liability therefor.
2
<PAGE> 3
ARTICLE 4.00 UTILITIES AND SERVICE
4.01 BUILDING SERVICES Lessor shall provide the normal utility service
connection to the building. Lessee shall pay the cost of all utility services
including, but not limited to, initial connection charges all charges for gas,
electricity, water, sanitary and storm sewer service, and for all electric
lights. However, in a multi-occupancy building Lessor may provide water to the
leased premises in which case Lessee agrees to pay to Lessor its pro rata share
of the cost of such water. Lessee shall pay all costs caused by Lessee
introducing excessive pollutants or solids other than ordinary human waste into
the sanitary sewer system, including permits, fees and charges levied by any
governmental subdivision for any such pollutants or solids. Lessee shall be
responsible for the installation and maintenance of any dilution tanks, holding
tanks, settling ranks, sewer sampling devices, sand traps, grease traps or
similar devices as may be required by any governmental subdivision for Lessee's
use of the sanitary sewer system. If the leased premises are in a
multi-occupancy building Lessee shall pay all surcharges levied due to Lessee's
use of sanitary sewer or waste removal services insofar as such surcharges
affect Lessor or other lessees in the building. Lessor shall not be required to
pay for any utility services, supplies or upkeep in connection with the leased
premises or building.
4.02 THEFT OR BURGLARY. Lessor shall not be liable to Lessee for losses to
Lessee's property or personal injury caused by criminal acts or entry by
unauthorized persons into the leased premises or the building.
ARTICLE 5.00 REPAIRS AND MAINTENANCE
5.01 LESSOR REPAIRS. Lessor shall not be required to make any improvements,
replacements or repairs of any kind or character to the leased premises or the
project during the term of this Lease except as are set forth in this section.
Lessor shall maintain only the roof, foundation, parking and common areas, and
the structural soundness of the exterior walls (excluding windows, window glass,
plate glass and doors). Lessor's costs of maintaining the items set forth in
this section are subject to the additional rent provisions in section 2.02.
Lessor shall not be liable to Lessee, except as expressly provided in this
Lease, for any damage or inconvenience, and Lessee shall not be entitled to any
abatement or reduction of rent by reason of any repairs, alterations or
additional made by Lessor under this Lease.
5.02 LESSEE REPAIRS. Lessee shall, at its sole cost and expense, maintain,
repair and replace all other parts of the leased premises in good repair and
condition, including, but not limited to heating, ventilation and air
conditioning systems, down spouts, fire sprinkler system, dock bumpers, lawn
maintenance, pest control and extermination, trash pick-up and removal. Lessee
shall repair and pay for any damage caused by any act or omission of Lessee or
Lessee's agents, employees, invitees, licensees or visitors. If the leased
premises are in a multi-occupancy building or project, Lessor reserves the right
to perform, on be half of lessee, lawn maintenance. painting, and trash pickup
and removal; Lessee agrees to pay Lessor, as additional rent, Lessee's pro rata
share of the cost of such services within ten days from receipt of Lessor's
invoice, or Lessor may by monthly invoice direct Lessee to prepay the estimated
costs for the current calendar year, and such amount shall be adjusted annually.
If the leased premises are served by rail, Lessee agrees, if requested by the
railroad, to enter into a joint maintenance agreement with the railroad and bear
its pro rata share of the cost of maintaining the railroad spur. If Lessee fails
to make the repair, or replacements promptly as required herein, Lessor may, at
its option, make the repaint and replacements and the cost or such repairs and
replacements shall be charged to Lessee as additional rent and shall become due
and payable by Lessee within ten days from receipt of Lessor's invoice. Costs
incurred by Lessor under this section constitute operating expenses under
section 2.02.
5.03 REQUEST FOR REPAIRS. All requests for repairs or maintenance that are the
responsibility of Lessor pursuant to any prevision of the Lease must be made in
writing to Lessor at the address in Section 1.05.
5.04 LESSEE DAMAGES. Lessee shall not allow any damage to be committed on any
portion of the leased premises or building, and at the termination of this
Lease, by lapse of time or otherwise, Lessee shall deliver the leased premises
to Lessor in as good condition as existed at the commencement date of this
Lease, ordinary wear and tear excepted. The cost and expend of any repairs
necessary to restore the condition of the leased premises shall be borne by
Lessee.
5.05 MAINTENANCE CONTRACT. Lessee shall, at its sole cost and expense, during
the term of this Lease minimum a regularly scheduled preventative
maintenance/service contract with a maintenance contractor for the servicing of
all hot water, heating and air conditioning systems and equipment within the
leased premises. The maintenance contractor and contract must be approved by
Lessor and must include all services suggested by the equipment manufacturer.
ARTICLE 6.00 ALTERATIONS AND IMPROVEMENTS
6.01 LESSOR IMPROVEMENTS. If construction to the leased premises is to be
performed by Lessor prior to or during Lessee's, occupancy, Lessor will complete
the construction of the improvements to the leased premises, in accordance with
plans and specifications agreed to by Lessor , which plans and specifications
are made a part of this Lease by reference. Lessee shall execute a copy of the
plans and change orders, if applicable, setting forth the amount of any costs to
be borne by Lessee within seven days of receipt of the plans and specifications.
In the event Lessee fails to execute the plans and specifications and change
order within the seven day period, Lessor may, at its sole option, declare this
Lease canceled or notify Lessee that the base rent shall commence on the
completion date even though the improvement to be constructed by Lessor may not
be complete. Any changes or modifications to the approved plans and
specifications shall be made and accepted by written change order or agreement
signed by Lessor and Lessee and shall constitute an amendment to this Lease.
6.02 LESSEE IMPROVEMENTS. Lessee shall not make or allow to be made any
alterations or physical additions in or to the leased premises without first
obtaining the written consent of Lessor, which consent may in the sole and
absolute discretion of Lessor be denied. Any alterations, physical additions or
improvements to the leased premises made by Lessee shall at once become the
property of Lessor and shall be surrendered to Lessor upon the termination of
this Lease; provided, however, Lessor, at its option, may require Lessee to
remove any physical additions and/or repair any alterations in order to restore
the leased premises to the condition existing at the time Lessee took
possession, all costs of removal and/or alterations to be borne by Lessee. This
clause shall not apply to moveable equipment or furniture owned by Lessee, which
may be removal by Lessee at the end of the term of this Lease if Lessee is not
then in default and if such equipment and furniture are not then subject to any
other rights, liens and interest of lessor.
3
<PAGE> 4
6.03 MECHANICS LICENSE. Lessee will not permit any mechanic's or malterialman's
lien(s) or other lien to be placed upon the leased premises or the building and
nothing in the lease shall be deemed or construed in any way as constituting the
consent or request of Lessor, express or implied, by inference or otherwise, to
any person for the performance of any labor or the furnishing of any materials
to the leased premises, or any part thereof, nor as giving Lessee any right
power, or authority to contract for or permit the rendering of any services or
the furnishing of any materials that would give the rise to any mechanic's or
materialman's or other lien against the leased premises. In the event any such
lien is attached to the leased premises, then, in addition to any other right or
remedy of Lessor, Lessor may, but shall not be obligated to obtain the released
or otherwise discharge the same. Any amount paid by Lessor for any of the
aforesaid purposes shall be paid by Lessee to Lessor on demand as additional
rent
ARTICLE 7.00 CASUALTY AND INSURANCE
7.01 SUBSTANTIAL DESTRUCTION. If the leased premises should be totally destroyed
by fire or other casualty, or if the leases premises should be damaged so that
rebuilding cannot reasonably be completed within ninety working days after the
date of written notification by Lessee to Lessor of the destruction, this Lease
shall terminate and the rent shall be abated for the unexpired portion of the
Lease, effective as of the date of the written notification.
7.02 PARTIAL DESTRUCTION. If the leased premises should be partially dammed by
fire or other casualty, and rebuilding or repairs can reasonably be completed
within ninety working days from the dale of written notification by Lessee to
Lessor of the destruction, this lease shall not terminate, and Lessor shall at
its sole risk and expense proceed with reasonable diligence to rebuild or repair
the building or other improvements to substantially the same condition in which
they existed prior to the damage. If the leased premises are to be rebuilt or
repaired and are untenantable in whole or in part following the damage, and the
damage or destruction was not caused or contributed to by act of negligence of
Lessee, its agents, employees, invitees or those for whom Lessee is responsible,
the rent payable under this Lease during the period for which the leased
premises are untenantable shall be adjusted to such an extent as may be fair and
reasonable under the circumstances. In the event that Lessor fails to complete
the necessary repairs or rebuilding within ninety working days from the date of
written notification by Lessee to Lessor of the destruction, Lessee may at its
option terminate this lease by delivering written notice of termination to
Lessor, whereupon all rights and obligations under this Lease shall cease to
exist.
7.03 PROPERTY INSURANCE. Lessor shall at all times during the term of this Lease
maintain a policy or policies of insurance with the premiums paid in advance,
issued by and binding upon some solvent insurance company, insuring the building
against all risk of direct physical loss in an amount equal to at least ninety
percent or the full replacement cost of the building structure and its
improvements as of the date of the loss; provided, Lessor shall not be obligated
in any way or manner to insure any personal property (including, but not limited
to, any furniture, machinery, goods or supplies) of Lessee upon or within the
leased premises, any fixtures installed or paid for by Lessee upon or within the
leased premises, or any improvements which Lessee may construct on the leased
premises. Lessee shall have no right in or claim to the proceeds of any policy
of insurance maintained by Lessor even if the cost of such insurance is borne by
Lessee as set forth in article 2.00.
7.04 WAIVER OF SUBROGATION. Anything in this Lease to the contrary
notwithstanding. Lessor and Lessee are hereby waive and release each other of
and from any and all right of recovery, claim, action or cause of action,
against each other, their agents, officers and employees, for any loss or damage
that may occur to the leased premises, improvements to the building of which the
leased premises are a part, or personal property within the building, by reason
of fire or the elements, regardless of cause or origin, including negligence of
Lessor or Lessee and their agents, officers and employees. Lessor and Lessee
agree immediately to give their respective insurance companies which have issued
policies of insurance covering all risk of direct physical loss, written notice
of the terms of the mutual waivers contained in this section and to have the
insurance policies properly endorsed, if necessary, to prevent the invalidation
of the insurance coverages by reason of the mutual waivers.
7.05 HOLD HARMLESS. Lessor shall not be liable to Lessee's employees, agents,
invitees, licensees or visitors, or to any other person, for an injury to person
or damage to property on or about the leased premises caused by any act or
omission of Lessee, its agents, servants or employees or of any other person
entering upon the leased premises under express or implied invitation by Lessee,
or caused by the improvements located on the leased premises becoming out of
repair, the failure or cessation of any service provided by Lessor (including
security service and devices), or caused by leakage of gas, oil, water or stream
or by electricity emanating from the leased premises. Lessee agrees to indemnify
and hold harmless Lessor of and from any loss, attorney's fees, expenses or
claims arising out of any such damage or injury.
ARTICLE 8.00 CONDEMNATION
8.01 SUBSTANTIAL TAKING. If all or a substantial part of the leased premises are
taken for any public or quasi-public use under any governmental law, ordinance
or regulation, or by right of eminent domain or by purchase in lieu thereof, and
the taking would prevent or materially interfere with the use of the leased
premises for the purpose for which it is then being used, this Lease shall
terminate and the rent shall be abated during the unexpired portion of this
Lease effective on the date physical possession is taken by the condemning
authority. Lessee shall have no claim to the condemnation award or proceeds in
lieu thereof.
8.02 PARTIAL TAKING. If A portion of the leased premises shall he taken for any
public or quasi public use under governmental law, ordinance or regulation, or
by right of eminent domain or by purchase in lieu thereof, and this Lease is not
terminated as provided in the section 8.01 above, Lessor shall at Lessor's sole
risk and expense, restore and reconstruct the building and other improvements on
the leased premises to the extent necessary to make it reasonably tenantable .
The rent payable under this Lease during the unexpired portion of the term shall
be adjusted to such an extent as may be fair and reasonable under the
circumstances. Lessee shall have no claim to the condemnation award or proceeds
in lieu thereof.
4
<PAGE> 5
ARTICLE 9.00 ASSIGNMENT OR SUBLEASE
9.01 LESSOR ASSIGNMENT. Lessor shall have the right to sell, transfer or assign,
in whole or in part, its rights and obligations under this Lease and in the
building. Any such sale, transfer or assignment shall operate to release Lessor
from any and all liabilities under this lease arising after the date of such
sale, assignment or transfer.
9.02 LESSEE ASSIGNMENT. Lessee shall not assign in whole or in part, this Lease,
or allow it to be assigned, in whole or in part, by operation of law or or
mortgage or pledge the same or sublet the leased premises, in whole or in part,
without the prior written consent of Lessor, and in no event shall any such
assignment or sublease ever release Lessee or any guarantor from any obligation
or liability hereunder. No assignee or sublessee of the leased premises or any
portion thereof may assign or sublet the leased premises or any portion thereof.
9.03 CONDITIONS OF ASSIGNMENT. If Lessee desires to assign or sublet all or any
part of the leased premises, it shall so notify Lessor at least thirty days in
advance of the date on which Lessee desires to make such assignment or sublease.
Lessee shall provide Lessor with a copy of the proposed assignment or sublease
and such information as Lessor might request concerning the proposed sublessee
or assignee to allow, Lessor to make informed judgments as to the financial
condition, reputation, operations and general desirability of the proposed
sublessee or assignee. Within fifteen days after Lessor's receipt of Lessee's
proposed assignment or sublease and all required information concerning the
proposed sublessee or assignee, Lessor shall have the following options: (1)
[omitted] (2) consent to the proposed assignment or sublease and, if the rent
due and payable by any assigneee or sublessee under any such permitted
assignment or sublease (or a combination of the rent payable under such
assignment or sublease plus any bonus or any other consideration or any payment
incident thereto) exceeds the rent payable under this Lease for such space,
Lessee shall pay to Lessor all such excess rent and other excess consideration
within ten days following receipt thereof by Lessee; or (3) refuse, in its sole
and absolute discretion and judgement, to conceal to the proposed assignment or
sublease which refusal shall be deemed to have been exercised unless Lessor
gives lessee written notice providing otherwise. Upon the occurrence of an event
of default, if any or any part of the leased premises are then assigned or
sublet, Lessor, in addition to any other remedies provided by this case or
provided by law, may, at its option, collect directly from the assignee or
sublessee all rents becoming due to Lessee by reason of the assignment or
sublease, and Lessor shall have a security interest in all properties on the
leased premises to secure payment of such sums. Any collection directly, by
Lessor from the assignee or sublessee shall not be construed to constitute a
novation or a release of Lessee or any guarantor from the further performance of
its obligations under this Lease.
9.04 SUBORDINATION. Lessee accepts this Lease subject and subordinate to any
recorded mortgage or deed of trust lien presently existing or hereafter created
upon the building or project and to all existing recorded restrictions,
covenants, easements and agreements with respect to the building or project.
Lessor is hereby irrevocably vested with full power and authority to subordinate
Lessee's interest under this Lease to any first mortgage or deed of trust lien
hereafter placed on the leased premises, and Lessee agrees upon demand to
execute additional instruments subordinating this Lease as Lessor may require.
If the interests of Lessor under this Lease shall be transferred by reason of
foreclosure or other proceedings for enforcement of any first mortgage or deed
of trust lien on the leased premises, Lessee shall be bound to the transferee
(sometimes called the "Purchaser") at the option of the Purchaser, under the
terms, covenants and conditions of this Lease for the balance of the term
remaining, including any extensions or renewals, with the same force and effect
as if the Purchaser were Lessor under this Lease, and, if requested by the
Purchaser, Lessee agrees to attorn to the Purchaser, including the first
mortgagee under any such mortgage if it be the Purchaser, as its Lessor.
9.05 ESTOPPEL CERTIFICATES. Lessee agrees to furnish, from time to time, within
ten days after receipt of a request from Lessor or Lessor's mortgagee, a
statement certifying, if applicable, the following: Lessee is in possession of
the leased premises: the leased premises are acceptable; the Lease is in full
force and effect; the Lease is unmodified; Lessee claims no present charge,
lien, or claim of offset against rent the rent is paid for the current month,
but is not prepaid for more than one month and will not be prepaid for more than
one month in advance there is no existing default by reason of some act or
omission by Lessor; and such other matters as may be reasonably required by
Lessor or Lessor's mortgagee. Lessee's failure to deliver such statement, in
addition to being a default under this Lease, shall he deemed to establish
conclusively that this Lease is in full force and effect except as declared by
Lessor, that Lessor is not in default of any of its obligations under this Lease
and that Lessor has not received more than one month's rent in advance.
ARTICLE 10.00 LIENS
10.01 LANDLORD'S LIEN. As security for payment of rent, damages and all other
payments required to be made by this Lease, Lessee hereby grants to Lessor a
lien upon all property of lessee now or subsequently located upon the leased
premises. If Lessee abandons or vacates any substantial portion of the leased
premises or is in default in the payment of any rentals, damages or other
payments required to be made by, this Lease or is in default of any other
provision of this Lease, Lessor may enter upon the leased premises, by picking
or changing locks if necessary, and take possession of all or any part of the
personal property, and may sell all or any part of the personal property at a
public or private sale, in one or successive sales, with or without notice, to
the highest bidder for cash, and, on behalf of Lessee, sell and convey all or
part of the personal property to the highest bidder, delivering to the highest
bidder all of Lessee's title and interest in the personal property sold. The
proceeds of the sale of the personal property shall be applied by Lessor toward
the reasonable costs and expenses of the sale, including attorney's fees, and
then toward the payment of all sums then due by Lessee to Lessor under the terms
of this Lease. Any excess remaining shall be paid to Lessee or any other person
entitled thereto by law.
10.02 UNIFORM COMMERCIAL CODE. This Lease is intended as and constitutes a
security agreement within the meaning of the Uniform Commercial Code of the
state in which the leased premises are situated. Lessor, in addition to the
rights prescribed in this Lease, shall have all of the rights, titles, liens and
interests in and to Lessee's property, now or hereafter located upon the leased
premises, which may he granted a secured party, as that term is defined, under
the Uniform Commercial Code to secure to Lessor payment of all sums due and the
full performance of all Lessee's covenants under this Lease. Lessee will on
request execute and deliver to Lessor a financing statement for the purpose of
perfecting Lessor's security interest under this Lease or
5
<PAGE> 6
Lessor may file this Lease or a copy thereof as a financing statement. Unless
otherwise provided by law and for the purpose of exercising any right pursuant
to this section, Lessor and Lessee agree that reasonable notice shall be met if
such notice is given by ten days written notice, certified mail, return receipt
requested, to Lessor or Lessee at the addresses specified herein.
ARTICLE 11.00 DEFAULT AND REMEDIES
11.01 DEFAULT BY LESSEE. The following shall be deemed to be events of default
by Lessee under this Lease: ( 1 ) Lessee shall fail to pay, when due is any
installment of rent or any other payment required pursuant to this Lease AND
SUCH FAILURE IS NOT CURED WITHIN (10) CARS AFTER WRITTEN NOTICE TO LESSEE; (2)
Lessee shall abandon any substantial portion of the leased premises; (3) Lessee
shall fail to comply with any term, provision or covenant of this Lease, other
than the payment of rent, and the failure is not cured within ten days after
written notice to Lessee: (4) Lessee shall file a petition or be adjudged
bankrupt or insolvent under any applicable federal or state bankruptcy or
insolvency law, or admit that it cannot meet its financial obligations as they
become due; or a receiver or trustee shall be appointed for all or substantially
all of the assets of Lessee, or Lessee shall make a transfer in fraud of
creditors or shall make an assignment for the benefit of creditors; or (5)
Lessee shall do or permit to he done any act which results in a lien being filed
against the leased premises or the building and/or project of which the leased
premises are a part.
11.02 REMEDIES FOR LESSEE'S DEFAULT. Upon the occurrence of any event of default
set forth in this Lease, Lessor shall have the option to pursue any one or more
of the remedies set forth herein FOLLOWING THE WRITTEN NOTICE AND FAILURE TO
CURE STATED IN SECTION 11 01 OF THIS LEASE ( 1 ) Lessor may enter upon and take
possession of the leased premises, by picking or changing locks if necessary,
and lock out, expel or remove Lessee and any other person who may be occupying
all or any part of the leased premises without being liable for any claim for
damages, and relet the leased premises on behalf of Lessee and receive the rent
directly by reason of the reletting. Lessee agrees to pay Lessor on demand any
deficiency that may arise by reason of any reletting of the leased premises
further, Lessee agrees to reimburse Lessor for any expenditures made by it in
order relet the leased premises, including, but not limited to, repair costs.
(2) Lessor may enter upon the leased premises, by picking or changing locks if
necessary, without being liable for any claim for damages, and do whatever
Lessee is obligated to do under the terms of this Lease. Lessee agrees to
reimburse Lessor on demand for any expenses which Lessor may incur in effecting
compliance with Lessee's obligations under this Lease; further, Lessee agrees
that Lessor shall not be liable for any damages resulting to Lessee from
effecting compliance with Lessee's obligations under this Lease caused by the
negligence of Lessor or otherwise. (3) Lessor may terminate this Lease, in which
event Lessee shall immediately surrender the leased premises to Lessor, and if
Lessee fails to surrender the leased premises, Lessor may without prejudice to
any other remedy which it may have for possession or arrearages in rent, enter
upon and take possession of the leased premises, by picking or changing locks if
necessary, and lock out expel or remove Lessee and any other person who may be
occupying all or any part of the leased premises without being liable for any
claim for damages. Lessee agrees to pay on demand the amount of all loss and
damage which Lessor may suffer by reason of the termination of this Lease under
this section, whether through inability to relet the leased premises on
satisfactory terms or otherwise. Notwithstanding anything contained in this
Lease to the contrary, this Lease may be terminated by Lessor only by mailing or
delivering written notice of such termination to Lessee, and no other act or
omission of Lessor shall he construed as a termination of this Lease
ARTICLE 12.00 RELOCATION
12.01 RELOCATION OPTION. [omitted]
12.02 EXPENSES. [omitted]
ARTICLE 13.00 DEFINITIONS
13.01 ABANDON. "Abandon" means the vacating of all or a substantial portion of
the leased premises by Lessee, whether or not Lessee is in default of the rental
payments due under this Lease.
13.02 ACT OR GOD OR FORCE MAJEURE. An "act of God" or "force majeure" is defined
for purposes of this Lease as strikes, lockouts, sitdowns, material or labor
restrictions by any governmental authority, unusual transportation delays,
riots, floods, washouts, explosions, earthquakes, fire, storms, weather
(including wet grounds or inclement weather which prevents construction), acts
of the public enemy, wars, insurrections and any other cause not reasonably
within the control of Lessor and which by the exercise of due diligence Lessor
is unable, wholly or in part, to prevent or overcome.
13.03 BUILDING OR PROJECT. "Building" or "project" as used in this Lease means
the building and/or project described in section 1.02 including the leased
premises and the land upon which the building or project is situated.
13.04 COMMENCEMENT DATE. "Commencement date" shall be the date set forth in
section 1.03. The commencement date shall constitute the commencement of the
term of this Lease for all purposes, whether or not Lessee has actually taken
possession.
6
<PAGE> 7
13.05 COMPLETION DATE. "Completion date" shall be the date on which the
improvements erected and to be erected upon the leased premises shall have been
completed in accordance with the plans and specifications described in article
6.00. The completion date shall constitute the commencement of the term of this
Lease for all purposes, whether or not Lessee has actually taken possession
Lessor shall use its best efforts to establish the completion date as the date
set forth in section 1.03. In the event that the improvements have not in fact
been completed as of that date, Lessee shall notify Lessor in writing of its
objections. Lessor shall have a reasonable time after delivery of the notice in
which to take such corrective action as may be necessary and shall notify Lessee
in writing as soon as it deems such corrective action has been completed and the
improvements are ready for occupancy. Upon completion of construction, Lessee
shall deliver to Lessor a letter accepting the leased premises as suitable for
the purposes for which they are let and the date of such letter shall constitute
the commencement of the term of this Lease. Whether or not Lessee has executed
such letter of acceptance, taking possession of the leased premises by Lessee
shall be deemed to establish conclusively that the improvements have been
completed in accordance with the plans and specifications, are suitable for the
purposes for which the leased premises are let and that the leased premises are
in good and satisfactory condition as of the date possession was so taken by
Lessee, except for latent defects, if any.
13.06 SQUARE FEET. "Square feet" or "square foot" as used in this Lease includes
the area contained within the leased premises.
ARTICLE 14.00 MISCELLANEOUS
14.01 WAIVER. Failure of Lessor to declare an event of default immediately upon
its occurrence, or delay in taking any action in connection with an event of
default, shall not constitute a waiver of the default, but Lessor shall have the
right to declare the default at any time and take such action as is lawful or
authorized under this Lease. Pursuit of any one or more of the remedies set
forth in article 11.00 above shall not preclude pursuit of any one or more of
the other remedies provided elsewhere in this Lease or provided by law, nor
shall pursuit of any remedy constitute forfeiture or waiver of any rent or
damages accruing to Lessor by reason of the violation of any of the terms,
provisions or covenants of this Lease. Failure by Lessor to enforce one or more
of the remedies provided upon an event of default shall not be deemed or
construed to constitute a waiver of the default or of any other violation or
breach of any of the terms, provisions and covenants contained in this Lease.
14.02 ACT OF GOD. Lessor shall not be required to perform any covenant or
obligation in this Lease, or be liable in damages to Lessee, so long as the
performance or non-performance of the covenant or obligation is delayed, caused
or prevented enacted by an act of God, force majeure or by Lessee.
14.03 ATTORNEY'S FEES. In the event Lessee defaults in the performance of any of
the terms, covenants, agreements or conditions contained in this Lease and
Lessor places in the hands of an attorney the enforcement of all or any part of
this Lease, the collection of any rent due or to become due or recovery of the
possession of the leased premises, Lessee agrees to pay Lessor's costs of
collection, including reasonable attorney's fees for the services of the
attorney, whether suit is actually filed or not.
14.04 SUCCESSORS. This Lease shall be binding upon and inure to the benefit of
Lessor and Lessee and their respective heirs, personal representatives,
successors and assigns. It is hereby covenanted and agreed that should Lessor's
interest in the leased premises cease to exist for any reason during the term of
this Lease, then notwithstanding the happening of such event this Lease
nevertheless shall remain unimpaired and in full force and effect, and Lessee
hereunder agrees to attorn to the then owner of the leased premises.
14.05 RENT TAX. If applicable in the jurisdiction where the leased premises are
situated, Lessee shall pay and be liable for all rental sales and use taxes or
other similar taxes if any, if any levied or imposed by any city, state, county
or other governmental body by having authority, such payments to be in addition
to all other payments required to he paid to Lessor by Lessee under the terms of
this Lease. Any such payment shall be paid concurrently with the payment of the
rent, additional rent, operating expenses or other charge upon which the tax is
based as set forth above.
14.06 CAPTIONS. The captions appearing in this Lease are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or intent of any section.
14.07 NOTICE. All rent and other payments required to be made by Lessee shall be
payable to Lessor at the address set forth in section 1.05, or at any other
address within the United States as Lessee may specify from time to time by
written notice. Any notice or document required or permitted to be delivered by
the terms of this Lease shall be deemed to be delivered (whether or not actually
received) when deposited in the United States Mail, postage prepaid certified
mail, return receipt requested, addressed to the parties at the respective
addresses set forth in section 1.05.
14.08 SUBMISSION OF LEASE. Submission of this Lease to Lessee for signature does
not constitute a reservation of space or an option to lease. This Lease is not
effective until execution by and delivery to both Lessor and Lessee.
14.09 CORPORATE AUTHORITY. If Lessee executes this lease as a corporation, each
of the persons executing this Lease on behalf of Lessee does hereby personally
represent and warrant that lessee is a duly authorized and existing corporation,
that Lessee is qualified to do business in the state in which the leased
premises are located, that the corporation has full right and authority to enter
into this Lease, and that each person signing on behalf of the corporation is
authorized to do so. In the event any representation or warranty is false, all
persons who execute this Lease shall be liable, individually, as Lessee.
14.10 SEVERABILITY. If any provision of this Lease or the application thereof to
any person or circumstance shall be invalid or unenforceable to any extent, the
remainder of this Lease and the application of such provisions to other persons
or circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
14.11 LESSOR'S LIABILITY. If Lessor shall be in default under this Lease and, if
as a consequence of such default, Lessee shall recover a money judgment against
Lessor, such judgment shall be satisfied only out of the right, title and
interest of Lessor in the building as the same may then be encumbered and
neither Lessor nor any person or entity comprising Lessor shall be liable for
any deficiency. In no event shall Lessee have the right to levy execution
against any property of Lessor nor any person or entity comprising Lessor other
than its interest in the building as herein expressly provided.
7
<PAGE> 8
14.12 INDEMNITY. Lessor agrees to indemnify and hold harmless Lessee from and
against any liability or claim, whether meritorious or not, arising with respect
to any broker whose claim arises by, through or on behalf of Lessor, Lessee
agrees to indemnify and hold harmless Lessor from and against any liability or
claim, whether meritorious or not, arising with respect to any broker whose
claim arises by, through or on behalf of Lessee.
ARTICLE 15.00 AMENDMENT AND LIMITATION OF WARRANTIES
15.01 ENTIRE AGREEMENT. IT IS EXPRESSLY AGREED BY LESSEE, AS A MATERIAL
CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH THE
SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF
THE PARTIES; THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES,
UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE OR
TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN
WRITING IN THIS LEASE.
15.02 AMENDMENT. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR EXTENDED
EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE.
15.03 LIMITATION OF WARRANTIES. LESSOR AND LESSEE EXPRESSLY AGREE THAT THERE ARE
AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY, FITNESS FOR
A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE, AND THERE
ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE.
ARTICLE 16.00 OTHER PROVISIONS
16.01 OPERATING EXPENSE CAP (see attached Addendum I)
16.02 RENEWAL OPTION ( see attached Addendum I)
16.03 HVAC (see attached Addendum I)
16.04 LEASEHOLD IMPROVEMENTS (see attached Addendum I)
16.05 LAND LORD'S COOPERATION (see attached Addendum I)
16.06 HAZARDOUS WASTE (see attached Addendum II)
SIGNED at Dallas, TX this 22nd day of Sept. 1994.
LESSOR LESSEE
BELTLINE QUAKER LIMITED PARTNERSHIP, PERFORMANCE PRINTING CORPORATION,
Managing general partner a Texas corporation
By: s/Jeffrey G. Mundy/s By: s/John White/s
--------------------------------- ------------------------------
Vice President John T. White, C.E.O.
8
<PAGE> 9
RULES AND REGULATIONS
1. Lessor agrees to furnish Lessee two keys without charge. additional keys
will be furnished at a nominal charge. Lessee shall not change locks or
install additional locks on doors without prior written consent of
Lessor. Lessee shall not make or cause to be made duplicates of keys
procured from Lessor without prior approval of Lessor. All keys to leased
premises shall be surrendered to Lessor upon termination of this Lease.
2. Lessee will refer all contractors, contractor's representatives and
installation technicians rendering any service on or to the leased
premises for Lessee to Lessor for Lessor's approval before performance of
any contractual service. Lessee's contractors and installation
technicians shall comply with Lessor's rules and regulations pertaining
to construction and installation. This provision shall apply to all work
performed on or about the leased premises or project, including
installation of telephones, telegraph equipment, electrical devices and
attachments and installations of any nature affecting floors, walls,
woodwork, trim, windows, ceilings and equipment or any other physical
portion of the leased premises or project.
3. Lessee shall not at any time occupy any part of the leased premises or
project as sleeping or lodging quarters.
4. Lessee shall not place, install or operate on the leased premises or in
any part of the building any engine, stove or machinery, or conduct
mechanical operations or cook thereon or therein, or place or use in or
about the leased premises or project any explosives, gasoline, kerosene,
oil, acids, caustics, or any flammable, explosive or hazardous material
without written consent of Lessor.
5. Lessor will not be responsible for lost or stolen personal property,
equipment, money or jewelry from the leased premises or the project
regardless of whether such loss occurs when the area is locked against
entry or not.
6. No dogs, cats, fowl, or other animals shall be brought into or kept in or
about the leased premises or project.
7. Employees of Lessor shall not receive or carry messages for or to any
Lessee or other person or contract with or render free or paid services
to any Lessee or to any of Lessee's agents, employees or invitees.
8. None of the parking, plaza, recreation or lawn areas, entries, passages,
doors, elevators, hallways or stairways shall be blocked or obstructed or
any rubbish, filler, trash, or material of any nature pieced, emptied or
thrown into these areas or such area used by Lessee's agents, employees
or invitees at any time for purposes inconsistent with their designation
by Lessor.
9. The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed, and any damage
to them from misuse or by the defacing or injury of any part of the
building shall be borne by the person who shall occasion it. No person
shall waste water by interfering with the faucets or otherwise.
10. No person shall disturb occupants of the building by the use of any
radios, record players, tape recorders, musical instruments, the making
of unseemly noises or any unreasonable use.
11. Nothing shall be thrown out of the windows of the building or down the
stairways or other passages.
12. Lessee and its employees, agents and invitees shall park their vehicles
only in those parking areas designated by Lessor. Lessee shall not leave
any vehicle in a state of disrepair (including without limitation, flat
tires, out of date inspection stickers or license plates) on the leased
premises or project. If Lessee or its employees, agents or invitees park
their vehicles in areas other than the designated parking areas or leave
any vehicle in a state of disrepair, Lessor, after giving written notice
to Lessee of such violation, shall have the right to remove such vehicles
at Lessee's expense.
13. Parking in a parking garage or area shall be in compliance with all
parking rules and regulations including any sticker or other
identification system established by Lessor. Failure to observe the rules
and regulations shall terminate Lessee's right to use the parking garage
or area and subject the vehicle in violation of the parking rules and
regulations to removal and impoundment. No termination of parking
privileges or removal of impoundment of a vehicle shall create any
liability on Lessor or be deemed to interfere with Lessee's right to
possession of its leased premises. Vehicles must be parked entirely
within the stall lines and all directional signs, arrows and posted speed
limits must be observed. Parking is prohibited in areas not striped for
parking, in aisles, where "No Parking" signs are posted, on ramps, in
cross hatched areas and in other areas as may be designated by Lessor.
Parking stickers or other forms of identification supplied by Lessor
shall remain the property of Lessor and not the property of Lessee and
are not transferable. Every person is required to park and lock his
vehicle. All responsibility for damage to vehicles or persons is assumed
by the owner of the vehicle or its driver.
14. [omitted]
9
<PAGE> 10
15. Lessor shall not be liable for any damages from the stoppage of elevators
for necessary or desirable repairs or improvements or delays of any sort
or duration in connection with the elevator service.
16. [omitted]
17. Lessee agrees to cooperate and assist Lessor in the prevention of
canvassing, soliciting and peddling within the building or project.
18. [omitted]
19. It is Lessor's desire to maintain in the building or project the highest
standard of dignity and good taste consistent with comfort and
convenience for Lessees. Any action or condition not meeting this high
standard should be reported directly to Lessor. Your cooperation will be
mutually beneficial and sincerely appreciated.
10
<PAGE> 11
ADDENDUM 1
16.01
OPERATING EXPENSE CAP
Except or real property taxes, insurance premiums, and utility charges
(including, but not limited to, electricity, fuel, water, sewer, gas, etc.) the
full pro rata share of which excess operating expenses Lessee shall pay as
stated in sections 2.02 and 2.03 of this Lease, Lessor agrees that Lessee shall
not pay, as its pro rata share of such excess operating expenses related to the
remaining operating expenses described in said sections 2.02 and 2.03, an amount
which is greater than one hundred ten percent (110%) of the amount of said
remaining excess operating expenses paid by Lessee for the next previous year.
16.02
RENEWAL OPTION
If, at the end of the primary term of this Lease, the Lessee is not in default
in any of the terms, conditions or covenants of the Lease, Lessee but not any
assignee or subtenant of Lessee, is hereby granted an option to renew this Lease
for an additional term of thirty six (36) months upon the same terms and
conditions contained in this Lease with the following exceptions:
A. The renewal option term will contain no further renewal options
unless expressly granted by its Lessor in writing and
B. The rental for the renewed term shall he based on the then
prevailing rental rates for properties of equivalent quality, size,
utility and location, with the length of the Lease term and credit
standing of the Lessee to be taken into account.
If Lessee desires to renew this Lease, Lessee will notify the Lessor of its
intention to renew no later than (6) months prior to the expiration date of the
lease; Lessor shall, within the next fifteen (15) days notify Lessee in writing
of the proposed renewal rate and the Lessee shall within the next fifteen (15)
days following receipt of the proposed rate, notify the Lessor in writing of its
acceptance or rejection of the proposed rental rate. Rejection of the proposed
rental rate terminates any renewal option pursuant to this paragraph.
16.03
HVAC
Effective upon the commencement date of this Lease, Lessor agrees to provide the
heating units in good working order and lessee shall hare ninety (90) days after
commencement date to report, in writing, any deficiencies in the above system,
which Landlord agrees to repair or replace at Landlord's sole cost and expense.
Furthermore, effective upon the commencement date of this Lease, Lessor agrees
to provide the ventilating and air conditioning units in good working order and
Lessee shall have two hundred forty (240) days after commencement date to
report, in writing, any deficiencies in the above system, which Landlord agrees
to repair or replace at Landlord's sole cost and expense. In the event a problem
arises the HVAC system, and Lessee has maintained such system per Section 5.05
of this Lease, Lessee shall have the option to repair, replace or desert such
system, without further obligation with respect thereto.
16.04
LEASEHOLD IMPROVEMENTS
Lessor at Lessor's sole cost and expense agrees to encapsulate the existing
insulation that is presently falling from the warehouse ceiling per job
#1197781.
16.05
LANDLORD'S COOPERATION
Lessor agrees to reasonably cooperate in working with Lessee's banking
institutions in executing Landlord waivers requested Lessee in order to procure
financing on purchased equipment.
11
<PAGE> 12
ADDENDUM 11
16.06
HAZARDOUS WASTE
The term "Hazardous Substances," as used in this Lease shall mean pollutants,
contaminants, toxic or hazardous wastes, or any other substances, the use and or
the removal of which is required or the use of which is restricted, prohibited
or penalized by any "Environmental Law," which term shall mean any federal,
state or local law, ordinance or other statute of a governmental or
quasi-governmental authority relating to pollution or protection of the
environment. Lessee hereby agrees that (i) no activity will be conducted on the
premises that will produce any hazardous Substance, except for such activities
that are part of the ordinary course of Lessee's business activities (the
"Permitted Activities") provided said Permitted Activities are conducted in
accordance with all Environmental Laws and have been approved in advance in
writing by Lessor, Lessee shall be responsible for obtaining any required
permits and paying any fees and providing any testing required by an
governmental agency; (ii) the premises will not be used in any manner for the
storage of any Hazardous Substances except for the temporary storage of such
materials that are used in the ordinary course of Lessee's business (the
"Permitted Materials") provided such Permitted Materials are properly stored in
a manner and location meeting all Environmental Laws and approved in advance in
writing by Lessor; Lessee shall be responsible for obtaining any required
permits and paying any fees and providing any testing required by an
governmental agency; (iii) no portion of the premises will be used at a landfill
or a dump: (iv) Lessee will not install any underground or above ground tanks of
any type; (v) Lessee will not allow any surface or subsurface conditions to
exist or come into existence that constitute, or with the passage of time may
constitute a public or private nuisance; (vi) Lessee will not permit any
Hazardous Substances to be brought onto the premises, except for the Permitted
Materials described below, and if so brought or found located thereon, the same
shall be immediately removed, with proper disposal, and all required cleanup
procedures shall be diligently undertaken pursuant to all Environmental Laws.
Lessor or Lessor's representative shall have the right but not the obligation to
enter the premises for the purpose of inspecting the storage, use and disposal
of Permitted Materials to ensure compliance with all Environmental Laws. Should
it be determined, in Lessor's sole opinion, that said Permitted Materials are
being improperly stored, used, or disposed of, then Lessee shall immediately
take such corrective action as requested by Lessor. Should lessee fail to take
such corrective action within twenty-four (24) hours, Lessor shall have the
right to perform such work and Lessee shall promptly reimburse Lessor for any
and all cost associated with said work. If at any time during or after the term
of the Lease, the premises is found to be so contaminated or subject to said
conditions, Lessee shall diligently institute proper and thorough cleanup
procedures at Lessee's sole cost. before taking any action to comply with
hazardous material laws or to cleanup hazardous material contaminating the
premises, Lessee shall submit to Lessor a plan of action, including any and all
plans and documents required by any hazardous material law to be submitted to a
governmental authority (collectively, a "plan of action"). Before Lessee begins
the actions necessary to comply with hazardous material laws or to cleanup
contamination from hazardous materials, Lessor shall have (1) approved the
nature, scope and timing of the plan of action, and (2) approved any and all
covenants and agreements to effect the plan of action. Lessee agrees to
indemnify and hold lessor harmless from all claims, demands, actions,
liabilities, costly expenses, damages and obligation of any nature arising from
or as a result of the use of the premises by lessee. The foregoing
indemnification and the responsibilities of Lessee shall survive the termination
or expiration of this Lease.
Permitted Materials (if none, enter 'None")
See Exhibit A attached.
12
<PAGE> 13
EXHIBIT A
SUPPLIES INVENTORY
Performance Display
August 31
<TABLE>
<CAPTION>
UNIT OF UNIT
VENDOR DESCRIPTION MEASURE QUANTITY COST AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Texas Screen
Kiwo Col PPS gal. 0.00 $75.54 $0.00
Roller Frame Locki roll 0.00 $18.50 $0.00
Frame Tape roll 19.00 $7.61 $144.59
#60 Screen Filler qt. 0.00 $4.50 $0.00
Screen Wash A% gal. 1.00 $29.97 $29.97
Wypalls Case 5.00 $44.50 $222.50
Spray Glass Cleane Cans 11.00 $26.11 $287.21
Screen Opener CPS Gal 0.00 $119.86 $0.00
Surgical Gloves cs 3.00 $17.07 $51.21
K2 Screen opener gal 0.00 $23.97 $0.00
Viscosity Modifier gal. gal 0.00 $114.29 $0.00
Norcote Thinner gal. 0.00 $43.00 $0.00
Squeeges 70 Duro in 27.00 $0.61 $16.47
Squeeges 80 Duro in' 50.00 $0.71 $35.50
E-tork towels Rolls 0.00 $34.63 $0.00
Glue Weld On 1807 pt 6.00 $5.00 $30.00
Glue Weld On 35 pt 5.00 $10.00 $50.00
RS Hughes
231 - 2" Masking rolls 12.00 $5.56 $55.72
410 - 2" Double rolls 32.00 $15.54 $497.28
950 - 1/2" rolls 27.00 $7.19 $194.13
Preston Office
Eyelets each 20.00 $6.20 $124.00
Buckley Oil
Alcohol Gal 35.00 $2.25 $78.75
Screen Wash Gal 59.00 $2.61 $153.99
Mac Pac
Kraft Paper Rolls 3.00 $18.08 $54.24
Steel Banding Coil 3.00 $67.51 $202.53
Reinforced Tape Roll 2.00 $35.97 $71.94
OK Paper
Newsprint Case 4.00 $224.70 $898.80
Total Pkg
Handwrap 80 gauge Case 0.00 $36.00 $0.00
Bayliss
Pads 24 x 60 pads 0.00 $0.76 $0.00
Besco
Amberlith sheets 35.00 $8.04 $281.40
Ruby sheets 19.00 $8.04 $152.76
Clear Mylar sheets 19.00 $1.51 $28.69
Just UV
Press A P-3038 UV lamps Lamp 2.00 $136.00 $272.00
Press C B02.JHD UV Lamp Lamp 2.00 $188.00 $376.00
Press C B7020 Stand UV Lam Lamp 0.00 $145.00 $0.00
Press B HOK10580 UV Lamp Lamp 2.00 $149.00 $298.00
TOTALS $4,618.68
</TABLE>
13
<PAGE> 14
EXHIBIT A
Ink Inventory
Performance Display
Aug 31
<TABLE>
<CPATION>
unit of unit
Vendor Description measure quantity cost Amount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CPI
Flat Black gallon 0.00 $121.31 $0.00
C33-S170 Black gallon 1.00 $49.26 $49.26
D40-S170 Black gallon 2.00 $97.84 $195.68
D40-62088 Panton Pink gallon 0.00 $121.40 $0.00
Op White C28 gallon 0.00 $120.83 $0.00
C33-Sl99 Mix Clear gallon 2.00 $45.00 $90.00
Flo Orange gallon 1.00 $147.79 $147.79
Green gallon 1.00 $132.90 $132.90
D40-Process Black gallon 1.00 $87.00 $87.00
D40-Rocket Red gallon 1.00 $105.00 $105.00
D40-M111-lG gallon 1.00 $137.68 $137.68
D40-M115-lG gallon 1.00 $107.05 $107.05
D40-144 gallon 1.00 $117.69 $117.69
D40-S190 gallon 2.00 $87.31 $174.62
D40-Sl99 gallon 2.00 $81.94 $163.88
D40-S917 gallon 0.00 $144.78 $0.00
D40-M119-lG gallon 2.00 $140.44 $280.88
D40-M121-lG gallon 1.00 $106.94 $106.94
D40-M125-lG gallon 1.00 $106.94 $106.94
D40-S126-lG gallon 1.00 $129.35 $129.35
D40-S159-lG gallon 1.00 $110.45 $110.45
D40-M141-lG gallon 1.00 $108.40 $108.40
D40-M149-lG gallon 1.00 $98.55 $98.55
D40-M155-lG gallon 1.00 $95.78 $95.78
D40-M181-lG gallon 1.00 $134.27 $134.27
D40-M183-lG gallon 1.00 $124.42 $124.42
D40-M185-lG gallon 1.00 $131.42 $131.42
D40-S131 gallon 1.00 $119.56 $119.56
D40-S139 gallon 1.00 $85.07 $85.07
D40-S135 gallon 1.00 $85.97 $85.97
D40-S140 gallon 1.00 $102.09 $102.09
D40-S916 gallon 0.00 $93.00 $93.00
D40-S915 gallon 0.00 $93.00 $0.00
D40-116 gallon 0.00 $93.00 $0.00
D40-123 gallon 0.00 $93.00 $0.00
D40-291 gallon 0.00 $93.00 $0.00
D40-294 gallon 0.00 $93.00 $0.00
D40-S112 gallon 1.00 $120.90 $120.90
D40-S110 gallon 1.00 $120.90 $120.90
C33-M111-lG gallon 1.00 $58.75 $58.75
C33-M115-lG gallon 1.00 $58.75 $58.75
C33-Ml19-lG gallon 1.00 $73.53 $73.53
C33-M121-lG gallon 1.00 $63.44 $63.44
C33-M125-lG gallon 1.00 $80.00 $80.00
C33-M141-lG gallon 1.00 $58.75 $58.75
C33-M149-lG gallon 1.00 $59.37 $59.37
C33-M155-lG gallon 1.00 $60.00 $60.00
C33-M159-lG gallon 1.00 $60.00 $60.00
C33-M181-lG gallon 1.00 $77.00 $77.00
C33-M183-lG gallon 1.00 $77.15 $77.15
C33-M185-lG gallon 1.00 $80.51 $80.51
C28-S170 gallon 1.00 $37.69 $37.69
C28-M155 gallon 1.00 $56.92 $56.92
C28-S158 gallon 1.00 $47.76 $47.76
C28-S103 gallon 1.00 $48.00 $48.00
C28-S199 gallon 1.00 $48.50 $48.50
C33-Reflex Blue gallon 1.00 $76.90 $76.90
B82-295 gallon 1.00 $92.36 $92.36
C33-S105 gallon 2.00 $54.78 $109.56
C33-S139 gal 1.00 $51.47 $51.47
C91-M119 gal 1.00 $135.62 $135.62
C91-S103 gal 1.00 $125.00 $125.00
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
C91-62058 gal 1.00 $123.00 $123.00
C91-S112 gal 1.00 $111.84 $111.84
Standard White D-40-S10 gallon 0.00 $121.40 $0.00
Opaque White C34-S103 gallon 1.00 $62.13 $62.13
Opaque White D40-S103 gallon 2.00 $97.84 $195.68
OV PSP Clear 26 gallon 1.00 $87.60 $87.60
W PSP 422 gallon 1.00 $105.60 $105.60
Pantone 294 Visa gallon 0.00 $120.00 $0.00
Conv 9775 Opaque White gallon 0.00 $50.40 $0.00
Conv 97422 Blue gallon 0.00 $55.28 $0.00
Conv C28-S142 gallon 0.00 $47.76 $0.00
KOLOR CURE Russell White gallon 0.00 $100.00 $0.00
Thinner gallon 2.00 $53.00 $106.00
COLOR MIX LV Reactor gallon 3.00 $70.00 $210.00
ULN Gel gallon 80.00 $86.88 $6,950.40
MORTON INDUST Seriglos 7300 gallon 110.00 $28.64 $3,150.40
SERICOL Gold gallon 1.00 $403.85 $403.85
Bronze gallon 9.00 $383.15 $3,448.35
Adhesion Modifier gallon 4.00 $80.82 $323.28
MR-301 Opaque Black gallon 0.00 $83.80 $0.00
HT Black gallon 1.00 $77.25 $77.25
HTR Red gallon 1.00 $102.10 $102.10
HTB HT Blue gallon 1.00 $78.95 $73.95
HTY Yellow gallon 2.00 $102.20 $204.40
HT Extender Base gallon 3.00 $77.90 $233.70
TOTALS $21,275.00
</TABLE>
15
<PAGE> 16
MODIFICATION AND RATIFICATION OF LEASE
This MODIFICATION AND RATIFICATION OF LEASE AGREEMENT is made and entered into
between BELTLINE QUAKER LIMITED PARTNERSHIP (Lessor or Landlord) and PERFORMANCE
PRINTING CORPORATION, a Texas Corporation (Lessee or Tenant) for and in
consideration of one Dollar ($1.00) and other good and valuable consideration,
receipt of which is hereby acknowledged.
WITNESSETH:
1. RATIFICATION. Lessor and Lessee hereby confirm and ratify, except as modified
herein, all of the terms, conditions and covenants in that certain written Lease
Agreement (the "Lease Agreement") dated September 22 1994, between Lessor and
Lessee, for the rental of the following property: approximately 24,648 square
feet of space which includes 5,226 square feet of office situated at 1174 Quaker
Drive, Dallas, Texas 75207 located in the Quaker Court, Building I, project per
Job #1197781.
2. CURRENT POSSESSION. Lessee warrants that Lessee has accepted and is now in
possession of the above referenced premises and that the Lease Agreement is
valid and presently in full force and effect. Lessor warrants that Lessee has
performed all of its obligations under the Lease Agreement through the date
hereof, and Lessor waives any and all claims it may have for any money from or
other performance by Lessee due under the Lease Agreement prior to the date
hereof, including any and all penalties for late rental payments.
3. EXTENSION OF TERM. Lessor and Lessee agree that the term of this Lease has
been extended thirty-six months. so that the expiration date shall change from
December 31, 1997 to December 31, 2000.
4. additional PREMISES. Lessor and Lessee agree that effective July 1, 1997, the
leased premises shall be expanded from 24,648 square feet which includes 5,226
square feet of office, by 19,737 square feet at 1176 Quaker Drive, per Job
#1123226 plan dated March 25, 1997, for a new total of 44,385 square feet which
includes 5,226 square feet of office.
5. RENTAL R ATE. Lessor and Lessee agree that (i) effective July 1, 1997 the
base monthly rental shall increase from $5,341, by $4,276 to $9,617 and (ii)
effective January 1, 1998 the base monthly rental shall increase from $9,617 by
$924 to $10,541.
6. UNIFORM COMMERCIAL CODE. Lessor and Lessee agree that the provisions of
Section 10.02 is null and void and of no further force or effect
7. OPERATING EXPENSES. Lessor and Lessee agree that the base year for computing
rental charges relating to operating expenses under Section 2.02 shall be 1996
and that the Operating Expense Cap under Section 16.01 shall be (i) 110% of the
1996 Operating Expenses as a cap for the actual expenses for 1997 ( i) 120% of
the 1996 Operating Expenses as a cap for the actual expenses 1998 (iii) 130% of
the 1996 Operating Expenses as a cap for the actual expenses for 1999, and (v)
140% of the 1996 Operating Expenses as a cap for, the actual expenses for 2000.
The 44,385 square feet of Demised Premises is 21.8% of the total square feet in
the project.
8. LESSEE IMPROVEMENTS. Lessor accepts all improvements made by the Lessee to
the demised premises prior to the date hereof and all improvements made by the
Lessee relating to the addition of the additional Premises*, and Lessee shall
have no obligation to remove or alter said improvements upon termination of this
Lease. *provided Lessee performs improvements in accordance to the attached
Exhibit "A" Construction By Lessee,
9. LESSOR IMPROVEMENTS. Lessor shall deliver the additional premises in good
condition, making all appropriate repairs to the space heaters, floor, poles,
walls, lighting and doors, including the opening of a satisfactory entryway
between the original Demised Premises and the additional Premises and providing
utilities from the existing origination points in the original Demised Premises
to the additional Premises.
16
<PAGE> 17
10. LANDLORD'S COOPERATION. Lessor agrees to promptly complete its obligations
under Section 16.05 of this Lease.
11. LESSEE SUBLEASING. Lessor agrees that it shall not withhold approval of any
sublease under Section 9.02 provided that the use of the Demised Premises is
satisfactory to the Lessor.
Signed at Dallas, Texas, this 8th day of May, 1997.
Lessee Lessor.
Performance Printing Beltline Quaker Limited Partnership
Corporation By Beltline Country Club Corporation,
managing general partner
By: s/John White/s By: s/Jeffrey G. Mundy/s
---------------------------- --------------------------------
John T. White, President Jeffery G. Mundy, Vice President
17
<PAGE> 18
EXHIBIT "A"
CONSTRUCTION BY LESSEE
Any finish-out construction or refurbishing work, including all utility
connections, HVAC and plumbing repairs, etc, shall be performed by Lessee. This
paragraph is subject to the following terms and conditions:
1. Lessee shall submit plans and specifications prepared by a State Licensed
and Registered Architect for the finish-out work to Lessor within fifteen
(15) days from the execution date this Lease. Lessee's plans and
specifications must be approved by the Lessor's Construction Manager, in
writing, prior to the commencement of construction. All work shall be
performed in conformance with such approved plans and specifications in a
good and workmanlike manner and in compliance with all applicable laws,
rules, codes, ordinances and regulations. Lessee, at Lessee's sole cost and
expense, shall obtain all permits required prior to commencement of
construction.
With respect to future finish-out construction s/JW/s
2. Lessee assumes all responsibility with regard to modifications or
construction alterations necessary to meet the provisions of the Americans
with Disabilities Act (ADA) of 1991. Any alterations of the lease space
required to comply with the provisions needed at this time or in the
future, shall be at the sole cost and expense of the Lessee.
3. Lessee shall provide Lessor with a complete list of contractors and
subcontractors who will be performing work in or on the leased premises.
Lessor, in its sole discretion, shall have the right to reject any
contractor or subcontractor.
With respect to construction projects s/JW/s
4. Lessee shall furnish Lessor a Certificate of Insurance naming Lessor as an
additional insured on Lessee's liability insurance in the form attached
hereto and in the amount of coverage as set forth therein.
5. If work is performed by Lessee on parts of the building that are presently
under warranty from other contractors or subcontractors, including but not
limited to the roof, heating, ventilating and air conditioning systems,
electrical and sprinkler system, such work shall be done by Lessor's
contractor or subcontractor, who is responsible under the warranty at
Lessee's expense.
6. Upon completion of the work, Lessor's Construction manager shall inspect
the leased premises to insure that the work has been performed in
accordance with the approved plans and specifications. Upon acceptance of
the work, lien waivers from all contractors and subcontractors who
performed work on the leased premises, paid receipts or other evidence
substantiating the actual cost of the work done and a copy of a Certificate
of Occupancy must be provided to Lessor. Any claims, judgements, lawsuits,
etc., brought about due to failure in producing said documents are the
direct responsibility of Lessee, and constitutes a possible default of the
Lease.
7. Lessee shall hold Lessor harmless from and indemnify Lessor against any and
all liability, cost, expenses, including attorney's fees, claims, demands,
or causes of action for damage to persons or property arising out of or in
connection with the work performed by Lessee, its employees, agents,
contractors and subcontractors.
8. discrepancy or problem concerning the construction in relation to the
property.
18
<PAGE> 19
Exhibit "A"
Page 2
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
CERTIFICATE OF INSURANCE 6/10/1997
========================================================================================================================
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS
Unimark Insurance Agency, Inc. NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT
3878 Oak Lawn, Suite 200 AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.
Dallas, TX 75219
(214)523-0500 Fax(214)523-0570
COMPANIES AFFORDING COVERAGE
Performance Printing Corp.
3012 Fairmont
Dallas, Texas 75201
A Royal Ins Company of America
B Royal Indemnity Company
-------------------------------------------------------------------------
- ---------------------------------------------
===============================================-------------------------------------------------------------------------
COVERAGES
THIS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE
POLICY PERIOD INDICATED NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT on OTHER DOCUMENT WITH
RESPECT to MUCH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED
HEREIN 15 SUBJECT TO ALL THE TERMS. EXCLUSIONS AND CONDITIONS OF SUCH LIMITS SHOWN MAY BEEN REDUCED BY PAID
CLAIMS.
- ------------------------------------------------------------------------------------------------------------------------
TYPE OF INSURANCE POLICY POLICY POLICY LIMITS
NUMBER EFFECTIVE EXPIRATION
DATE
========================================================================================================================
A GENERAL LIABILITY GENERAL AGGREGATE 2,000,000
X COMMERCIAL GENERAL LIABILITY PRODUCTS COMP/OP AGG in code
CLAIMS MADE X OCCUR PERSONAL & ADV INJURY 1,000,000
OWNER'S CONTRACTOR'S PROT PSP098817 07/01/96 07/01/97 EACH OCCURRENCE 1,000,000
FIRE DAMAGE (ANY ONE FIRE) 50,000
MED EXPENSE (ANY ONE PERSON) 5,000
- ------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE LIABILITY COMBINED SINGLE LIMIT 1,000,000
- ------------------------------------------------------------------------------------------------------------------------
B
X ANY AUTO BODILY INJURY
ALL OWNED AUTOS RST199238 07/01/96 07/01/97 (Per person)
SCHEDULED AUTOS
X ____ AUTOS Bodily Injury
X NON-OWNED AUTOS (Per accident)
GARAGE LIABILITY
PROPERTY DAMAGE
- ------------------------------------------------------------------------------------------------------------------------
A EACH OCCURRENCE 1,000,000
EXCESS LIABILITY AGGREGATE 1,000,000
X UMBRELLA FORM PLA352201 07/01/96 07/01/97 STATUTORY LIMITS
OTHER THAN UMBRELLA FORM EACH ACCIDENT 1,000,000
DISEASE POLICY LIMIT 1,000,000
B WORKER'S COMPENSATION DISEASE EACH EMPLOYEE 1,000,000
AND
EMPLOYER LIABILITY
- ------------------------------------------------------------------------------------------------------------------------
----------
OTHER
- ------------------------------------------------------------------------------------------------------------------------
Bradford Management Company of Dallas, Inc. and the owner of the premises being managed on which liabilities
out of "your work" arises is added as additional insured per form TE9901B and CG2026.
- ------------------------------------------------------------------------------------------------------------------------
CERTIFICATE HOLDER CANCELLATION
Bradford Management Company SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION
Of Dallas, Inc. DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL 30 DAYS WRITTEN NOTICE
12801 N. Central Expwy., #1600 TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE
Dallas, Texas 75243 SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY ITS AGENTS
OR REPRESENTATIVES.
-------------------------------------------------------------------------------
AUTHORIZED REPRESENTATIVE
-------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
Joe couldn't read Exhibit A, Page 3
20
<PAGE> 21
Exhibit "A"
Page 4
additional INSURED
_________________________ provided under the following:
BUSINESS AUTO COVERAGE ____
GARAGE COVERAGE ____
TRUCKERS COVERAGE ________
Has endorsement ______changes the policy effective on the Inception date of the
policy unless another date is indicated below:
Endorse Effective Policy Number
__________ Insured'
Countersigned
by
Has provisions and exclusions that apply to LIABILITY COVERAGE also apply to the
endorsement
BRADFORD MANAGEMENT COMPANY OF DALLAS, INC. THE OWNERS OF THE PREMISES BEING
__________ OR WHICH LIABILITIES OUT OF "YOUR HOME" ARISES
(Enter home and address of additional Insured)
_________________________________________________________________________there
are several lines here, 9 to be exact, that I can barely make out at all.
21
<PAGE> 22
EXHIBIT "A"
PAGE 5
BRADFORD MANAGEMENT COMPANY
INSURANCE REQUIREMENTS FOR TENANT FINISH
CONSTRUCTION
1. The minimum amount of coverage Bradford Management Company of Dallas, Inc.
requires for tenant finish construction is:
<TABLE>
<S> <C>
General Liability $1,000,000.00
Auto Liability $1,000,000.00
Umbrella Liability $2,000,000.00
Worker's Compensation Statutory
Employer's Liability $ 500,000.00
</TABLE>
The attached certificate and endorsements exemplify the insurance coverage and
language required on the policy.
2. Bradford Management Company of Dallas, Inc. is to be named as the Certificate
__???????????_________ at the address below on all certificates.
3. Bradford Management Company of Dallas, Inc. and property owners must be added
as additional insureds by attaching the enclosed endorsements. These
endorsements must be included with your certificate to comply with the insurance
requirement.
4. The certificate must state that the Certificate Holder will be notified
within 30 days if the insurance is terminated. The CANCELLATION language must
read as follows. "Should any of the above described policies be canceled before
the expiration date thereof, the __________ company will mail 30 days written
notice to the Certificate Holder names to the left.
5. Underwriters must currently be rated at least a Class , VII company by AAA
Best.
If you have any questions pertaining to any of this information, please
contact your Bradford Companies representative.
22
<PAGE> 1
EXHIBIT 23.1
We have issued our report dated January 16, 1998, accompanying the financial
statements of Performance Printing Corporation for the year ended December 31,
1997, contained in the Registration Statement and Prospectus. We consent to
the use of the aforementioned report in the Registration Statement and
Prospectus, and to the use of our name as it appears under the caption
"Experts".
/s/ Travis, Wolff & Company, L.L.P.
Dallas, Texas
January 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PERFORMANCE PRINTING CORPORATION FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31,1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 762,501
<SECURITIES> 0
<RECEIVABLES> 4,617,225
<ALLOWANCES> 229,818
<INVENTORY> 613,598
<CURRENT-ASSETS> 5,889,599
<PP&E> 7,270,545
<DEPRECIATION> 3,626,608
<TOTAL-ASSETS> 9,822,355
<CURRENT-LIABILITIES> 5,594,564
<BONDS> 2,980,557
0
0
<COMMON> 10,000
<OTHER-SE> 1,237,234
<TOTAL-LIABILITY-AND-EQUITY> 9,822,355
<SALES> 20,114,549
<TOTAL-REVENUES> 20,114,549
<CGS> 15,466,484
<TOTAL-COSTS> 15,466,484
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 394,115
<INTEREST-EXPENSE> 587,548
<INCOME-PRETAX> 551,465
<INCOME-TAX> 0
<INCOME-CONTINUING> 551,465
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 55.15
<EPS-DILUTED> 53.19
</TABLE>
