<PAGE> 1
As filed with the Securities and Exchange Commission on April 8, 1998
Registration No. 333-46115
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
AMENDMENT NO. 1
to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
PERFORMANCE PRINTING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 2799 75-2418082
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification Number)
Code Number)
</TABLE>
3012 Fairmount
Dallas, Texas 75201
(214) 665-1000
(Address, including zip code and telephone number, including area
code, of registrant's principal executive offices
and principal place of business)
John T. White
President
PERFORMANCE PRINTING CORPORATION
3012 Fairmount
Dallas, Texas 75201
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------
Copies To:
Garza & Staples, P.C. Crouch & Hallett, L.L.P.
1230 Lincoln Center Two 717 North Harwood, Suite 1400
Dallas, Texas 75240 Dallas, Texas 75201
Attn: Joe B. Garza Attn: Susan Henderson
(800) 442-7040 (214) 953-0053
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Proposed Proposed
maximum maximum
offering aggregate Amount of
Title of each class of securities to be Amount to be price offering registration
registered(1) registered per share(1) price(1) fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units (2) 1,380,000 $5.125 $7,072,500 $2,144
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (3) 1,380,000 (3) (3) (3)
- ---------------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants (3)(9) 1,380,000 (3) (3) (3)
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, issuable under Common Stock
Purchase Warrants(4)(9) 1,380,000 $7.50 $10,350,000 $3,137
- ---------------------------------------------------------------------------------------------------------------------
Representative's Warrants (5)(9) 120,000 $.0009 $100 $.04
- ---------------------------------------------------------------------------------------------------------------------
Units underlying Representative's 120,000 $6.15 $738,000 $224
Warrants
- ---------------------------------------------------------------------------------------------------------------------
Common Stock included in Representative's 120,000 (6) (6) (6)
Units (6)
- ---------------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants included 120,000 (7) (7) (7)
in Representative's Warrants (7)
- ---------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of 120,000 $7.50 $900,000 $272
Common Stock Purchase Warrants Underlying
the Representative's Units (8)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $5,777
=====================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) Includes 180,000 Shares of Common Stock and 180,000 Warrants issuable
pursuant to the Representative's over-allotment option.
(3) Included in the Units. No additional registration fee is required.
(4) Represents shares of Common Stock issuable upon exercise of the Warrants
registered hereby together with such additional indeterminate number of
shares as may be issued upon exercise of such Warrants by reason of the
anti-dilution provisions contained therein.
(5) Representative's Warrants to purchase up to 120,000 Units consisting of an
aggregate of 120,000 shares of Common Stock and 120,000 Warrants.
(6) Represents shares of common stock issuable upon exercise of the
Representative's Warrant, together with such additional indeterminate number
of shares of Common Stock as may be issued upon exercise of such
Representative's Warrant by reason of the anti-dilution provisions contained
therein.
(7) Representative's Warrants to purchase up to 120,000 Common Stock Purchase
Warrants.
(8) Issuable upon exercise of Common Stock Purchase Warrants underlying the
Representative's Units.
(9) Pursuant to Rule 416 of the Securities Act of 1933, no separate registration
fee is required because the Common Stock underlying the Common Stock
Purchase Warrants is being registered in the same registration statement.
------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
================================================================================
PROSPECTUS
SUBJECT TO COMPLETION, DATED APRIL 6,1998
(LOGO)
1,200,000 Units
Consisting of 1,200,000 Shares of Common Stock and
1,200,000 Redeemable Common Stock Purchase Warrants
Performance Printing Corporation (the "Company" or "Performance Printing")
is offering 1,200,000 Units, each Unit consisting of one share (the "Shares") of
Common Stock, $.01 par value per share (the "Common Stock"), and one Redeemable
Common Stock Purchase Warrants (the "Warrants"). The Units, the Shares and the
Warrants offered hereby are referred to collectively as the "Securities." The
Shares and Warrants included in the Units may be not be traded separately unless
separated upon three days notice from First London Securities Corporation (the
"Representative") to the Company. Prior to this Offering, there has been no
public market for the Units, the Common Stock and the Warrants. It is estimated
that the initial public offering price will be $5.125 per Unit (the "Offering
Price").
Each Warrant entitles the holder to purchase one share of Common Stock at a
price of $7.50 per share during the five-year period commencing on the 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
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 price of the Units and the
exercise price and other terms of the Warrants have been determined through
negotiations between the Company and the Representative and are not related to
the Company's assets, book value, financial condition or other recognized
criteria of value. Although the Company has applied for the listing of the
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 Securities are offered by the Underwriters on a firm commitment basis,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to their right to reject orders in whole or in part.
It is expected that delivery of the certificates for the shares of Common Stock
will be made on or about ___________, 1998.
FIRST LONDON SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS ____________, 1998
<PAGE> 4
{Description of pictures and text on gatefold inside of the front cover of the
prospectus} Page 1 of the gatefold:
Picture #1: Machinery and operator of the machinery.
Picture #2: Machinery and operator of the machinery.
Picture #3: Machinery and operator of the machinery.
Picture #4: Drawing of a toy top.
Text:
A Top
Performer
in P-O-P
Performance is a single-source supplier of P-O-P and promotional marketing
materials. We offer experience, knowledge and special capabilities in the areas
of offset and screen printing, display packaging and P-O-P displays.
Pages 2 & 3 of the gatefold:
Picture #1: Machinery.
Picture #2: Building.
Picture #3: Machinery and operator of the machinery.
Picture #4: Products manufactured by the Company.
Picture #5: Products manufactured by the Company.
Picture #6: Products manufactured by the Company.
Picture #7: Products manufactured by the Company.
Picture #8: Products manufactured by the Company.
Picture #9: Products manufactured by the Company.
Text:
There are many quality printers in America and we, at Performance Printing
Corporation, have separated ourselves from the crowd by offering our customers a
wide range of capabilities and services.
In keeping with our philosophy of offering distinctive services and products, we
provide in-house letterpress services such as scoring, perforating die-cutting,
foil stamping and embossing. Scratch-off and spot UV coatings and complete
bindery are other examples of our unique in-house services. Kitting,
computerized bar-code shipping and fulfillment round out our in-house
capabilities.
We at Performance have the people and the expertise to take jobs from start to
finish. We give customers more than promises. We give them Performance.
Performance Printing Corporation, is a single-source supplier of
point-of-purchase and other promotional materials on both paper and plastics.
P-O-P Displays
Display Header signs
Shelf Strips
Self Wobblers
Floor Graphics
Static Cling Decals
Pressure-sensitive Decals
Translites
Trading Cards
Product Trays
Pole Toppers
Posters
Counter cards
Table Tents
Box Labels
Display Packaging
Mouse Pads
Counter Mats
2
<PAGE> 5
1) Does not include additional underwriting compensation to be received by the
Representative in the form of (i) a non-accountable expense allowance equal
to 2% of the gross proceeds of this Offering, of which $50,000 has been
paid to date, and (ii) a warrant issued to the Representative for nominal
consideration (the "Representative's Warrant") to purchase up to 120,000
Units exercisable for a four-year period commencing one year from the date
hereof at an exercise price equal to $6.15, subject to adjustment. In
addition, the Company has granted to the Representative certain
registration rights with respect to registration of the shares of the
Units, the Common Stock, the Warrants and the shares of Common Stock
issuable upon exercise of the Warrants. The Company has agreed to pay the
Representative upon the exercise or redemption of the Warrants a fee equal
to 5% of the gross proceeds received by the Company from the exercise of
the Warrants and 5% of the aggregate redemption price for the Warrants
redeemed. The Company has agreed to indemnify the Underwriters against
certain liabilities arising under the Act.
(2) Before deducting expenses payable by the Company estimated at $500,000
including the Representative's non-accountable expense allowance.
(3) The Company has granted the Representative an option (the "Representative's
Over-allotment Option"), exercisable within 30 days from the date of this
Prospectus, to purchase on the same terms as the Securities offered hereby
up to 180,000 additional Units solely to cover over-allotments, if any. If
the Representative's Over-allotment Option is exercised in full, the total
Price to Public, Underwriting Commissions, and Proceeds to Company will be
$___________, $_____________ and $______________, respectively. See
"Underwriting."
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (the "Registration
Statement"), pursuant to the Act with respect to the securities offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits thereto. THE STATEMENTS CONTAINED IN
THIS PROSPECTUS AS TO THE CONTENTS OF ANY CONTRACT OR OTHER DOCUMENT IDENTIFIED
AS EXHIBITS IN THIS PROSPECTUS ARE NOT NECESSARILY COMPLETE, AND IN EACH
INSTANCE, REFERENCE IS MADE TO A COPY OF SUCH CONTRACT OR DOCUMENT FILED AS AN
EXHIBIT TO THE REGISTRATION STATEMENT, EACH STATEMENT BEING QUALIFIED IN ANY AND
ALL RESPECTS BY SUCH REFERENCE. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement and exhibits which may be inspected without charge at the Commission's
principal office at Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549.
Upon consummation of this Offering, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith will file reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its
New York Regional Office, Room 1300, 7 World Trade Center, New York, New York
10048; and at its Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at prescribed rates. The Company's Registration Statement on Form
SB-2 as well as any reports to be filed under the Exchange Act can also be
obtained electronically after the Company has filed such documents with the
Commission through a variety of databases, including among others, the
Commission Electronic Data Gathering, Analysis And Retrieval ("EDGAR") program,
Knight-Ridder Information, Inc., Federal Filings/Dow Jones and Lexis/Nexis.
Additionally, the Commission maintains a Website (at http://www.sec.gov) that
contains such information regarding the Company. In addition, such material may
also be inspected and copied at the offices of the Boston Stock Exchange, Inc.,
One Boston Place, Boston, Massachusetts.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other reports as the Company
deems appropriate or as may be required by law.
Such requests may be directed to John T. White, Chief Executive Officer,
c/o Performance Printing Corporation, 3012 Fairmount, Dallas, Texas 75201,
telephone number (214) 665-1000.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
5
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and must be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, (i) all information in this Prospectus assumes no exercise
of the Warrants, the Representative's Over-allotment Option and the
Representative's Warrant; (ii) all information in this Prospectus assumes a
public offering price of $5.125 per Unit($5.00 per share of Common Stock and
$.125 per Warrant); and (iii) all share and per share data have been adjusted to
give effect to a 440 for one stock split in 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.
The Company's business has been built around a core specialty of
printing with inks and coatings which are cured with ultra violet light ("UV").
This UV printing technology enables the Company to print on Substrates other
than paper, such as vinyl, styrene and polyethelene terephtalate-glycol
("PETG"). Services provided by the Company include design and electronic
pre-press services, both UV and Conventional Sheetfed Offset Printing,
Large-Format Screen Printing, Large-Format Digital Printing, Off-Line Specialty
Coating, Plastic Forming, a wide range of finishing services and direct
shipments of finished point-of-purchase advertising kits to retail stores. The
foregoing capitalized terms, commonly used in the printing industry, are defined
in the Glossary on Page 40 below.
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. The remaining 49% interest is owned by Pinnacle Brands Trading
Company ("Pinnacle") which is the primary customer of Performance Packaging. All
three plants are located in Dallas, Texas.
From 1987 to 1995, the Company sustained revenue growth of 24% per
annum. For the fiscal year ended December 31, 1997, the Company recorded
revenues of $20,114,549 and net income of $551,465 compared to the fiscal year
ended December 31, 1996 revenues of $15,715,395 and net income of $213,360, a
28% increase in revenues and a 158% increase in net income. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operation."
The Company has the capabilities to develop concepts and design
prototypes of point-of-purchase displays and also to create graphic design for
commercial printing and display packaging customers. These concept-to-completion
services are instrumental in attracting and retaining the graphic arts customer.
Historically the Company has grown and profited by increasing its capacity and
adding services complimentary to its existing specialties, such as
point-of-purchase display services.
The Company has a two-point growth strategy that is based upon internal
expansion and acquisitions. Internal expansion focuses on building the Company's
existing business and adding new specialties and related services when
appropriate. The acquisition strategy is to acquire small commercial printers
and screen printers in several key markets around the United States and convert
these plants to shops similar to its Dallas operations. The sales force at each
plant would be trained to sell point-of-purchase advertising and related
materials. Jobs requiring the use of the multi-million dollar presses such as
the Company's equipment in Dallas would be transferred to Dallas for production.
The regional plants would facilitate the development of close relationships with
major users of point-of-purchase advertising and related materials, with primary
emphasis on sales, pre-press and short run work in the regional plants.
The Company was founded in 1981 and incorporated in 1992 as a Texas
corporation. The Company will convert from "S" Corporation status to "C"
Corporation status upon the consummation of the Offering. It currently has over
160 employees. The Company's offices are located at 3012 Fairmont, Dallas, Texas
75201, and its telephone number is (214) 665-1000.
6
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........................................ 1,200,000 Units, each Unit consisting of one share
of Common Stock and one Warrant, each Warrant
entitling the holder to purchase one share of Common
Stock a $7.50 per share until (5 years from the date
of this Prospectus). See "Description of
Securities."
Description of the Warrants .............................. The Warrants are not immediately exercisable and are
not transferable separately from the Shares unless
separated on three days notice from the
Representative to the Company. See "Description of
Securities."
Common Stock Outstanding:
Before the Offering.............................. 4,400,000 Shares
After the Offering............................... 5,600,000 Shares (1)(2)
Warrants Outstanding:
Before the Offering.............................. None
After the Offering............................... 1,200,000 (3)
Estimated Net Proceeds.................................... $5.0 million (4)
Use of Proceeds:.......................................... Repay outstanding indebtedness and provide
additional working capital. See "Use of Proceeds."
Risk Factors The Securities offered hereby are speculative and
involve a high degree of risk. Investors should
carefully consider the risk factors enumerated
hereafter before investing in the Common Stock and
the Warrants. See "Risk Factors" and "Dilution."
Proposed Trading Symbols (2)(5):
Boston Stock Exchange:
Units
Common Stock.....................................
Warrants.........................................
Nasdaq SmallCap Market:
Units
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 Warrants included therein.
(3) Does not include (i) up to 180,000 Warrants issuable pursuant to the
Representative's Over-allotment Option and (ii) the Representative's
Warrants and the 120,000 Warrants included therein.
7
<PAGE> 8
(4) After deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company, including a 2% non-accountable
expense allowance payable to the Representative.
(5) Boston Stock Exchange and the Nasdaq SmallCap Market symbols do not imply
that an established public trading market will develop for any of these
securities, or if developed, that any such market will be sustained. See
"Risk Factor-Possible Applicability of Rules Relating to Low-Priced Stock;
Possible Failure to Qualify for Boston Stock Exchange or Nasdaq SmallCap
Listing."
8
<PAGE> 9
SUMMARY FINANCIAL DATA
The following summary financial data should be read in conjunction with the
financial statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus. The data for the years ended December 31, 1997 and 1996 are
derived from the audited financial statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C>
Revenue $ 20,114,549 $ 15,715,395
Costs of goods sold 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
Income from operations 984,375 518,174
Other expense, net (432,910) (346,564)
Pre-tax income 551,465 213,360
============ ============
Income tax provision (1) (189,638) (81,354)
Net income (1) $ 361,827 $ 132,006
============ ============
Basic earnings per weighted average share $ 0.08 $ 0.03
Basic weighted average outstanding shares 4,400,000 4,400,000
OTHER DATA:
EBITDA (2) $ 1,884,348 $ 1,629,012
Net cash provided by operating activities 493,543 485,755
============ ============
Net cash provided by investing activities 656,081 236,506
============ ============
Net cash provided by (used in) financing activities (1,195,200) 85,816
============ ============
Depreciation, leases and amortization $ 1,442,139 $ 1,238,493
============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
Actual As Adjusted (3)
---------- ---------------
BALANCE SHEET DATA:
<S> <C> <C>
Working capital $295,035 $4,807,406
========== ==========
Total assets 9,822,355 12,241,917
========== ==========
Long-term debt and capitalized lease obligations, less
current portion 2,841,483 2,597,002
========== ==========
Shareholders' equity $1,386,308 $6,143,160
========== ==========
</TABLE>
- ---------------
(1) Adjusted to reflect the conversion from "S" Corporation status to "C"
Corporation status upon consummation of the Offering.
(2) EBITDA represents operating income excluding interest, taxes, depreciation,
amortization of goodwill and other intangible assets (as presented on the
face of the income statement). EBITDA is not a substitute for net cash
provided by operating
9
<PAGE> 10
income in accordance with generally accepted accounting principles. EBITDA is
presented because management believes that it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness,
maintain current operating levels of fixed assets and acquire additional
operations and businesses. Accordingly, significant uses of EBITDA include,
but are not limited to, interest and principal payments on long-term debt,
including indebtedness under the Company's revolving credit agreement. Items
excluded from EBITDA, such as interest, taxes, depreciation and amortization,
are significant components of the Company's operations and should be
considered in evaluating the Company's financial performance.
(3)The as adjusted summary balance sheet data has been prepared as if the
Offering had occurred as of 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."
10
<PAGE> 11
RISK FACTORS
Prospective investors should carefully review the following risk factors
together with the other information in this Prospectus in evaluating the Company
and its business prior to purchasing the 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 (Pinnacle) accounted for 12.5% 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."
OWNERSHIP OF PERFORMANCE PACKAGING
The Company owns 51% of Performance Packaging. Pinnacle owns the remaining
49% and is the principal customer of Performance Packaging. Under the terms of
the First Renewal of the Packaging Services Agreement dated April 1, 1997 (the
"Packaging Agreement"), Pinnacle has first call on 100% of the packaging
capacity of Performance Packaging in exchange for certain fixed cost payments.
Pinnacle has legal control of Performance Packaging although the Company
currently manages its operations. The requirement to provide Pinnacle with first
call on 100% of the packaging capacity of Performance Packaging may be a
deterrent to the growth and profitability of Performance Packaging. See
"Business Affiliated Companies."
11
<PAGE> 12
DEPENDENCE ON KEY PERSONNEL
The Company's success is largely dependent on the skills, experience and
performance of certain key members of its management, including particularly
John T. White, the Company's Chief Executive Officer and W. Chris Pumpelly, its
Chairman. The loss of the services of either of these key employees could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company does not maintain key-man insurance on the
lives of Messrs. White and Pumpelly but carries life insurance on such persons
as required by the terms of a loan guaranteed by the Small Business
Administration on a building owned by the Company. There are no employment
agreements between the Company and any of the executive officers. The Company's
future success and plans for growth also depend on its ability to attract, train
and retain skilled personnel in all areas of its business. See "Management."
USE OF PROCEEDS
Upon consummation of the Offering, the Company will use 51.4% of the net
proceeds from the Offering to repay indebtedness. Management will have broad
discretion as to the application of the remaining 48.6% of the net proceeds,
which will be allocated for working capital. A portion of such proceeds may be
used for acquisitions.
GEOGRAPHIC CONCENTRATION AND ECONOMIC CONDITIONS
The Company's operations are located in the Dallas-Fort Worth Metroplex,
and the majority of its customers are located in North Texas. The Company and
its profitability may be susceptible to the effects of unfavorable or adverse
local economic factors and conditions affecting this geographic region.
TECHNOLOGICAL CHANGES
Production technology in the printing industry has evolved and continues to
evolve. The Company does not consider itself a technology leader and does not
attempt to be a leader in this area. The Company invests in technology
improvements after such improvements have been proven to be cost-effective. The
printing industry has experienced significant changes due to technological
changes. Because of advances in computer and related communication technologies,
certain products that were once printed by commercial printers are now generated
on computers through word processing or desktop publishing software. In
addition, some information is now disseminated in digital or electronic formats
rather than disseminated in a paper format and this trend could continue in the
future.
CONTROL BY PRINCIPAL SHAREHOLDERS
Upon completion of this Offering, the directors and executive officers will
own approximately 79% of the outstanding Common Stock of the Company. As a
result, these shareholders will be able to control the management and policies
of the Company through the ability to determine the outcome of elections for the
Company's Board of Directors and other matters requiring the vote or consent of
shareholders of the Company. See "Principal Shareholders."
DILUTION
Purchasers of shares of the Common Stock will suffer an immediate,
substantial dilution of approximately $3.90 per share or 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."
12
<PAGE> 13
COMPETITION
The commercial printing industry is extremely competitive and fragmented.
The Company has no patented or proprietary products. The Company competes with
numerous large and small printing companies, some of which have greater
financial resources, and the number of printing companies providing UV Curing of
Inks and Coatings is greater at this time than it has been in prior years. The
Company competes on the basis of ongoing customer service, quality of finished
products and price. No assurance can be given that the Company will be able to
compete effectively in the future. See "Business-Competition."
INTEGRATION OF ACQUISITIONS
A material element of the Company's growth strategy is to expand its
business by purchasing commercial printers in other geographical markets and
converting them into satellite operations of the Company. The Company has no
experience in purchasing printing companies. While the Company continuously
evaluates opportunities to make strategic acquisitions, it has no present
commitments or agreements with respect to any material acquisitions. There can
be no assurance that the Company will be able to identify and acquire such
companies or that it will be able to successfully integrate the operations of
any companies it acquires. Further, any acquisition may initially have an
adverse effect upon the Company's operating results while the acquired
businesses are adopting the Company's management and operating practices. In
addition, there can be no assurance that the Company will be able to establish,
maintain or increase profitability of an entity once it has been acquired. Also,
if the Company does not have sufficient cash resources for any acquisition, its
growth could be limited. There can be no assurance that the Company will be able
to obtain adequate financing for any acquisition, or that, if available, such
financing will be on terms acceptable to the Company. The consent of the
Company's primary lender will be required to be obtained in order to consummate
such acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and
"Business-Business Strategy."
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward looking statements" within the meaning of
Section 27A of the Act, and Section 21E of the Exchange Act. The actual results
of the Company may differ significantly from the results discussed in such
forward-looking statements. Certain factors that might cause such differences
include, but are not limited to, the factors discussed in this "Risk Factors"
section. The safe harbors contained in Section 27A of the Act and Section 21E of
the Act, which apply to certain forward-looking statements, are not applicable
to this Offering.
NO DIVIDENDS EXCEPT TAX DIVIDENDS
The Company has not declared or paid any cash dividends on its Common Stock
since its inception except for Subchapter S distributions to the shareholders
proportional to their Subchapter S tax liabilities. The Company currently
intends to retain all earnings for the operation and expansion of its business
and does not anticipate paying any dividends in the foreseeable future. In
addition, the Company's credit agreement prohibits the payment of dividends. See
"Dividend Policy" and Note 1 of "Notes to Financial Statements."
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to the environmental laws and regulations of the
United States and Texas concerning emissions into the air, discharges into
waterways and the generation, handling and disposal of waste materials. While
the Company believes it is currently in substantial compliance with these laws
and regulations, there can be no assurance that future changes in such laws and
regulations will not have a material effect on the Company's operations. See
"Business-Government Regulation and Environmental Matters."
13
<PAGE> 14
SHARES OF COMMON STOCK RESERVED UNDER STOCK OPTION PLAN
The Company has reserved 300,000 shares of Common Stock for issuance to key
employees, officers, directors and consultants pursuant to the Company's Stock
Option Plan. The existence of these options and any other options or warrants
may prove to be a hindrance to future equity financing by the Company. Further,
the holders of such options may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
5,600,000 shares of Common Stock (5,780,000 shares if the Representative's
Over-allotment Option is exercised in full). The existing shareholders have
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock or any securities exercisable for or convertible into Common
Stock for a period of one year after the date of this Prospectus without the
prior written consent of the Representative.
No predictions can be made as to the effect, if any, that market sales of
such shares will have on the market price of shares of Common Stock prevailing
from time to time. However, sales of substantial amounts of Common Stock in the
open market or the availability of such shares for sale following the Offering
could adversely affect the market price for the Common Stock. See "Shares
Eligible for Future Sale," "Description of Securities" and "Principal
Shareholders."
ARBITRARY OFFERING PRICE AND EXERCISE PRICE OF WARRANTS
The public offering price of the Units and the exercise price of the
Warrants, as well as the exercise price of the warrants underlying the
Representative's Warrant, have been determined solely by negotiations between
the Company and the Representative. Among the factors considered in determining
these prices were the Company's current financial condition and prospects,
market prices of similar securities of comparable publicly traded companies, and
the general condition of the securities market. However, the public offering
price of the Units as well as the amount of the offering price attributable to
the Common Stock and the Warrants and the exercise price of the Warrants and the
underlying Warrants do not necessarily bear any relationship to the Company's
assets, book value, earnings or any other established criterion of value. See
"Underwriting."
Holders of the Warrants have the right to exercise the Warrants only if the
underlying shares of Common Stock are qualified, registered or exempt from
registration under applicable securities laws of the states in which the various
holders of the Warrants reside. The Company cannot issue shares of Common Stock
to holders of the Warrants in states where such shares are not qualified,
registered or exempt. It is possible that the Warrants could be held by persons
residing in states where the Company is unable to qualify the Common Stock
underlying the Warrants for sale. The Company has undertaken, however, to
qualify the Warrants for listing on the Boston Stock Exchange which provides for
blue-sky registration in 11 states. The Warrants may expire, unexercised, which
would result in the holders losing all the value of the Warrants. See
"Description of Securities--Warrants."
REDEEMABLE WARRANTS AND IMPACT ON INVESTORS
The Warrants are subject to redemption by the Company in certain
circumstances. The Company's exercise of this right would force a holder of the
Warrants to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for the holder to do so, to sell the Warrants at the then
current market price when the holder might otherwise wish to hold the Warrants
for possible additional appreciation, or to accept the redemption price, which
is likely to be substantially less than the market value of the Warrants in the
event of a call for redemption. Holders who do not exercise their Warrants prior
to redemption by the Company will forfeit their right to purchase the shares of
Common Stock underlying the Warrants. The foregoing notwithstanding, the Company
may not redeem the Warrants at any time that a current registration statement
under the Act is not then in effect. The Company may be expected to redeem the
Warrants at a time when the market price of the Common Stock exceeds $10.00 per
share for more than 10 days. See "Description of Securities-Warrants."
14
<PAGE> 15
EXERCISE OF REPRESENTATIVE'S PURCHASE WARRANTS
In connection with this Offering, the Company will sell to the
Representative, for nominal consideration, a Representative's Warrant to
purchase 120,000 Units from the Company. The Representative's Warrant will be
exercisable for a four-year period commencing one year from the effective date
of the Offering at an exercise price of $6.15, subject to adjustment. The
Representative's Warrant may have certain dilutive effects because the holders
thereof will be given the opportunity to profit from a rise in the market price
of the underlying shares with a resulting dilution in the interest of the
Company's other shareholders. The terms on which the Company could obtain
additional capital during the life of the Representative's Warrant may be
adversely affected because the holders of the Representative's Warrant might be
expected to exercise them at a time when the Company would otherwise be able to
obtain comparable additional capital in a new offering of securities at a price
per share greater than the exercise price of the Representative's Warrant.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SECURITIES PRICES
Prior to this Offering, there has been no public market for the Units, the
Common Stock or the Warrants. Although the Company has applied to list the
Units, the Common Stock and the Warrants on the Boston Stock Exchange and the
Nasdaq SmallCap Market, there can be no assurance that a regular trading market
will develop (or be sustained, if developed) for the Units, the Common Stock or
the Warrants upon completion of this Offering, or that purchasers will be able
to resell their Units, Common Stock or Warrants or otherwise liquidate their
investment without considerable delay, if at all. Recent history relating to the
market prices of newly public companies indicates that, from time to time, there
may be significant volatility in their market price. There can be no assurance
that the market price of the Units, the Common Stock or the Warrants will not be
volatile as a result of a number of factors, including the Company's financial
results or various matters affecting the stock market generally.
PREFERRED STOCK AUTHORIZED
The Company's Articles of Incorporation authorize the issuance of 3,000,000
shares of preferred stock, the rights, preferences and privileges of which are
to be determined by the Company's Board of Directors. Although the Company has
no intention at the present to issue any preferred stock, the Company may in the
future issue and sell preferred stock, which will likely have dividend,
distribution and liquidation preferences senior to common shareholders and
voting rights which may dilute the common shareholder voting rights. See
"Description of Securities- Preferred Stock."
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET
It is anticipated that a significant amount of the Units will be sold to
customers of the Representative. Although the Representative has advised the
Company that it intends to make a market in the Securities, it will have no
legal obligation to do so. The prices and the liquidity of the Securities may be
significantly affected by the degree, if any, of the Representative's
participation in the market. No assurance can be given that any market making
activities of the Representative, if commenced, will be continued. See
"Underwriting."
POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCKS; POSSIBLE FAILURE
TO QUALIFY FOR BOSTON STOCK EXCHANGE OR NASDAQ SMALLCAP MARKET LISTING
The Commission has adopted regulations which generally define a "penny
stock" to be any equity security that has a market price (as defined) of less
than $5.00 per share, subject to certain exceptions. While the price at which
the Units offered to the public pursuant to this Offering will be equal to
$5.125, there can be no assurance that the Company will be able to satisfy the
listing criteria of the Boston Stock Exchange or that the Units, the Common
Stock or the Warrants will trade for $5.00 or more after the Offering.
Consequently, the "penny stock" rules may restrict the ability of broker/dealers
to sell the Company's Securities and may affect the ability of purchasers in
this Offering to sell the Company's Securities in a secondary market.
15
<PAGE> 16
Although the Company has applied for listing of the Units, the Common Stock
and the Warrants on the Boston Stock Exchange and the Nasdaq SmallCap Market,
there can be no assurance that such application will be approved or that a
trading market for the Units, the Common Stock and the Warrants will develop or,
if developed, will be sustained. Furthermore, there can be no assurance that the
Securities purchased by the public hereunder may be resold at their original
offering price or at any other price.
In order to qualify for initial listing on the Boston Stock Exchange, a
company must, among other things, have at least $3,000,000 in total assets,
$2,000,000 of net tangible assets, $100,000 of net income in two of the past
three years or $2,000,000 net tangible assets, a 750,000 share "public float,"
with a $1,500,000 market value, 600 beneficial holders, a minimum $2.00 bid
price and $1,000,000 stockholders equity. For continued listing on the Boston
Stock Exchange, a company must maintain $1,000,000 of total assets, a 150,000
share public float with a $500,000 market value, 250 beneficial owners and a
minimum $500,000 of stockholders equity. The failure to meet these maintenance
criteria in the future may result in the discontinuance of the listing of the
Securities on the Boston Stock Exchange.
In order to qualify for initial listing on the Nasdaq SmallCap Market, a
company must, among other things, have at least $4,000,000 in net tangible
assets, $5.0 million "public float," and a minimum bid price for its securities
of $4.00 per share. For continued listing on the Nasdaq SmallCap Market, a
company must maintain $2,000,000 in net tangible assets and a $1,000,000 market
value of the public float. In addition, continued inclusion requires two
market-makers and a minimum bid of $1.00 per share. The failure to meet these
maintenance criteria in the future may result in the discontinuance of the
listing of the Common Stock and Warrants on the Nasdaq SmallCap Market.
If the Company is or becomes unable to meet the listing criteria (either
initially or on a continued basis) of the Boston Stock Exchange or the Nasdaq
SmallCap Market and is never traded or becomes delisted therefrom, trading, if
any, in the Common Stock and the Warrants would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or, if then available,
"Electronic Bulletin Board" administered by the National Association of
Securities Dealers, Inc. (the "NASD"). In such an event, the market price of the
Common Stock and the Warrants may be adversely impacted. As a result, an
investor may find it difficult to dispose of or to obtain accurate quotations as
to the market value of the Common Stock and the Warrants.
16
<PAGE> 17
DILUTION
The net tangible book value of the Common Stock at December 31, 1997 was
$1,386,308 or $0.32 per share. "Net tangible book value per share" represents
the amount of total tangible assets less total liabilities, divided by the
number of total shares of Common Stock outstanding. After giving effect to the
sale of the 1,200,000 Units (1,200,000 shares of Common Stock and 1,200,000
Warrants) at an assumed initial public offering price per Unit of $5.125 or
$5.00 per Share and $.125 per Warrant, and the initial application of the
estimated net proceeds therefrom, pro forma net tangible book value of the
Company at December 31, 1997, would have been $6,143,160 or $1.10 per share
($1.20 per share if the Over-allotment Option is exercised), representing an
immediate increase in net tangible book value of $0.83 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...................... $0.32
Increase in value per share attributable to new investors.............. $0.78
-----
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% $ 685,824 10% $0.16
New investors 1,200,000 21% 6,000,000 90% $5.00
--------- ----- ---------- ---
Total 5,600,000 100.0% $6,685,824 100%
========= ===== ========== ===
</TABLE>
17
<PAGE> 18
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,200,000 Units offered hereby are estimated to be approximately $5,035,000
($5,846,800 if the Representative's Over-allotment Option is exercised in full)
assuming an initial public offering price of $5.125 per Unit and after deducting
the estimated underwriting discounts and offering expenses and a non-accountable
expense allowance payable to the Representative equal to 2% of the gross
proceeds.
The following table reflects the application of the estimated net proceeds
by the Company:
<TABLE>
<CAPTION>
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 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,
including a reduction of accounts payable to take advantage of available
discounts and possible acquisitions of additional printing operations. The
Company does not have any present agreements or understandings regarding any
such acquisitions.
18
<PAGE> 19
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. The Company's current revolving credit
line prohibits the payment of dividends under certain conditions.
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1997, and (ii) as adjusted to reflect the sale by the Company of
1,200,000 Units offered hereby at an assumed initial public offering price of
$5.125 per Unit (after deduction of the underwriting discount and estimated
offering expenses) and the application of the net proceeds therefrom as
described under "Use of Proceeds." December 31, 1997
<TABLE>
<CAPTION>
Actual As Adjusted
---------- ----------
<S> <C> <C>
Current portion of long-term debt $ 594,465 $ 503,266
Long-term debt, less current portion 2,841,483 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 shares issued and outstanding; 5,600,000 shares issued
and outstanding, as adjusted (1)
Common stock purchase warrants 0 150,000
Additional paid-in capital 641,824 5,236,676
Accumulated earnings 700,484 700,484
---------- ----------
Total shareholders' equity 1,386,308 6,143,160
---------- ----------
Total capitalization $4,822,256 $9,243,428
========== ==========
</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."
19
<PAGE> 20
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus. The data for the years ended December 31, 1997 and 1996 are
derived from the audited financial statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
STATEMENTS OF OPERATIONS DATA: DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Revenue $20,114,549 $15,715,395
Costs of goods sold 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
Income from operations 984,375 518,174
Other expense, net (432,910) (346,564)
Pre-tax income 551,465 213,360
Income tax provision (1) (189,638) (81,354)
Net income (1) $ 361,827 $ 132,006
Basic earnings per weighted average share $0.08 $0.03
Basic weighted average outstanding shares 4,400,000 4,400,000
OTHER DATA:
EBITDA (2) $ 1,884,348 $ 1,629,012
Net cash provided by operating activities 493,543 485,755
=========== ===========
Net cash provided by investing activities 656,081 236,506
=========== ===========
Net cash provided by (used in) financing activities (1,195,200) 85,816
=========== ===========
Depreciation, leases and amortization $ 1,442,139 $ 1,238,493
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
Actual As Adjusted (3)
---------- ---------------
BALANCE SHEET DATA:
<S> <C> <C>
Working capital $ 295,035 $ 4,807,406
Total assets 9,822,355 12,241,917
Long-term debt and capitalized lease obligations,
Less current portion 2,841,483 2,597,002
Shareholders' equity $1,386,308 $ 6,143,160
========== ===========
</TABLE>
20
<PAGE> 21
(1) Adjusted to reflect the conversion from "S" Corporation status to "C"
Corporation status upon consummation of the Offering.
(2) EBITDA represents operating income excluding interest, taxes, depreciation,
amortization of goodwill and other intangible assets (as presented on the
face of the income statement). EBITDA is not a substitute for net cash
provided by operating income in accordance with generally accepted
accounting principles. EBITDA is presented because management believes that
it is a widely accepted financial indicator of a company's ability to
service and/or incur indebtedness, maintain current operating levels of
fixed assets and acquire additional operations and businesses. Accordingly,
significant uses of EBITDA include, but are not limited to, interest and
principal payments on long-term debt, including indebtedness under the
Company's revolving credit agreement. Items excluded from EBITDA, such as
interest, taxes, depreciation and amortization, are significant components
of the Company's operations and should be considered in evaluating the
Company's financial performance.
(3) The as adjusted summary balance sheet data has been prepared as if the
Offering had occurred as of 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."
21
<PAGE> 22
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, 1997 % OF SALES DECEMBER 31, 1996 % OF SALES FROM 1996
----------------- ---------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Revenue $20,114,549 $15,715,395 28.0%
Costs of goods sold 15,466,484 77.3% 12,101,986 77.0% 23.4%
Gross profit 4,648,065 22.7% 3,613,409 23.0% 26.1%
Selling, general and
administrative expenses 3,269,575 17.7% 2,872,913 19.7% 15.3%
Income from operations 984,375 4.9% 518,174 3.3% 89.9%
Other expense, net (432,910) (2.2)% (346,564) (2.2)% (24.9)%
----------- -----------
Pre-tax Income 551,465 2.7% 213,360 1.4% 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. Revenues for the fourth quarter of 1997 increased by 37% over
the revenues for the fourth quarter of 1996, as strengthening sales throughout
the year showed greatest improvement in the fourth quarter.
The costs of 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 subcontractors 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
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<PAGE> 23
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 $.4 million in
1997 to $3.3 million from $2.9 million in 1996. However, as a percentage of
revenue the costs decreased to 16% in 1997 from 18% in 1996. The Company decided
to spend more money on its selling efforts in 1997 than in 1996, and it took a
larger reserve for doubtful accounts, increasing the administrative costs for
1997, but these increases were more than offset by the increases in revenues for
1997, resulting in lower costs as a percentage of revenue.
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. Gains from cash sales of
property and equipment increased to $191,423 in 1997 from $90,727 in 1996.
As a result of the foregoing, pre-tax net income rose to $551,465 in 1997
from $213,360 in 1996. The Company makes no provisions for income tax since it
is an S corporation for federal income tax purposes, though it will convert to a
C corporation for federal income tax purposes at the time of the Offering.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its cash flow requirements from
funds generated from operations and credit facilities provided by financial
institutions, other lenders and shareholders. Cash flow provided by operations
was $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 and reduction of certain indebtedness,
including the Company's line of credit and certain term indebtedness. See "Use
of Proceeds."
Trade accounts receivable outstanding December 31, 1997 increased by 42%
over amounts outstanding December 31, 1996, primarily as a result of increases
in fourth quarter sales in 1997 over 1996. Substantially all of the amounts
receivable at the end of 1997 have been collected except for one invoice on
which approximately $625,000 is owed. The Company delivered the goods on which
that invoice was based, and the buyer successfully resold the goods as part of a
successful advertising campaign. The Company is pursuing collection of the
invoice through litigation.
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 19, 1998. At
December 31, 1997, the Company had borrowings of approximately $2,001,610
million outstanding under this credit facility. The Company intends to reduce
the outstanding balance of this credit facility with the net proceeds from this
Offering. See "Use of Proceeds."
Heller Financial, Inc. ("Heller") provided bridge financing for the
purchase of the printing division building in the original principal amount of
$1,260,000 on April 5, 1995. In 1997 this loan was replaced with three long term
loans held by Heller, having outstanding balances as of December 31, 1997, of
$688,135, $571,133 and $57,757 and annual payments of $83,868, $54,960 and
$16,764 respectively.
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<PAGE> 24
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 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 March 31, 1998, most of the equipment owned by the lessors
was sold back to the equipment manufacturer, and the manufacturer agreed to
lease the equipment directly to the Company on terms more favorable than the
original lease. The balance of the equipment was transferred to the Company from
one of lessors in exchange for the assumption by the Company of the debt owed by
the lessors to the equipment manufacturer. As a result of the transaction, the
Company's lease payments will be approximately $65,000 per year greater in 1998
than in 1997, but the new lease will eliminate a large balloon payment, reduce
the escalation of lease payments over the next five years and grant the Company
options to purchase the equipment at fair market value after four years. See
"Certain Transactions."
The Company has no significant commitments at this time which would require
that it expend capital and believes its current facilities and capital equipment
are adequate for the Company as currently structured.
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<PAGE> 25
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.
The Company expects, over the four fiscal years ending December 31, 2002,
that its growth will be divided approximately equally between internal growth
and acquisitions. The Company believes that it will continue its internal
historic growth over the next four years. In the event the Company is not
successfull in locating suitable acquisition candidates at the rate of two per
year, it will depend primarily on its internal growth rate to increase its
revenues. The Company will seek to acquire other printing companies with annual
revenues in the $5 to $10 million range. If the Company acquires one or more
printing companies with revenues greater than its targeted range, the increase
in sales could be weighted more toward acquistion than internal growth.
INDUSTRY BACKGROUND
Although the Company is built around specialty printing, it is considered a
commercial printer by industry classification. The commercial printing industry
is one of the largest and most fragmented manufacturing industries in the United
States. According to the Printing Industries of America, Inc. ("PIA"), the main
national trade organization for the industry, there were approximately 52,000
printing firms with total annual revenues of $132 billion in 1996. Of the 27,600
commercial, screen and specialty printers, only 621 had more than 100 employees
in 1996, but these firms sold 42% of the $72.8 billion in revenues sold by the
commercial, screen and specialty printers. The printing industry is experiencing
considerable consolidation at this time. Several printing companies are in the
business of acquiring other printing companies.
The point-of-purchase advertising industry was a $12 billion industry in
1995 according to the Point-of-
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Purchase Advertising Institute, an industry trade organization. The Institute
reported a growth of 8% for the industry from 1994 to 1995.
COMPANY OPERATIONS
The Company has used its core specialties involving offset and screen
printing of UV cured materials to attract customers, and, once relationships are
established the Company, often sells commercial printing services to them as
well. Moreover, the Company has added many other complimentary services to go
with its UV printing and its commercial printing, such as complete pre-press
services, large format printing which is used for large point-of-purchase
displays, folding and gluing of decorative cartons for in-store use, die cutting
of printing and display materials, thermoforming of plastics for displays, large
format digital printing for short run banners and posters, and kitting and
fulfillment of advertising materials for in-store use.
The equipment used for these specialties is expensive in comparison to much
of the equipment used in commercial printing. Not only is it necessary to have
large presses with multiple colors and finishing equipment to match the presses,
but the curing equipment is also expensive. In addition, customers require very
fast turn time as advertising campaigns are commonly late in the creative and
approval phase, shortening the available time for manufacturing. Thus the
Company is required to have a great deal of ready capacity to meet these
requirements. However, hourly rates and material markups are also relatively
high for this type of work.
The Company fills in the idle time for its specialty capacity by selling
commercial printing services and trading card printing. While the prices for
these types of work are not as high as for the specialty services, revenues from
these activities help cover the cost of the necessary capacity.
EQUIPMENT
The Company owns or leases seven sheetfed offset presses ranging from two
colors to eight colors and from 20" to 63" in print width. In addition the
Company has five large format flat bed and cylinder screen presses and an off
line UV coater. The Company's finishing equipment includes a variety of
guillotine cutters, die cutters, folders, gluing machines and wrappers. The
Display Division has three thermoforming machines for plastic molding and large
format digital printers. Almost all of the Company's pre-press services are
performed on its extensive high-end pre-press systems, including scanners and
film output devices.
COMPANY SERVICES
The Company builds relationships with its customers by offering turnkey
services for point-of-purchase advertising materials and related products. Some
of the manufacturing capacity not absorbed with those activities is sold in the
commercial printing market. Products and services offered by the Company include
the following:
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 LargeFormat 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.
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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.
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 (12.5%). 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.
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The Performance Display division is in a leased facility of 44,000 square
feet. The primary lease term expires December 21, 2000. Performance Packaging is
in a leased facility of 75,000 square feet. The primary lease term expires April
30, 2002. The Company does not expect any difficulty in negotiating a lease
renewal for either facility if it desires to do so. The offices and
manufacturing areas of both are air-conditioned and have adequate power.
The Printing division is in a 50,000 square foot facility owned by the
Company. It is located on Interstate Highway 35 near downtown Dallas, which is
an excellent location due to its visibility and accessibility to the highway.
One senior lender has mortgages on the building securing indebtedness in
the aggregate amount of $1,317,025. 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 rental basis from a partnership between John T.
White and Richard D. Cox. Messrs. White and Cox are directors of the Company,
and Mr. White is the Company's Chief Executive Officer.
The Company has substantial capacity available for growth of its business.
With proper staffing of pressmen and assistant pressmen, each printing press has
a potential of four 40-hour shifts per week. With six sheetfed offset presses
currently running only nine shifts at the printing plant, and with the five
screen presses, two digital and one off-line UV coater currently running only
eight shifts, there are a potentially fifteen and twenty-four shifts available
at the printing and display plants, respectively. Currently a portion of these
shifts is filled through overtime work by existing shifts, but the majority of
these available shifts represent additional capacity for the Company. The
existing finishing and pre-press equipment has adequate capacity to compliment
the available capacity on the printing presses. While the employment market in
Dallas, Texas, is tighter now than in recent years, the Company has not incurred
any substantial difficulty in attracting, training and retaining qualified
personnel.
INTELLECTUAL PROPERTY
The Company markets its services in the United States under the names,
"Performance Printing," "Performance Display," "Performance Marketing," and
"Performance Packaging." "Performance Printing," together with its logo, is a
federally registered service mark in the name of the Company.
EMPLOYEES
As of December 31, 1997, the Company had a total of 160 regular employees,
17 of whom were administrative personnel, 52 of whom were salaried or
commissioned employees and 108 of whom were hourly employees. In addition, the
Company employs up to 50 temporary employees as work requires, with almost all
of such temporary employees providing hand labor services. The Company does not
have any employees engaged in research and development. Performance Packaging
employs 18 regular employees and up to 350 temporary employees for hand labor
services as needed. None of its employees 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
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Company typically recycles waste paper and plastic, returns salvageable waste
ink to its supplier and contracts for the removal of other waste products. The
Company believes it is in substantial compliance with all applicable air
quality, waste disposal and other environmental-related rules and regulations as
well as with other general employee health and safety laws and regulations.
However, there can be no assurance that future changes in such laws and
regulations will not have a material effect on the Company's operations.
AFFILIATED COMPANIES
Although the Company has no subsidiaries, it owns 51% of Performance
Packaging. The remaining 49% is owned by Pinnacle, which is the primary customer
of Performance Packaging under the terms of the Packaging Agreement, which
terminates on March 31, 2002. The Packaging Agreement provides, in part, that
Pinnacle will have first call on 100% of the packaging capacity of Performance
Packaging in exchange for certain fixed cost payments. For the fiscal year ended
December 31, 1997, Pinnacle accounted for 96.4% of Performance Packaging sales.
Through its 51% stock ownership of Performance Packaging and two of three
members of the management committee (board of directors), Pinnacle has legal
control of Performance Packaging. However, pursuant to an Organizational
Agreement, the Company is responsible for the management of Performance
Packaging and John T. White, President of the Company, is President of
Performance Packaging. The Company believes that the Packaging Agreement will be
renewed at the end of its current term.
The Company also has three sister companies, Performance Label Corporation,
Tejas Label Corporation and Southwest UV Corporation (the "Equipment
Companies"), which are owned by shareholders with identical ownership to that of
the Company. All three of these companies were formed and have existed for the
sole purpose of owning printing equipment purchased from and financed by a
printing press manufacturer. Except for a limited guarantee for approximately
$158,000 of payments due between January and June of 1998, none of the
obligations of the Equipment Companies are guaranteed by or the responsibility
of the Company, though all of the presses owned by the Equipment Companies are
leased to the Company.
Effective March 31, 1998, most of the equipment owned by the Equipment
Companies was sold back to the equipment manufacturer, and the manufacturer
agreed to lease the equipment directly to the Company. The balance of the
equipment was transferred to the Company from one of the Equipment Companies in
exchange for the assumption by the Company of the debt owed by the Equipment
Company, to the equipment manufacturer. Prior to the date of the Offering, the
Equipment Companies will be dissolved.
COMPETITION
The Company competes with a number of other commercial printers, some of
which are subsidiaries or divisions of companies having greater financial
resources than those of the Company. Because of the nature of the Company's
business, most of the Company's competition is in the local printing market. The
major competitive factors in the Company's commercial printing business are
ongoing customer service, quality of finished products and price. Customer
service often is dependent on production and distribution capabilities and
availability of printing time on equipment which is appropriate in size and
function for a given project. In addition, competition in the commercial
printing area is based upon the ability to perform the services described with
speed and accuracy. Price and the quality of supporting services are also
important in this regard. Performance Printing believes it competes effectively
on all of these bases. The Company intends to participate in the consolidation
taking place in the printing industry by acquiring printing companies in several
markets throughout the United States. See "-Business Strategy" and "-Industry
Background."
LEGAL PROCEEDINGS
From time to time the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. There are no
pending suits or threatened suits against the Company at this time, though the
Company is the plaintiff in four suits for collection of past due accounts. The
Company is not aware of any pending litigation that is likely to have a
significant negative impact on the business, income, assets or operation of the
Company.
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While the Company maintains insurance coverage against potential claims in
an amount which it believes to be adequate, there can be no assurance that the
Company's insurance coverage will be adequate to cover all liabilities arising
out of such claims or that any such claims will be covered by the Company's
insurance. While the outcome of lawsuits or other proceedings against the
Company cannot be predicted with certainty, the Company does not believe these
matters will have a material adverse effect on its business or financial
position.
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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 February to August 1995, he was a consultant for Business
Records Corporation. From November, 1990 to February, 1995, he was the Vice
President of Finance and Accounting for Great American Clubs, Inc., a
hospitality company, and an accounting manager for the international public
accounting firm of KPMG Peat Marwick from August, 1985 to December, 1990. He is
a certified public accountant with 12 years of accounting and finance experience
and two years of printing experience.
Gary H. Homsey has served as Vice President-Marketing for the Company's three
divisions since January, 1993. Mr. Homsey also manages national phone sales and
operates Performance Marketing, an in-house advertising and public relations
agency. From 1977 through 1992, he served as president and creative director of
Homsey Advertising & Public Relations, Inc.
Greg White has served as Vice President-Sales for the Company since August,
1997. Mr. White joined the Company in 1991 and has been the top sales producer
at the Company for the past three years. Mr. White is the brother of John T.
White.
Richard D. Cox has served as a director since 1991. Mr. Cox has been an attorney
and partner with Brown McCarroll & Oaks Hartline in Dallas since 1989.
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.
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Steven M. Lilly has served as a director of the Company since 1996. Since
August, 1991, Mr. Lilly has been the President and Chief Executive Officer of
Promotional Services International, Inc., a promotional advertising agency, in
Atlanta, Georgia. He has ten years of printing industry experience.
Joseph E. Pate has been a director of the Company since 1991. Mr. Pate was the
operations manager at VidPro International, Inc, a point-of-purchase display
company from August 30, 1996 until April 3, 1998 when he rejoined the Company as
a sales representative. Mr. Pate was a founding partner and vice president
of the Company from 1981 to 1996.
BOARD OF DIRECTORS
The Board of Directors of the Company consists of six members. Each
director will hold office until the annual meeting of the shareholders of the
Company next following his election or until his successor is elected and
qualified.
Directors of the Company do not receive compensation for serving as
directors. All directors of the Company are reimbursed for out-of-pocket
expenses incurred in attending meetings of the Board of Directors or committees
thereof, and for other expenses incurred in their capacities as directors of the
Company. Directors will also be eligible to participate in the Company's stock
option plan. See "Stock Option Plan."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established two committees: a Compensation
Committee and an Audit Committee. The Compensation Committee, currently
comprised of Messrs. Daulton, Lilly and Cox, is responsible for reviewing and
making recommendations to the Board of Directors with 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:
<TABLE>
<CAPTION>
Annual Compensation
Fiscal All Other
Name and Principal Position Year Salary Bonus Compensation (1)
- --------------------------- ---- ------ ----- ----------------
<S> <C> <C> <C> <C>
John T. White 1997 $228,000 $0 $950
President and CEO 1996 227,932 0 0
1995 185,092 0 0
W. Chris Pumpelly 1997 $142,800 $0 $950
Vice President - Business Development 1996 148,957 0 0
and Chairman of the Board 1995 157,373 0 0
Gary Homsey 1997 $131,461 $0 $950
Vice President - Marketing 1996 132,336 0 0
1995 128,654 0 0
Greg White 1997 $199,999 $0 $950
Vice President - Sales 1996 126,890 0 0
1995 114,838 0 0
</TABLE>
Amount consists of matching 401(k) contributions of $950.
32
<PAGE> 33
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.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
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.
33
<PAGE> 34
CERTAIN TRANSACTIONS
In 1997, Messrs. White and Pumpelly, executive officers and directors of
the Company, guaranteed two printing press equipment lease agreements for the
Company. The leases provide for level rental payments for 84 months with an
option to purchase the equipment at the end of the lease terms for the fair
market value of the equipment. While the Company has an option to purchase the
presses for their fair market value at the end of the 84 month lease terms, the
guaranty agreements provide that Messrs. White and Pumpelly are obligated to
buy, and an equipment manufacturer is obligated to sell, the presses for 25% of
the initial cost of the presses. It is anticipated that prior to the Offering,
the Company will convert the press leases to outright purchases under option
agreements currently in place, in which event the obligations of Messrs. White
and Pumpelly and an equipment manufacturer relating to the mandatory press
purchases after 84 months will lapse. In the event the Company does not elect to
convert the leases to purchases, the Company and Messrs. White and Pumpelly
expect that the Company will purchase the presses at the same price from either
an equipment manufacturer or Messrs. White and Pumpelly at the end of the 84
month lease term.
The Equipment Companies, which are owned by shareholders with identical
ownership to that of the Company, have existed for the sole purpose of owning
printing equipment purchased from and financed by a printing press manufacturer.
Except for a limited guarantee for approximately $158,000 of payments due
between January and June of 1998, none of the obligations of the Equipment
Companies are guaranteed by, or the responsibility of, the Company though all of
the presses owned by the Equipment Companies are leased to the Company.
Effective March 31, 1998, most of the equipment owned by the Equipment
Companies was sold back to the equipment manufacturer, and the manufacturer
agreed to lease the equipment directly to the Company. The balance of the the
equipment was transferred to the Company from one of the Equipment Companies in
exchange for the assumption by the Company of the debt owed by the Equipment
Company, to the equipment manufacturer. Prior to the date of the Offering, the
Equipment Companies will be dissolved.
Messrs. White and Pumpelly have guaranteed substantially all of the
Company's debt and equipment lease obligations.
The Company rents its corporate office from a partnership between Messrs.
White and Cox. The 9,200 square foot single tenant office building has been
rented under a verbal tenancy at will. Rental payments to the partnership by the
Company were $85,487 in 1995, $82,536 in 1996 and $83,392 in 1997.
On December 1, 1997, the Company issued an aggregate of $200,000 principal
amount of unsecured notes (the "1997 Notes") which are due December 1, 2000 and
bear interest at 14%. The 1997 Notes were used to retire $200,000 of
indebtedness of the Company to John T. White which was incurred in 1992 to
provide working capital to the Company. The following persons purchased the 1997
Notes for the amounts indicated: John T. White $78,196; Mrs. Diana Peterson, a
shareholder, $30,075; C. Thomas Daulton, director, $19,549; Mrs. Lucy Cox,
mother of Richard D. Cox, $22,180; and Richard D. Cox, a director, $50,000.
In connection with the issuance of the 1997 Notes, the Company entered into
a Warrant for Stock Purchase (the "1997 Note Warrants") with each purchaser of
the 1997 Notes which entitles the note purchasers to purchase a specified
percentage of the Company's outstanding stock, unless the Company pays a
cancellation fee to the note purchaser. The Company 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 promissory notes (the "1996 Notes") in
the aggregate principal amount of $350,000 secured by the Company's 51% interest
in Performance Packaging. The 1996 Notes are due June, 1999 and the outstanding
principal amount of the 1996 Notes bears interest at 14%. The 1996 Notes were
used to provide working capital to the Company. The following persons purchased
the 1996 Notes for the amounts indicated: White, Cox, Larson, P.C., Retirement
Trust (on behalf of John White, Chief Executive
34
<PAGE> 35
Officer and a director) $100,000; Richard Cox $50,000; Mrs. 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."
During the fiscal years 1997 and 1996 the Company sold goods and services
to Promotional Services International, Inc., ("PSI"), in the amounts of $444,235
and $6,484, respectively. The Company continues to provide services to PSI.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company that could have been obtained from
unaffiliated parties. All future transactions, including loans and compensation
between the Company and its officers, directors, principal shareholders and
affiliates, will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested outside directors, and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
35
<PAGE> 36
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) - - -
Michael Short (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 (ten
persons)
</TABLE>
- ----------------------------
(1) The address of Messrs. John T. White, Pumpelly, Homsey, Short, Oesch and
Greg White is 3012 Fairmount, Dallas, Texas 75201.
(2) The address of Mr. Cox is 300 Crescent Court, Suite 1400, Dallas, Texas
75201.
(3) The address of Mr. Pate is 1409 San Rafael, Dallas, Texas 75218.
(4) The address of Mrs. Peterson is 111 E. Broadway, #1080, Salt Lake City,
Utah 84111.
(5) The address of Mr. Daulton is 1901 N. Akard, Dallas, Texas 75201.
(6) The address of Mr. Lilly is 1000 Holcomb Woods Parkway, Suite 4408,
Roswell, Georgia 30076.
36
<PAGE> 37
DESCRIPTION OF SECURITIES
CAPITAL STOCK OF THE COMPANY
Performance Printing's authorized capital stock consists of 20,000,000
shares of Common Stock, $.01 par value, and 3,000,000 shares of preferred stock,
$1.00 par value per share ("Preferred Stock").
UNITS
Each Unit consists of one share of Common Stock and one Warrant. The Shares
and Warrants included in the Units may be not be traded separately unless
separated upon three days notice from the Representative to the Company
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.
At December 31, 1997, the Company had six shareholders.
PREFERRED STOCK
The Company may issue Preferred Stock in one or more series and the Board
of Directors may designate the dividend rate, voting rights and other rights,
preferences and restrictions of each series. It is not possible to state the
actual effect of the issuance of any shares of Preferred Stock upon the rights
of holders of the Common Stock until the Board of Directors determines the
specific rights of the holders of such Preferred Stock. However, the effects
might include, among other things, restricting dividends on the Common Stock,
diluting the voting power of the Common Stock, impairing the liquidation rights
of the Common Stock and delaying or preventing a change in control of the
Company without further action by the shareholders. The Company presently has no
plans to issue any shares of Preferred Stock.
WARRANTS
The Warrants will be issued in registered form pursuant to an agreement
dated the date of this Prospectus (the "Warrant Agreement"), between the Company
and Securities Transfer Corporation, Dallas, Texas, as Warrant Agent (the
"Warrant Agent"). The following discussion of certain terms and provisions of
the Warrants is qualified in its entirety by reference to the Warrant Agreement.
A form of the certificate representing the Warrants which forms a part of the
Warrant Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
Each Warrant entitles the registered holder to purchase one share of Common
Stock. The Warrants are exercisable at a price of $7.50, which exercise price
has been arbitrarily determined by the Company and the Representative, subject
to certain adjustments. The Warrants are entitled to the benefit of adjustments
in their
37
<PAGE> 38
exercise prices and in the number of shares of Common Stock or other securities
deliverable upon the exercise thereof in the event of a stock dividend, stock
split, reclassification, reorganization, consolidation or merger.
The Warrants may be exercised at any time after the separation from the
Units until the close of business five years from the date hereof, unless such
period is extended by the Company. After the expiration date, Warrant holders
shall have no further rights. Warrants may be exercised by surrendering the
certificate evidencing such Warrant, with the form of election to purchase on
the reverse side of such certificate properly completed and executed, together
with payment of the exercise price and any transfer tax, to the Warrant Agent.
If less than all of the Warrants evidenced by a warrant certificate are
exercised, a new certificate will be issued for the remaining number of
Warrants. Payment of the exercise price may be made by cash, bank draft or
official bank or certified check equal to the exercise price.
Warrant holders do not have any voting or any other rights as shareholders
of the Company. The Company has the right at any time beginning six months from
the date hereof to redeem the Warrants, at a price of $.05 per Warrant, by
written notice to the registered holders thereof, mailed not less than 30 nor
more than 60 days prior to the Redemption Date. The Company may exercise this
right only if the closing bid price for the Common Stock for seven trading days
during a 10 consecutive trading day period ending no more than 15 days prior to
the date that the notice of redemption is given, equals or exceeds $10, subject
to adjustment. If the Company exercises its right to call the Warrants for
redemption, such Warrants may still be exercised until the close of business on
the day immediately preceding the Redemption Date. If any Warrant called for
redemption is not exercised by such time, it will cease to be exercisable, and
the holder thereof will be entitled only to the repurchase price. Notice of
redemption will be mailed to all holders of Warrants of record at least 30 days,
but not more than 60 days, before the Redemption Date. The foregoing
notwithstanding, the Company may not call the Warrants at any time that a
current registration statement under the Act is not then in effect. Any
redemption of the Warrants during the one-year period commencing on the date of
this Prospectus shall require the written consent of the Representative.
The Warrant Agreement permits the Company and the Warrant Agent without the
consent of Warrant holders, to supplement or amend the Warrant Agreement in
order to cure any ambiguity, manifest error or other mistake, or to address
other matters or questions arising thereafter that the Company and the Warrant
Agent deem necessary or desirable and that do not adversely affect the interest
of any Warrant holder. The Company and the Warrant Agent may also supplement or
amend the Warrant Agreement in any other respect with the written consent of
holders of not less than a majority in the number of the Warrants then
outstanding; however, no such supplement or amendment may (i) make any
modification of the terms upon which the Warrants are exercisable or may be
redeemed; or (ii) reduce the percentage interest of the holders of the Warrants
without the consent of each Warrant holder affected thereby.
In order for the holder to exercise a Warrant, there must be an effective
registration statement, with a current prospectus on file with the Commission
covering the shares of Common Stock underlying the Warrants, and the issuance of
such shares to the holder must be registered, qualified or exempt under the laws
of the state in which the holder resides. If required, the Company will file a
new registration statement with the Commission with respect to the securities
underlying the Warrants prior to the exercise of such Warrants and will deliver
a prospectus with respect to such securities to all holders thereof as required
by Section 10(a)(3) of the Act. See "Risk Factors-Necessity to Maintain Current
Prospectus."
TRANSFER AGENT AND REGISTRAR; WARRANT AGENT
The Transfer Agent and Registrar and Warrant Agent for the Company's Common
Stock and Warrants is Securities Transfer Corporation, Dallas, Texas.
38
<PAGE> 39
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 "restricted shares" held by the current shareholders of the Company
have been held longer than two years and are qualified for sale pursuant to Rule
144 beginning 90 days after the date of this Prospectus.
The Company intends to file a registration statement under the Act to
register all shares of Common Stock issuable pursuant to the Company's Stock
Option Plan. See "Management -- Stock Option Plan." Subject to the completion of
the one-year period described above, shares of Common Stock issued after the
effective date of such registration statement upon the exercise of awards issued
under such plan generally will be eligible for sale in the public market.
The Company cannot predict the effect, if any, that sales of restricted
securities or the availability of such securities for sale could have on the
market price, if any, prevailing from time to time. Nevertheless, sales of
substantial amounts of the Company's securities, including the securities
offered hereby, could adversely affect prevailing market prices of the Company's
securities and the Company's ability to raise additional capital by occurring at
a time when it would be beneficial for the Company to sell securities.
39
<PAGE> 40
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom First London Securities Corporation is acting
as Representative, have severally agreed to purchase from the Company an
aggregate of 1,200,000 Units. The number of Units which each Underwriter has
agreed to purchase is set forth opposite its name.
<TABLE>
<CAPTION>
NUMBER OF
NAME UNITS
---- ------------
<S> <C>
First London Securities Corporation...................... 1,200,000
------------
TOTAL 1,200,000
============
</TABLE>
The Units are offered by the Underwriters subject to prior sale, when, as
and if delivered to and accepted by the Underwriters and subject to approval of
certain legal matters by counsel and certain other conditions. The Underwriters
are committed to purchase all Units offered by this Prospectus, if any are
purchased.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Units offered hereby to the public at the
offering price set forth on the cover page of this Prospectus. The
Representative has advised the Company that the Underwriters propose to offer
the Units through members of the NASD, and may allow a concession, in their
discretion, to certain dealers who are members of the NASD and who agree to sell
the Units in conformity with the NASD Conduct Rules. Such concessions shall not
exceed the amount of the underwriting discount that the Underwriters are to
receive. The public offering price, concession and reallowance to dealers will
not be reduced by the Representative until after the Offering is complete. No
such reduction shall change the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.
The Company has granted to the Representative an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 180,000
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 Units being offered by
this Prospectus.
Officers and directors of the Company may introduce the Representative to
persons to consider the Offering and purchase Units either through the
Representative, other Underwriters, or through participating dealers. The
Underwriters have not reserved any Units for sale to persons introduced to the
Underwriters by officers and directors. In this connection, officers and
directors will not receive any commissions or any other compensation.
The Company has agreed to pay the Representative a commission of 10% of the
gross proceeds of the offering (the "Underwriting Discount"), including the
gross proceeds from the sale of the Over-Allotment Option, if exercised. In
addition, the Company has agreed to pay to the Representative a non-accountable
expense allowance of two percent (2%) of the gross proceeds of this Offering,
including proceeds from any Units purchased pursuant to the Over-Allotment
Option. The Representative's expenses in excess of the non-accountable expense
allowance will be paid by the Representative. To the extent that the expenses of
the Representative are less than the amount of the non-accountable expense
allowance received, such excess shall be deemed to be additional compensation to
the Representative. The Company has also agreed to pay the Representative a fee
of equal to 5% of the gross proceeds received by the Company from the exercise
of the Warrants and 5% of the aggregate redemption price for Warrants redeemed.
Such fee will be paid to the Representative no earlier than 12 months after the
effective date of this Offering. Additionally, the Representative
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<PAGE> 41
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 Units
offered by the Company hereby.
Prior to the Offering, there has been no public market for the Shares of
Common Stock or Warrants of the Company. Consequently, the initial public
offering price for the Units, and the terms of the Warrants (including the
exercise price of the Warrants), have been determined by negotiation between the
Company and the Representative. Among the factors considered in determining the
public offering price were the history of, and the prospect for, the Company's
business, an assessment of the Company's management, its past and present
operations, the Company's development and the general condition of the
securities market at the time of the Offering. The initial public offering price
does not necessarily bear any relationship to the Company's assets, book value,
earnings or other established criteria of value. Such price is subject to change
as a result of market conditions and other factors, and no assurance can be
given that a public market for the Shares or Warrants will develop after the
close of the Offering, or if a public market in fact develops, that such public
market will be sustained, or that the Shares or Warrants can be resold at any
time at the offering or any other price. See "Risk Factors."
At the closing of this Offering, the Company will issue to the
Representative or persons related to the Representative, for nominal
consideration, a Representative's Warrant to purchase up to 120,000 Units
consisting of 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 $6.15 per
Unit, subject to adjustment. Each Underlying Warrant will be exercisable for a
four year period commencing one year from the date of this Prospectus at an
exercise price of $7.50 per share of Common Stock. The number of Units subject
to the Representative's Warrant will not exceed 10% of the Units offered hereby
to the public, excluding the securities subject to the Representative's
Warrant. The Representative's Warrants will not be transferable for one year
from the date of this Prospectus, except (i) to officers of the Representative
or to officers and partners of the other Underwriters, or selected dealers
participating in this Offering; thereof; (ii) by will; or (iii) by operation of
law.
The Representative's Warrants contain provisions providing for appropriate
adjustment in the event of any merger, consolidation, recapitalization,
reclassification, stock dividend, stock split or similar transaction. The
Representative's Warrants contain net issuance provisions permitting the holders
thereof to elect to exercise the Representative's Warrants in whole or in part
and instruct the Company to withhold from the securities issuable upon exercise,
a number of securities, valued at the current fair market value on the date of
exercise, to pay the exercise price. Such net exercise provision has the effect
of requiring the Company to issue shares of Common Stock without a corresponding
increase in capital. A net exercise of the Representative's Warrants will have
the same dilutive effect on the interests of the Company's shareholders as will
a cash exercise. The Representative's Warrants do not entitle the holders
thereof to any rights as a shareholder of the Company until such
Representative's Warrant is exercised and shares of Common Stock are purchased
thereunder.
The Company has granted to the holders of the 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 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."
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<PAGE> 42
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.
42
<PAGE> 43
GLOSSARY
The following terms used in this Prospectus have the specialized meanings
in the printing industry set forth below:
"Conventional Sheetfed Offset Printing": Offset printing of sheets of paper
using inks and coatings that cure when exposed through oxidation.
"Large-Format Digital Printing": Digital printing of large sheets (in
excess of 28" x 40") of paper, plastics and other Substrates. Digital
printing is printing by plateless imaging systems that are imaged by
digital data from prepress systems.
"Large-Format Screen Printing": Screen printing of large sheets (in excess
of 28" x 40") of paper, plastics and other Substrates. Screen printing is
printing by use of fine-meshed screens through which ink is squeezed onto
the printing substrate.
"Off-line Special Coatings": Applying coatings to printed sheets on a
coating machine after the sheets have been printed on a printed press.
Special coatings are those which are not commonly applied by a printing
press, such as coatings which are: UV (applied to sheets printed using
conventional offset printing), glow-in-the-dark, sealed scent and
"thermochromatic" (change colors when exposed to heat).
"UV Sheetfed Offset Printing": Offset printing of sheets of paper, plastics
and other Substrates using inks and coatings which cure when exposed to
ultraviolet light. Offset printing is printing by use of a blanket cylinder
to transfer an image from the image carrier to the substrate.
"Offset Printing": Printing by use of a blanket cylinder to transfer an
image from the image carrier to the substrate.
"PETG": Polyethelene terephtalate-glycol a petroleum based Substrates.
"Plastic Forming": Forming of plastic Substrates (both printed and
unprinted) using heat and vacuums.
"Substrates": The material on which the printing is placed.
"UV Curing of Inks and Coatings": Curing of inks and coatings on sheets of
paper, plastics and other Substrates using inks and coatings which cure
when exposed to ultraviolet light.
UV sheetfed Offset Printing": Offset printing of sheets of paper, plastics
and other Substrates using inks and coatings which cure when exposed to
ultraviolet light.
43
<PAGE> 44
PERFORMANCE PRINTING CORPORATION
Table of Contents
<TABLE>
<CAPTION>
Page
----------------------
<S> <C>
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets F-3
Statements of Operations F-4 to F-5
Statements of Changes in Stockholders' Equity F-6
Statements of Cash Flows F-7 to F-8
Notes to Financial Statements F-9 to F-17
</TABLE>
F-1
<PAGE> 45
{PREFACE} This report is contingent upon the success of the public offering. We
expect to be in a position to issue this report upon completion of the offering
and the subsequent effectiveness of the stock split.
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Performance Printing Corporation
We have audited the accompanying balance sheets of Performance Printing
Corporation (the "Company") as of December 31, 1997 and 1996, and the related
statements of operations 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> 46
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 71,002 84,310
---------- ----------
Total current assets 5,889,599 4,684,659
---------- ----------
Property and equipment, net 3,643,937 3,933,257
---------- ----------
Other assets:
Deferred offering costs 75,000 --
Notes receivable-long term 73,395 240,591
Equity method investment 18,333 65,206
Deposits and other assets 122,091 121,734
---------- ----------
288,819 427,531
---------- ----------
Total assets $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 (net of discount for the issuance
of stock warrants of $139,074 and $100,415, respectively) 244,481 176,604
---------- ----------
Total long-term liabilities 2,841,483 2,914,860
---------- ----------
Commitments and contingencies (Notes 5, 6, 9, 10 and 11)
Stockholders' equity (Note1):
Common stock; 20,000,000 shares authorized; 4,400,000
issued and outstanding; par value of $.01 per share 44,000 44,000
Additional paid-in capital 641,824 603,165
Retained earnings 700,484 279,715
---------- ----------
1,386,308 926,880
---------- ----------
Total liabilities and stockholders' equity $9,822,355 $9,045,447
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 47
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 sale of property and equipment 191,423 90,727
------------ ------------
(432,910) (346,564)
------------ ------------
Income before extraordinary gain 551,465 171,610
Extraordinary gain from extinguishment of debt -- 41,750
------------ ------------
Net income $ 551,465 $ 213,360
============ ============
Pro forma unaudited income tax information (Note 1):
Income before extraordinary gain $ 551,465 $ 171,610
Pro forma provision for federal income taxes 189,638 67,159
------------ ------------
Pro forma income before extraordinary gain 361,827 104,451
Pro forma extraordinary gain from extinguishment
of debt (net of federal income taxes of $14,195) -- 27,555
------------ ------------
Pro forma net income $ 361,827 $ 132,006
============ ============
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 48
PERFORMANCE PRINTING CORPORATION
Statements of Operations
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Pro forma earnings per share information (Note 1):
Basic earnings per common share:
Income before extraordinary gain $ 0.08 $ 0.02
Extraordinary gain from extinguishment of debt -- 0.01
---------------- ----------------
Net income $ 0.08 $ 0.03
================ ================
Diluted earnings per common share
Income before extraordinary gain $ 0.08 $ 0.02
Extraordinary gain from extinguishment of debt -- 0.01
---------------- ----------------
Net income $ 0.08 $ 0.03
================ ================
Weighted-average common shares:
Basic 4,400,000 4,400,000
Adjusted common shares effect of dilutive warrants 161,480 77,000
---------------- ----------------
Diluted 4,561,480 4,477,000
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 49
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 $ 44,000 $ 502,750 $ 66,355 $ 613,105
Issuance of stock warrants -- 100,415 -- 100,415
Net Income -- -- 213,360 213,360
----------- ----------- ----------- -----------
Balance, December 31, 1996 $ 44,000 $ 603,165 $ 279,715 $ 926,880
Issuance of stock warrants -- 38,659 -- 38,659
Net Income -- -- 551,465 551,465
Stockholders' Distributions -- -- (130,696) (130,696)
----------- ----------- ----------- -----------
Balance, December 31, 1997 $ 44,000 $ 641,824 $ 700,484 $ 1,386,308
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 50
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)
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 51
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>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE> 52
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-9
<PAGE> 53
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 be recorded as a reduction of the net proceeds of
the offering.
Deferred revenue
Deferred revenue consists primarily of payments received in advance from
customers. The Company recognizes revenue as the goods and services are
provided.
Federal income taxes
The shareholders of the Company have elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code, whereby they are to include their
respective shares of the Company's income or loss in their individual income tax
returns. Therefore, no provision for Federal income taxes has been provided in
the financial statements.
Pro forma income taxes and earnings per share
The unaudited pro forma effects of income tax expense as if the Company had been
a C corporation have been computed based on an effective tax rate of 34% in
effect for the years ended December 31, 1997 and 1996.
The pro forma earnings per share shows the effect of a 440 to 1 stock split. The
stock split will occur upon completion of the offering to maintain the current
stockholders proportionate share of ownership. All common stock information has
been retroactively adjusted for the effect of the stock split.
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 12.5% of total revenue. These customers have balances included in accounts
receivable of approximately $1,865,000. The Company does not require collateral
or other security to support the accounts receivable subject to credit risk.
F-10
<PAGE> 54
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-11
<PAGE> 55
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 Service
Amounts Lives Amounts Lives
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Machinery and equipment $ 3,959,512 1-10 years $ 4,528,553 1-10 years
Furniture and fixtures 615,994 1-7 years 603,332 1-7 years
Leasehold improvements 575,928 1-6 years 565,579 1-6 years
Vehicles 204,163 3-4 years 170,889 3-4 years
Building and improvements 1,514,948 31 years 1,414,442 31 years
Land 400,000 400,000
----------- ----------
7,270,545 7,682,795
Less accumulated depreciation
and amortization (3,626,608) (3,749,538)
----------- ----------
$ 3,643,937 $3,933,257
=========== ==========
</TABLE>
Note 4 - Short-term Note Payable
Amounts drawn on a $3,500,000 revolving line of credit totaled $2,001,610 and
$2,419,670 at December 31, 1997 and 1996, respectively, bearing interest at the
bank's prime rate (8.5%) plus 1%. The revolving line of credit is guaranteed by
a stockholder and is collateralized by all of the Company's assets. The credit
arrangement obligates the Company to certain positive and negative covenants
such as the maintenance of financial ratios, defined equity levels and
limitations on capital expenditures and officers' salaries. At December 31, 1997
and 1996, the Company was in compliance with positive and negative covenants.
Note 5 - Long-term Debt
During the year ended December 31, 1997, the Company refinanced its $1,260,000
interim note payable for its building with permanent financing. The permanent
financing consists of three notes issued by the original lender totaling
$1,344,000. The repayment terms are noted below.
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
Note payable maturing March 2017, payable in
monthly installments of principal and interest of
$6,989, bearing interest at 10.25%, collateralized
by the deed of trust for the building. $ 688,135 $ --
</TABLE>
F-12
<PAGE> 56
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 October 2016, payable in
monthly installments of principal and interest of
$12,368, commencing in 1997, bearing interest at
prime (8.5%) plus 2%, collateralized by the deed
of trust for the building and guaranteed by
certain stockholders. Note was refinanced during
1997. -- 1,260,000
Note payable maturing in April 2002, payable in
monthly installments of principal and interest of
$17,118, bearing interest at 10.25%,
collateralized by machinery and equipment. 719,896 --
Note payable maturing in August 2002, payable in
monthly installments of principal and interest of
$4,781, bearing interest at 10%, collateralized by
machinery and equipment. 213,786 --
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-13
<PAGE> 57
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
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-14
<PAGE> 58
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 5 - Long-term Debt (Continued)
Aggregate principal maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Years ended December 31:
------------------------
<S> <C>
1998 $ 503,266
1999 $ 531,178
2000 $ 439,856
2001 $ 408,860
2002 $ 176,529
</TABLE>
Note 6 - Debenture Notes Payable
In December 1997 and July 1996, respectively, the Company issued debenture notes
payable to certain officers, directors and other related parties totaling
$200,000 and $350,000. The debentures bear interest at 14.0% per annum and
provide for monthly payments of principal and interest of $12,800, commencing in
August 1996 and continuing through December 2000. The Company has pledged as
collateral its 51% ownership interest in Performance Packaging, L.C. (see Note
10) together with all future profits therefrom for the 1996 issued debenture
notes payable. The 1997 issued debenture notes payable are unsecured.
Aggregate principal maturities of debenture notes payable are as follows:
<TABLE>
<CAPTION>
Years ended December 31:
------------------------
<S> <C>
1998 $ 91,199
1999 $ 250,439
2000 $ 133,116
</TABLE>
The Company issued stock warrants to the debenture holders as additional
consideration. The warrants issued in relation to the 1996 debentures make
available 3.5% of the then outstanding stock of the Company and become
exercisable in June 1999. The warrants issued in relation to the 1997 debentures
make available 2.0% of the then outstanding stock of the Company and become
exercisable in December 2000. The Company may cancel the debenture holders'
rights to purchase the warrant stock at any time prior to June 1999 and December
2000 for debentures issued in 1996 and 1997, respectively. The cancellation fees
are recorded at the fair value of the warrants and are reflected as a discount
on the debenture notes payable. The discount will be amortized to interest
expense over the life of the debenture notes payable. The cancellation fees
under these agreements would be assessed as follows:
<TABLE>
<S> <C>
May 1998 $ 139,074
May 1999 $ 215,892
May 2000 $ 90,579
</TABLE>
F-15
<PAGE> 59
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 7 - 401(k) Retirement Plan
During 1997, the Company adopted a 401(k) retirement plan (the "Plan"). The Plan
covers all full-time employees with at least one year of service. Employees can
contribute a portion of their salary to the Plan within the limits set in the
Internal Revenue Code. The Company matches employee contributions at ten cents
per dollar contributed. In addition to the matching contribution, the Company
may make a discretionary contribution to the Plan. Employees are fully vested in
their contributions and become fully vested in the employer contributions on a
seven-year vesting schedule.
Employer matching contributions to the Plan for the year ended December 31, 1997
of $19,500 were charged to expense. No discretionary contribution was made to
the Plan.
Note 8 - Related Party Transaction
Notes receivable includes an $87,150 note from an employee due in monthly
installments of $880. The employee had previously been a customer of the Company
and upon employment, the related account receivable was converted to a note
receivable.
Note 9 - Operating Leases
The Company conducts its display division operations in office and manufacturing
space leased through December 2000 for $10,540 monthly. The Company also leases
its office facility from a stockholder for $6,100 monthly. There is no set lease
term for this facility; the Company anticipates it will occupy the space
indefinitely. The approximate future minimum rental commitments for the
facilities leases for the years ended December 31 are as follows:
<TABLE>
<S> <C>
1998 $ 199,692
1999 199,692
2000 199,692
2001 73,200
2002 73,200
--------------------
Total $ 745,476
====================
</TABLE>
During 1997, the Company entered into five equipment leases for printing presses
with the manufacturer. The leases are subject to cancellation from time to time
during the term of the lease. The leases provide for monthly payments ranging
from $16,000 to $24,000 and expire from 2000 to 2004. Lease expense for the
years ended December 31, 1997 and 1996, was $765,816 and $433,151, respectively.
F-16
<PAGE> 60
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-17
<PAGE> 61
{Description of pictures and text on inside of the back cover of the prospectus}
Solo page of inside cover:
Picture #1: Products manufactured by the Company.
Picture #2: Products manufactured by the Company.
Picture #3: Products manufactured by the Company.
Text:
(Logo)
Performance offers a wide range of products and services to companies all over
the country. Our customers include, among others, food and beverage companies,
promotional and media advertising agencies, sports marketing companies, hi-tech
manufacturers and software developers, office-product retailers, airlines and
other printers and display companies.
<PAGE> 62
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information....................... 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.................................. 27
Certain Transactions........................ 30
Principal Shareholders...................... 32
Description of Capital
Stock..................................... 33
Shares Eligible For
Future Sale............................... 35
Underwriting................................ 36
Legal Matters............................... 38
Experts..................................... 38
Index to Financial Statements .............. F-1
</TABLE>
UNTIL _____________, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,2000,000 UNITS CONSISTING OF 1,200,000 OF
COMMON STOCK AND
1,200,000 REDEEMABLE COMMON
STOCK WARRANTS
PERFORMANCE PRINTING CORPORATION
PROSPECTUS
________, 1998
FIRST LONDON SECURITIES CORPORATION
<PAGE> 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act provides generally and
in pertinent part that a Texas corporation may indemnify its directors and
officers against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by them in connection with any suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) if, in connection with the
matters in issue, they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, in connection with any criminal suit or proceeding, if in connection with
the matters in issue, they had no reasonable cause to believe their conduct was
unlawful.
The registrant's Articles of Incorporation provide that a director of the
registrant shall not be liable to the registrant or its shareholders for any act
or omission in such director's capacity as a director to the fullest extent
permitted by Texas statutory or decisional law.
The Company's Bylaws provide that the Company shall indemnify each of its
directors and officers, acting in such capacity, so long as such person acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Company. Such indemnification may be made only upon
a determination that such indemnification is proper in the circumstances because
the person to be indemnified has met the applicable standard of conduct to
permit indemnification under the law. The Company is also required to advance to
such persons payment for their expenses incurred in defending a proceeding to
which indemnification might apply, provided the recipient provides an
undertaking agreeing to repay all such advanced amounts if it is ultimately
determined that he is not entitled to be indemnified.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration and NASD filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 5,777
NASD filing fee................................................... 2,387
Boston Stock Exchange ............................................ 15,000
Nasdaq SmallCap Market listing fee................................ 10,000
Underwriters' non-accountable expense allowance................... 123,000
Legal fees and expenses........................................... 175,000
Accounting fees and expenses...................................... 35,000
Printing and engraving expenses................................... 85,000
Transfer agent and registrar fees and expenses.................... 4,000
Blue Sky fees and expenses........................................ 30,000
Miscellaneous expenses........................................... 14,836
----------
Total ....................................................... $ 500,000
</TABLE>
II - 1
<PAGE> 64
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Registrant during the
last three years involving the sale of securities which were not registered
under the Securities Act:
In July, 1996, the Company issued promissory notes secured by the Company's
interest in Performance Packaging (the "1996 Notes") in the aggregate principal
amount of $350,000. The 1996 Notes are due June, 1999 and the outstanding
principal amount of the 1996 Notes bears interest at 14%. The 1996 Notes were
used to provide working capital to the Company. The 1996 Notes were issued to
six persons, all of whom were officers or directors of the Company or family
members. In connection with the issuance of the 1996 Notes, the Company entered
into a Warrant for Stock Purchase (the "1996 Note Warrants") which entitled the
note purchasers to purchase a specified percentage of the Company's outstanding
stock, unless the Company pays a cancellation fee to the note purchaser.
The transaction was exempt from registration pursuant to Section 4 (2) of
the Act for transactions not involving a public offering. Each of the purchasers
was a sophisticated investor as that term is recognized under the Act and had
access to corporate information through their positions with the Company or
through their family member who was an officer or director of the Company. No
underwriter was involved in the transaction and no compensation was paid to an
underwriter.
On December 1, 1997, the Company issued an aggregate of $200,000 principal
amount of unsecured notes (the "1997 Notes") which are due December 1, 2000 and
bear interest at 14%. The 1997 Notes were used to retire $200,000 of
indebtedness of the Company to Mr. John White which was incurred in 1992 to
provide working capital to the Company. The 1997 Notes were issued to five
persons, all of whom were officers or directors of the Company or family
members. In connection with the issuance of the 1997 Notes, the Company entered
into a Warrant for Stock Purchase (the "1997 Note Warrants") with each purchaser
of the 1997 Notes which entitles the note purchasers to purchase a specified
percentage of the Company's outstanding stock, unless the Company pays a
cancellation fee to the note purchaser.
The transaction was exempt from registration pursuant to Section 4 (2) of
the Act for transactions not involving a public offering. Each of the purchasers
was a sophisticated investor and had access to corporate information through
their positions with the Company or through their family member who was an
officer or director of the Company. No underwriter was involved in the
transaction and no compensation was paid to an underwriter.
II - 2
<PAGE> 65
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
1.1 Revised Form of Underwriting Agreement. (1)
3.1 Articles of Incorporation of Performance Printing
Corporation, as amended. (1)
3.2 Bylaws, as amended and restated, of Performance Printing
Corporation (1)
4.1 Revised Warrant Agreement(1)
5.1 Opinion of Garza & Staples, P.C. (3)
10.1 Performance Printing Corporation Stock Option Plan. (1)
10.2 Loan and Security Agreement by and among the Company and
Finova Capital Corporation, dated December 19, 1996. (3)
10.3 Representative's Warrant Agreement (1)
10.4 Commercial Lease Agreement between The Sigma Joint Venture
and Performance Printing Corporation (3)
10.5 Standard Commercial Lease between Beltline Quaker Limited
Partnership and Performance Printing Corporation (3)
10.6 First Renewal of Packaging Services Agreement dated April 1,
1997 (1)
10.7 Organization Agreement (1)
23.1 Consent of Travis Wolf L.L.P. (1)
23.2 Consent of Garza & Staples, P.C. (included in Exhibit 5.1).(3)
24.1 Power of Attorney (included on page II-4). (1)
27.1 Financial Data Schedule (1)
</TABLE>
- ----------------------
(1) Filed herewith
(2) To be filed by amendment
(3) Previously filed
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(b) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Act, the information omitted from the form of
prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The registrant hereby undertakes (1) to file, during
any period in which it offers or sells securities, a
post-effective amendment to this Registration
Statement, to include any prospectus required by
section 10(a)(3) of the Securities Act, to reflect in
the prospectus any facts or events which, individually
or together, represent a fundamental change in the
information in the Registration Statements, and to
include any additional or changed material information
on the plan of distribution; (2) that, for the purpose
of determining any liability under the Act of 1933, to
treat each post-effective amendment as a new
II - 3
<PAGE> 66
Registration Statement relating to the securities
offered herein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof; and (3) to file a post-effective
amendment to remove from registration any of the
securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising from the Act may be permitted
to directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirement of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Dallas,
State of Texas on April 8, 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 April 8, 1998.
II - 4
<PAGE> 67
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ W. Chris Pumpelly Chairman of the Board and Director
- ----------------------------------
W. Chris Pumpelly
/s/ John T. White Chief Executive Officer and Director
- ---------------------------------- (Principal Executive Officer)
John T. White
/s/ Russell V. Oesch Vice President of Finance and Chief Financial Officer
- ---------------------------------- (Principal Financial Officer)
Russell V. Oesch
/s/ C. Thomas Daulton * Director
- ----------------------------------
C. Thomas Daulton
/s/ Richard D. Cox * Director
- ----------------------------------
Richard D. Cox
/s/ Joseph E. Pate Director
- ----------------------------------
Joseph E. Pate
/s/Stephen M. Lilly * Director
- ----------------------------------
Stephen M. Lilly
</TABLE>
* By: John T. White
As Attorney in-Fact
/s/ John T. White
- ----------------------------------
II - 5
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
1.1 Revised Form of Underwriting Agreement. (1)
3.1 Articles of Incorporation of Performance Printing
Corporation, as amended. (1)
3.2 Bylaws, as amended and restated, of Performance Printing
Corporation (1)
4.1 Revised Warrant Agreement(1)
5.1 Opinion of Garza & Staples, P.C. (3)
10.1 Performance Printing Corporation Stock Option Plan. (1)
10.2 Loan and Security Agreement by and among the Company and
Finova Capital Corporation, dated December 19, 1996. (3)
10.3 Representative's Warrant Agreement (1)
10.4 Commercial Lease Agreement between The Sigma Joint Venture
and Performance Printing Corporation (3)
10.5 Standard Commercial Lease between Beltline Quaker Limited
Partnership and Performance Printing Corporation (3)
10.6 First Renewal of Packaging Services Agreement dated April 1,
1997 (1)
10.7 Organization Agreement (1)
23.1 Consent of Travis Wolf L.L.P. (1)
23.2 Consent of Garza & Staples, P.C. (included in Exhibit 5.1).(3)
24.1 Power of Attorney (included on page II-4). (1)
27.1 Financial Data Schedule (1)
</TABLE>
- ----------------------
(1) Filed herewith
(2) To be filed by amendment
(3) Previously filed
<PAGE> 1
EXHIBIT 1.1
1,200,000 UNITS
PERFORMANCE PRINTING CORPORATION
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
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 Units (the "Units"), each Unit consisting of one
share of Common Stock (the "Shares") and one Redeemable Common Stock Purchase
Warrant (the "Warrants"). The Units, 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 $7.50, subject
to possible adjustment, 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 Units (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:
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:
<PAGE> 2
(1) 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.
(2) 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.
(3) 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
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.
(4) 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
<PAGE> 3
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.
(5) The Securities 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 Representative's Warrants, the Representative's Units, the
Underlying Warrants, the shares of Common Stock issuable upon exercise of the
Common Stock Representative's 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 Representative's Warrant
Agreement.
(6) This Agreement, the Warrant Agreement and the Representative's
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
<PAGE> 4
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 Representative's Warrant Agreement, except such as may
be required under the Act or state securities laws, or as otherwise have been
obtained.
(7) 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.
(8) 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 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.
(9) 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.
(10) 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
<PAGE> 5
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.
(11) 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.
(12) 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,
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.
(13) 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.
(14) 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
<PAGE> 6
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.
(15) 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.
(16) 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.
(17) 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.
(18) 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.
(19) 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.
(20) 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.
(21) 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.
(22) 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.
(23) 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
<PAGE> 7
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.
(24) 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.
(25) 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.
(26) 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. 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.
(27) 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.
(28) 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:
<PAGE> 8
(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:
(1) 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;
(2) engaging in any type of business practice; or
(3) 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.
(29) 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
<PAGE> 9
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.
(1) 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 Units at $5.125 per Unit, at the place and time hereinafter
specified, in accordance with the number of Units 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 price at which the Underwriters shall
sell the Units to the public shall be $__________ per Unit.
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 (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".
(2) 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 Units, each Unit
consisting of one Share and one Warrant at the same price per
Unit 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.
(3) 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.
<PAGE> 10
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 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:
(1) 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,
<PAGE> 11
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.
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.
(2) 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.
<PAGE> 12
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
<PAGE> 13
(8) 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.
(9) 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 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.
(10) 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.
(11) 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.
(12) On the Closing Date the Company shall execute and deliver to
you the Representative's Warrant Agreement. The Representative's Warrant
Agreement and Warrant Certificates will be substantially in the form of the
Representative's Warrant Agreement and Warrant Certificates filed, as an
exhibit to the Registration Statement.
(13) 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 Representative's Warrants outstanding from time to time.
(14) 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.
<PAGE> 14
(15) The Company shall pay to the Representatives 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. 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.
(16) 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.
(17) 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.
(18) 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.
(19) 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.
(20) 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.
(21) The Company shall retain Securities Transfer Corp. 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
<PAGE> 15
lists of stockholders and warrantholders as reasonably requested by the
Underwriter, for a five (5) year period commencing from the Closing Date.
(22) 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.
(23) 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.
(24) 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.
(25) 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 Representative's Warrants and all the securities underlying the
Representative's Warrants. The Company shall not call for redemption of any of
the Warrants unless a Registration Statement covering the securities underlying
the Warrants or Representative's Warrants has been declared effective by the
Commission and remains current at least until the date fixed for redemption.
In addition, the Warrants or Representative's Warrants shall not be redeemable
during the first year after the Effective Date without the written consent of
the Representatives.
(26) 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 Units, 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 Closing Date,
<PAGE> 16
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:
(1) (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.
(2) 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.
(3) 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,
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.
<PAGE> 17
(4) 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.
(5) 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:
(1) 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;
(2) 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 Units,
Common Stock, the Shares, the Warrants, and the securities
contained in the Representative's Warrant Agreement conform to
the respective descriptions thereof contained in the
Prospectus; the Units, 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 Representative's
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 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
<PAGE> 18
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;
(3) this Agreement, the Representative's 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;
(4) the certificates evidencing the outstanding
securities of the Company, the Units, the Shares, the Common
Stock and the Warrants are in valid and proper legal form;
(5) 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;
(6) the execution and delivery of this Agreement,
the Representative's 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, regulation, writ,
injunction, or decree of any government, governmental
instrumentality or court, domestic or foreign;
(7) 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
<PAGE> 19
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
(8) 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
Representative's Warrants or the Securities underlying the
Representative's 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).
(6) 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 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
<PAGE> 20
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;
(8) This Agreement, the Representative's 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
<PAGE> 21
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:
(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:
(1) 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;
<PAGE> 22
(2) engaging in any type of business
practice; or
(3) 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.
(7) The Underwriters shall have received from Travis, Wolff &
Company, LLP, 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:
<PAGE> 23
(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:
(1) 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;
(2) 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 preceding 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 records, including work sheets, of the Company and
excluding any questions requiring an
<PAGE> 24
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.
(8) 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 Garza & Staples, P.C.,
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 Travis, Wolff & Company, LLP, 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.
<PAGE> 25
(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.
(9) 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.
(10) 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.
(11) 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.
(12) 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.
(13) 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:
<PAGE> 26
(1) 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
(2) 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.
(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
<PAGE> 27
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 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
<PAGE> 28
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 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
<PAGE> 29
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.
(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
<PAGE> 30
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:
(1) 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.
(2) 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 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.
<PAGE> 31
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 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
<PAGE> 32
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. Representative's 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 Representative's Warrant Agreement
annexed as an exhibit to the Registration Statement, Representative's Warrants
to purchase up to an aggregate of Units, in such denominations as the
Representatives shall designate. In the event of conflict in the terms of this
Agreement and the Representative's Warrant Agreement, the language of the form
of Representative's 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:
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
<PAGE> 33
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.
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
<PAGE> 34
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]
<PAGE> 35
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
<PAGE> 36
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
<TABLE>
<CAPTION>
UNDERWRITER UNITS
- ----------- -----
<S> <C>
First London Securities Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITER UNITS
- ----------- -----
<S> <C>
First London Securities Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000
</TABLE>
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF PERFORMANCE PRINTING CORPORATION
Performance Printing Corporation, pursuant to the provisions of Article
4.07 of the Texas Business Corporation Act, adopts these Restated Articles
Incorporation that accurately copy the original Articles of Incorporation and
all amendments to them that are in effect to date, and these Restated Articles
of Incorporation contain no change in any provisions of them.
ARTICLE ONE
The name of the Corporation is PERFORMANCE PRINTING CORPORATION, and its
principal place of business is at 3012 Fairmount, Dallas, Texas 75201.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purposes for which the corporation is organized are to transact any and
all lawful business for which corporations may be organized under the Act.
ARTICLE FOUR:
SHARE STRUCTURE, PREFERENCES, PRIVILEGES, RESTRICTIONS, AND RIGHTS
SECTION ONE: Common Shares with $.01 Par Value: The Corporation is
authorized to issue Common Shares. The total number of Common shares which the
Corporation is authorized to issue is Twenty Million (20,000,000) shares with
$.01 par value
SECTION TWO: Voting Rights to Common, Cumulative Voting Prohibited, Common
Stock Shall Have No Liquidation Preference: The holders of the Common shares
shall have the voting rights and powers, including the right to notice of
shareholder's meetings. Directors shall be elected by majority vote. Cumulative
voting shall not be permitted. Upon any liquidation, dissolution or winding-up
of the Corporation, whether voluntary or involuntary, the holders of Common
shares shall not be paid until the holders of any Serial Preferred shares have
been paid in full the amounts to which they shall be entitled.
SECTION THREE: The Corporation is authorized to issue three million
(3,000,000) shares of Serial Preferred Stock, par value of ten cents ($1.00) per
share. The Serial Preferred Stock may be issued in one or more series, from time
to time, at the discretion of the Board of Directors without the necessity of
stockholder approval, with each such series to consist of such number of shares
and to have such voting powers (whether full or limited, or no voting powers or
more than one vote per share) and such designations, powers, preferences and
\relative, participating' optional, redemption, conversion, exchange or other
special rights, and such qualifications, limitations or restrictions thereof, as
shall be stated in the resolution or resolutions providing for the issuance of
such series adopted by the Board of Directors and the Board of Directors is
hereby expressly-vested with the authority, to the full extent now or hereafter
provided by law, to adopt any such resolution or resolutions. Each share of any
series of Serial Preferred Stock shall be identical with all other shares of
such series, except as to the date from which dividends, if any, shall accrue.
The Board of Directors shall have the power and authority at any time and from
time to time without the necessity of stockholders approval to issue, sell, or
otherwise dispose of any authorized and unissued shares of any class of stock of
the Corporation to such persons or parties, including the holders of any class
of stock, for such consideration (not less than the par value thereof) and upon
such terms and conditions as the Board of Directors in its discretion may deem
for the best interests of the Corporation. This Article Four can be amended only
by the affirmative vote or concurrence of shareholders holding at least 66 2/3
percent of the issued and outstanding shares of Common Stock, plus (if any
Serial Preferred Stock is issued and outstanding and entitled to vote) that
percentage of the affirmative vote of such Serial Preferred Stock as the Board
of Directors has designated.
SECTION FOUR: Pre-emptive Rights: No shareholder or other person shall have
any pre-emptive rights whatsoever.
SECTION TWO: The number of Directors of the Corporation set forth in clause
SECTION TWO of this Article Four is Seven (7) and shall constitute the
authorized number of Directors until changed by an amendment of the By-Laws duly
adopted by the vote or written consent of the Board of Directors of the
Corporation, but shall not be less than one.
Articles of Amendment
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<PAGE> 2
ARTICLE FIVE:
REGISTERED OFFICE AND AGENT
The post office address of the initial registered office is 3012 Fairmount,
Dallas, Texas 75201, and the name of its initial registered agent at such
address is John T. White.
ARTICLE SIX:
DIRECTORS
The number of directors constituting the board of directors shall be less
than one and shall be determined by the board of directors which shall also set
their term of office.
ARTICLE SEVEN:
ELECTION OF DIRECTORS
At each election for directors of the corporation, each shareholder shall
have the right to vote, in person or by proxy, the number of shares owned by
them for as many persons as there are directors to be elected.
ARTICLE EIGHT:
INTERESTED DIRECTORS, OFFICERS AND SHAREHOLDERS
SECTION ONE: VALIDITY. If SECTION TWO is satisfied, no contract or other
transaction between the Corporation and any of its officers or shareholders (or
any corporation or firm which any of them are directly or indirectly interested)
shall be invalid solely because of this relationship or because of the presence
of such director, officer or shareholder at the meeting authorizing such
contract or transaction, or his participation in such meeting or authorization.
SECTION TWO: DISCLOSURE, APPROVAL, FAIRNESS: SECTION ONE shall apply only
if:
(1) The material facts of the relationship or interest of each such
director, officer or shareholder are known or disclosed to the Board of
Directors and it nevertheless authorizes or ratifies the contract or
transaction by a majority of the directors present, each such interested
director to be counted in determining whether a quorum is present but not
in calculating the majority necessary to carry the vote.
(2) The Contract or transaction is fair to the Corporation as of the
time it is authorized or ratified by the Board of Directors, a committee of
the Board, or the shareholders.
SECTION THREE: NON-EXCLUSIVE: This provision shall not be construed to
invalidate a contract or transaction which would be valid in the absence of this
provision.
ARTICLE NINE
INDEMNIFICATION:
To the fullest extent permitted by Texas statutory or decisional law, as
the same exists or may hereafter be amended or interpreted, a director of the
corporation shall not be liable to the corporation or its shareholders for any
act or omission in such director's capacity as a director. Any repeal or
amendment of this Article, or adoption of any other provision of these Articles
of Incorporation inconsistent with this Article, by the shareholders of the
corporation shall be prospective only and shall not adversely affect any
limitation on the liability to the corporation or its shareholders of a client
or of the corporation existing at the time of such repeal, amendment or adoption
at an inconsistent provision.
ARTICLE TEN
CONSIDERATION OF OFFERS
SECTION ONE: Evaluation of Offers. The Board of Directors, when evaluating
any offer of another party to (a) make a tender or exchange offer for the equity
securities of the Corporation or any subsidiary, (b) merge or consolidate the
Corporation or any subsidiary with another corporation, or (c) purchase or
otherwise acquire all or substantially all of the properties or assets of the
corporation, or of any subsidiary, shall, in connection with the exercise of its
judgment in determining what is in the best interests of the Corporation and its
stockholders, give due consideration to all relevant factors, including by way
of illustration, but not limitation, any or all of the following:
(1) Whether the offer is acceptable based on historical operating
results and the financial condition of the Corporation and its
subsidiaries, and its future prospects;
(2) Whether a more favorable offer could be obtained for the
Corporation's or its subsidiaries' securities or assets in the foreseeable
future.
(3) The social, economic or any other material impact which an
acquisition of the equity securities of the Corporation or substantially
all of its assets would have upon the employees and customers of the
Corporation and its subsidiaries and the community which they serve;
Articles of Amendment
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<PAGE> 3
(4) The reputation and business practices of the offeror and its
management and affiliates as they would affect the employees and customers
of the Corporation and its subsidiaries and the future value of the
Corporation's stock;
(5) The value of the securities, if any, which the offeror is offering
in exchange for the Corporation's or its subsidiaries' securities or assets
based on an analysis of the work of the Corporation or of its subsidiaries
as compared to the offeror corporation or other entity whose securities are
being offered; and
(6) Any antitrust or other legal or regulatory issues that are raised
by the offer.
SECTION TWO: Rejection of Offers. If the Board of Directors determines that
an offer should be rejected, it may take any lawful action to accomplish its
purpose including, but not limited to, any or all of the following:
(1) Advising shareholders not to accept the offer,
(2) Litigation against the offeror;
(3) Filing complaints with any governmental and regulatory
authorities;
(4) Acquiring the Corporation's securities;
(5) Selling or otherwise issuing authorized but unissued securities or
treasury stock or options with respect thereto,
(6) Acquiring a company to create an antitrust or other regulatory
problem for the offeror;
(7) Obtaining a more favorable offer from another individual or
entity.
SECTION THREE: Amendment Requirements. This Article Ten can be amended only
by the affirmative vote or concurrence of shareholders holding at least eighteen
percent of the issued and outstanding shares of Common Stock, plus (if any
Serial Preferred Stock is issued and outstanding and entitled to vote) that
percentage of the affirmative vote of such Serial Preferred Stock as the Board
of Directors has designated.
ARTICLE ELEVEN
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting, without prior notice, and without a
vote, if a written consent or consents, setting forth the action so taken, is
signed by the holders of shares having not less than the minimum number of votes
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
The number of shares of the Corporation outstanding at the time of such
adoption was Four Hundred Forty Thousand (440,000) and the number of shares
entitled to vote thereon was Four Hundred Forty Thousand (440,000). The
designation and number of shares outstanding of each class entitled to vote on
the adoption of these Articles of Restatement are as follows:
<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
Common 440,000
</TABLE>
ARTICLE FOUR: The number of shares of each Class entitled to vote thereon as a
Class voted for and against such Restatement as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------
Class For Against
----- --- -------
<S> <C> <C>
Common 440,000 -0-
</TABLE>
PERFORMANCE PRINTING CORPORATION
By:
---------------------------------------
JOHN T. WHITE, Chief Executive Officer
By:
---------------------------------------
RUSSELL V. OESCH, Secretary
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<PAGE> 4
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
I, a Notary Public in and for the State of Texas, do hereby certify that on
this _____day of __________, 1998, personally appeared before me JOHN T. WHITE,
who, being by me first duly sworn, declared to me that he is Chief Executive
Officer of the Corporation, and that he signed the foregoing document in that
capacity and that the statements therein contained are true.
WITNESS MY HAND AND SEAL OF OFFICE this _____day of _____________, 1998.
----------------------------
Notary Public, State of Texas
My Commission Expires:
----------------------------
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
I, a Notary Public in and for the State of Texas, do hereby certify that on
this ___day of _____________, 1998, personally appeared before me RUSSELL V.
OESCH, _____________, who, being by me first duly sworn, declared to me that he
is Secretary of the Corporation, and that he signed the foregoing document in
that capacity and that the statements therein contained are true.
WITNESS MY HAND AND SEAL OF OFFICE this ___ day of _____________, 1998.
----------------------------
Notary Public, State of Texas
My Commission Expires:
----------------------------
Articles of Amendment
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
PERFORMANCE PRINTING CORPORATION
Preamble. This is a Corporation organized and operated under the
applicable laws of the State of Texas, including the Texas Business Corporation
Act and the Texas Miscellaneous Corporation Act.
ARTICLE I. OFFICES
Section 1.01. Registered Office and Agent.
The registered office of the Corporation shall be at 3012 Fairmount,
Dallas, Texas 75201. The name of the registered agent at such address is JOHN T.
WHITE.
Section 1.02. Other Offices.
The Corporation may also have offices at such other places both within
and without the State of Texas as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II. SHAREHOLDERS
Section 2.01. Common Shares.
The Corporation is authorized to issue Common Shares. The total number
of Common shares which the Corporation is authorized to issue is Twenty Million
(20,000,000) shares with $.01 par value.
Section 2.02. Voting Rights to Common, Cumulative Voting
Prohibited, Common Stock Shall Have No Liquidation Preference.
The holders of the Common shares shall have the voting rights and
powers, including the right to notice of shareholder's meetings. Directors shall
be elected by majority vote. Cumulative voting shall not be permitted. Upon any
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary, the holders of Common shares shall not be paid until the holders of
any Serial Preferred shares have been paid in full the amounts to which they
shall be entitled.
Section 2.03. Serial Preferred Shares.
The Corporation is authorized to issue three million (3,000,000) shares
of Serial Preferred Stock, par value of one Dollar ($1.00) per share. The Serial
Preferred Stock may be issued in one or more series, from time to time, at the
discretion of the Board of Directors without the necessity of stockholder
approval, with each such series to consist of such number of shares and to have
such voting powers (whether full or limited, or no voting powers or more than
one vote per share) and such designations, powers, preferences and relative,
participating optional, redemption, conversion, exchange or other special
rights, and such qualifications, limitations or restrictions thereof, as shall
be stated in the resolution or resolutions providing for the issuance of such
series adopted by the Board of Directors and the Board of Directors is hereby
expressly vested with the authority, to the full extent now or hereafter
provided by law, to adopt any such resolution or resolutions. Each share of any
series of Serial Preferred Stock shall be identical with all other shares of
such series, except as to the date from which dividends, if any, shall accrue.
The Board of Directors shall have the power and authority at any time and from
time to time without the necessity of stockholders approval to issue, sell, or
otherwise dispose of any authorized and unissued shares of any class of stock of
the Corporation to such persons or parties, including the holders of any class
of stock, for such consideration (not less than the par value thereof) and upon
such terms and conditions as the Board of Directors in its discretion may deem
for the best interests of the Corporation. This Article II can be amended only
by the affirmative vote or concurrence of at least 66 2/3 percent of the vote
the Board of Directors.
Section 2.04. Pre-emptive Rights.
No shareholder or other person shall have any pre-emptive rights
whatsoever.
Section 2.05. Time and Place of Meetings.
Meetings of the shareholders shall be held at such time and at such
place, within or without the State of Texas, as shall be determined by the Board
of Directors.
Section 2.06. Annual Meetings.
Annual meetings of shareholders shall be held on such date and at such
time as shall be determined by the board of directors. At each annual meeting
the shareholders shall elect a board of directors and transact such other
business as may properly be brought before the meeting.
Section 2.07. Special Meetings.
Special meetings of the shareholders may be called at any time by the
chief executive officer, president or the board of directors, and shall be
called by the chief executive officer, president or the secretary at the request
in writing of the holders of not less than 10% of the voting power represented
by all the shares issued, outstanding and entitled to be voted at the proposed
special meeting. Such request shall state the purpose or purposes of the
proposed meeting. Business transacted at special meetings shall be confined to
the purposes stated in the notice of the meeting.
Section 2.08. Notice.
Written or printed notice stating the place, day and hour of any
shareholders' meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than 60 days before the date of the meeting, either personally or by
mail, by or at the direction of the chief executive officer, president,
secretary or the officer or person calling the meeting, to each shareholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the united states mail, postage prepaid, addressed
to the shareholder at his address as it appears on the share transfer records of
the corporation.
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Section 2.09. Closing of Share Transfer Records and Fixing Record
Dates for Matters Other than Consents to Action.
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or entitled to
receive payment of any distribution or share dividend, or in order to make a
determination of shareholders for any other proper purpose (other than
determining shareholders entitled to consent to action by shareholders proposed
to be taken without a meeting of shareholders), the Board of Directors of the
Corporation may provide that the share transfer records shall be closed for a
stated period but not to exceed, in any case, 60 days. If the share transfer
records shall be closed for the purpose of determining shareholders, such
records shall be closed for at least ten days immediately preceding such
meeting. In lieu of closing the share transfer records, the Board of Directors
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than 60 days and, in the case
of a meeting of shareholders, not less than ten days prior to the date on which
the particular action requiring such determination of shareholders is to be
taken. If the share transfer records are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
distribution (other than a distribution involving a purchase or redemption by
the Corporation of any of its own shares) or share dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the Board
of Directors declaring such distribution or share dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof except where the determination has been made
through the closing of share transfer records and the stated period of closing
has expired.
Section 2.10. Fixing Record Dates for Consents to Action.
Unless a record date shall have previously been fixed or determined
pursuant to this section 2.10, whenever action by shareholders is proposed to be
taken by consent in writing without a meeting of shareholders, the board of
directors may fix a record date for the purpose of determining shareholders
entitled to consent to that action, which record date shall not precede, and
shall not be more than ten days after, the date upon which the resolution fixing
the record date is adopted by the board of directors. If no record date has been
fixed by the board of directors and the prior action of the board of directors
is not required by the Texas business corporation act (herein called the "act"),
the record date for determining shareholders entitled to consent to action in
writing without a meeting shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office, its principal place of
business, or an officer or agent of the corporation having custody of the
records in which proceedings of meetings of shareholders are recorded. Delivery
shall be by hand or by certified or registered mail, return receipt requested.
Delivery to the corporation's principal place of business shall be addressed to
the president or the chief executive officer of the corporation. If no record
date shall have been fixed by the board of directors and prior action of the
board of directors is required by the act, the record date for determining
shareholders entitled to consent to action in writing without a meeting shall be
at the close of business on the date on which the board of directors adopts a
resolution taking such prior action.
Section 2.11. List of Shareholders.
The officer or agent of the corporation having charge of the share
transfer records for shares of the corporation shall make, at least ten days
before each meeting of the shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of voting shares held by
each, which list, for a period of ten days prior to such meeting, shall be kept
on file at the registered office or principal place of business of the
corporation and shall be subject to inspection by any shareholder at any time
during the usual business hours of the corporation. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting. The
original share transfer records shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer records or to vote at any
meeting of shareholders. Failure to comply with the requirements of this section
shall not affect the validity of any action taken at such meeting.
Section 2.12. Quorum.
A quorum shall be present at a meeting of shareholders if the holders
of shares having a majority of the voting power represented by all issued and
outstanding shares entitled to vote at the meeting are present in person or
represented by proxy at such meeting, unless otherwise provided by the articles
of incorporation in accordance with the act. Once a quorum is present at a
meeting of shareholders, the shareholders represented in person or by proxy at
the meeting may conduct such business as may properly be brought before the
meeting until it is adjourned, and the subsequent withdrawal from the meeting of
any shareholder or the refusal of any shareholder represented in person or by
proxy to vote shall not affect the presence of a quorum at the meeting. If,
however, a quorum shall not be present at any meeting of shareholders, the
shareholders entitled to vote, present in person or represented by proxy, shall
have power to adjourn the meeting, without notice (other than announcement at
the meeting at which the adjournment is taken of the time and place of the
adjourned meeting), until such time and to such place as may be determined by a
vote of the holders of a majority of the shares represented in person or by
proxy at such meeting until a quorum shall be present. At such adjourned meeting
at which a quorum is present, any business may be transacted which might have
been transacted at the meeting as originally noticed.
Section 2.13. Voting.
When a quorum is present at any meeting, the vote of the holders of a
majority of the shares entitled to vote, present in person or represented by
proxy at such meeting, shall decide any matter brought before such meeting,
other than the election of directors or a
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<PAGE> 3
matter for which the affirmative vote of the holders of a specified portion of
the shares entitled to vote is required by the Act, and shall be the act of the
shareholders, unless otherwise provided by the Articles of Incorporation, these
Bylaws or by resolution of the Board of Directors in accordance with the Act.
Unless otherwise provided in the articles of incorporation or these
bylaws in accordance with the act, directors of the corporation shall be elected
by a plurality of the votes cast by the holders of shares entitled to vote in
the election of directors at a meeting of shareholders at which a quorum is
present.
At every meeting of the shareholders, each shareholder shall be
entitled to such number of votes, in person or by proxy, for each share having
voting power held by such shareholder, as is specified in the articles of
incorporation (including the resolution of the board of directors (or a
committee thereof) creating such shares), except to the extent that the voting
rights of the shares of any class or series are limited or denied by the
articles of incorporation. At each election of directors, every shareholder
shall be entitled to cast, in person or by proxy, the number of votes to which
the shares owned by him are entitled for as many persons as there are directors
to be elected and for whose election he has a right to vote. Cumulative voting
is prohibited by the articles of incorporation. Every proxy shall be in writing
and be executed by the shareholder. A telegram, telex, cablegram, or similar
transmission by the shareholder, or a photographic, photostatic, facsimile, or
similar reproduction of a writing executed by the shareholder, shall be treated
as an execution in writing for the purposes of this section 2.13. No proxy shall
be valid after 11 months from the date of its execution unless otherwise
provided therein. Each proxy shall be revocable unless (i) the proxy form
conspicuously states that the proxy is irrevocable, and (ii) the proxy is
coupled with an interest, as defined in the act and other Texas law.
Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the bylaws of such corporation may prescribe or, in
the absence of such provision, as the board of directors of such corporation may
determine.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name as trustee.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without being transferred into his name, if such authority is
contained in an appropriate order of the court that appointed the receiver.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Treasury shares, shares of the corporation's stock owned by another
corporation the majority of the voting stock of which is owned or controlled by
the corporation, and shares of its own stock held by the corporation in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
Votes submitted as abstentions on matters to be voted on at any meeting
will be counted as votes against such matters. Broker non-votes will not count
for or against the matters to be voted on at any meeting.
Section 2.14. Action By Consent.
Any action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting, without prior notice, and without a
vote if a consent in writing, setting forth the action so taken, shall be signed
by all of the shareholders entitled to vote with respect to the action that is
the subject of the consent.
In addition, if the articles of incorporation so provide, any action
required or permitted to be taken at a meeting of the shareholders may be taken
without a meeting, without prior notice, and without a vote if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting at which the holders of
all shares entitled to vote on the action were present and voted. Prompt notice
of the taking of any action by shareholders without a meeting by less than
unanimous written consent shall be given to those shareholders who did not
consent in writing to the action.
Every written consent shall bear the date of signature of each
shareholder who signs the consent. No written consent shall be effective to take
the action that is the subject of the consent unless, within 60 days after the
date of the earliest dated consent delivered to the corporation as set forth
below in this section 2.14, the consent or consents signed by the holder or
holders of shares having not less than the minimum number of votes that would be
necessary to take the action that is the subject of the consent are delivered to
the corporation by delivery to its registered office, its principal place of
business, or an officer or agent of the corporation having custody of the
records in which proceedings of meetings of shareholders are recorded. Delivery
shall be by hand or certified or registered mail, return receipt requested.
Delivery to the corporation's principal place of business shall be addressed to
the president or the chief executive officer of the corporation. A telegram,
telex, cablegram, or similar transmission by a shareholder, or a photographic,
photostatic, facsimile, or similar reproduction of a writing signed by a
shareholder, shall be regarded as signed by the shareholder for the purposes of
this section 2.14.
Section 2.15. Presence at Meetings by Means of Communications
Equipment.
Shareholders may participate in and hold a meeting of the shareholders
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 2.15 shall constitute
presence in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
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ARTICLE III. DIRECTORS
Section 3.01. Number of Directors.
The number of directors of the corporation shall be fixed from time to
time by resolution of the board of directors, but in no case shall the number of
directors be less than one. Until otherwise fixed by resolution of the board of
directors, the number of directors shall be the number stated in the articles of
incorporation. No decrease in the number of directors shall have the effect of
reducing the term of any incumbent director. Directors shall be elected at each
annual meeting of the shareholders by the holders of shares entitled to vote in
the election of directors, except as provided in section 3.02 of this article
iii, and each director shall hold office until the annual meeting of
shareholders following his election or until his successor is elected and
qualified. Directors need not be residents of the state of Texas or shareholders
of the corporation.
Section 3.02. Vacancies.
Subject to other provisions of this section 3.02, any vacancy occurring
in the board of directors may be filled by election at an annual or special
meeting of the shareholders called for that purpose or by the affirmative vote
of a majority of the remaining directors, though the remaining directors may
constitute less than a quorum of the board of directors as fixed by section 3.08
of this article III. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office. Any directorship to be filled
by reason of an increase in the number of directors shall be filled by election
at an annual meeting or at a special meeting of shareholders called for that
purpose or may be filled by the board of directors for a term of office
continuing only until the next election of one or more directors by the
shareholders; provided that the board of directors may not fill more than two
such directorships during the period between any two successive annual meetings
of shareholders. Shareholders holding a majority of shares then entitled to vote
at an election of directors may, at any time and with or without cause,
terminate the term of office of all or any of the directors by a vote at any
annual or special meeting called for that purpose. Such removal shall be
effective immediately upon such shareholder action even if successors are not
elected simultaneously, and the vacancies on the board of directors caused by
such action shall be filled only by election by the shareholders.
Notwithstanding the foregoing, whenever the holders of any class or
series of shares are entitled to elect one or more directors by the provisions
of the articles of incorporation, only the holders of shares of that class or
series shall be entitled to vote for or against the removal of any director
elected by the holders of shares of that class or series; and any vacancies in
such directorships and any newly created directorships of such class or series
to be filled by reason of an increase in the number of such directors may be
filled by the affirmative vote of a majority of the directors elected by such
class or series then in office or by a sole remaining director so elected, or by
the vote of the holders of the outstanding shares of such class or series, and
such directorships shall not in any case be filled by the vote of the remaining
directors or the holders of the outstanding shares as a whole unless otherwise
provided in the articles of incorporation.
Section 3.03. General Powers.
The powers of the corporation shall be exercised by or under the
authority of, and the business and affairs of the corporation shall be managed
under the direction of, its board of directors, which may do or cause to be done
all such lawful acts and things, as are not by the act, the articles of
incorporation or these bylaws directed or required to be exercised or done by
the shareholders.
Section 3.04. Place of Meetings.
The board of directors of the corporation may hold meetings, both
regular and special, either within or without the state of Texas.
Section 3.05. Annual Meetings.
The first meeting of each newly elected board of directors shall be
held, without further notice, immediately following the annual meeting of
shareholders at the same place, unless by the majority vote or unanimous consent
of the directors then elected and serving, such time or place shall be changed.
Section 3.06. Regular Meetings.
Regular meetings of the board of directors may be held with or without
notice at such time and place as the board of directors may determine by
resolution.
Section 3.07. Special Meetings.
Special meetings of the board of directors may be called by or at the
request of the chief executive officer and shall be called by the secretary on
the written request of a majority of the incumbent directors. The person or
persons authorized to call special meetings of the board of directors may fix
the place for holding any special meeting of the board of directors called by
such person or persons. Notice of any special meeting shall be given at least 24
hours previous thereto if given either personally (including written notice
delivered personally or telephone notice) or by telex, telecopy, telegram or
other means of immediate communication, and at least 72 hours previous thereto
if given by written notice mailed or otherwise transmitted to each director at
the address of his business or residence. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the board of directors
need be specified in the notice or waiver of notice of such meeting. Any
director may waive notice of any meeting, as provided in section 4.02 of article
iv of these bylaws. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
Section 3.08. Quorum and Voting.
At all meetings of the board of directors, the presence of a majority
of the number of directors fixed in the manner provided in section 3.01 of this
article iii shall constitute a quorum for the transaction of business. At all
meetings of committees of the board
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of directors (if one or more be designated in the manner described in section
3.09 of this article iii), the presence of a majority of the number of directors
fixed from time to time by resolution of the board of directors to serve as
members of such committees shall constitute a quorum for the transaction of
business. The affirmative vote of at least a majority of the directors present
and entitled to vote at any meeting of the board of directors or a committee of
the board of directors at which there is a quorum shall be the act of the board
of directors or the committee, except as may be otherwise specifically provided
by the act, the articles of incorporation or these bylaws. Directors may not
vote by proxy at any meeting of the board of directors. Directors with an
interest in a business transaction of the corporation and directors who are
directors or officers or have a financial interest in any other corporation,
partnership, association or other organization with which the corporation is
transacting business may be counted in determining the presence of a quorum at a
meeting of the board of directors or of a committee of the board of directors to
authorize such business transaction. If a quorum shall not be present at any
meeting of the board of directors or a committee thereof, a majority of the
directors present thereat may adjourn the meeting, without notice other than
announcement at the meeting, until such time and to such place as may be
determined by such majority of directors, until a quorum shall be present.
Section 3.09. Committees of the Board of Directors.
The board of directors may, by resolution passed by a majority of the
whole board of directors, designate from among its members one or more
committees, each of which shall be composed of one or more of its members, and
may designate one or more of its members as alternate members of any committee,
who may, subject to any limitations imposed by the board of directors, replace
absent or disqualified members at any meeting of that committee. Any such
committee, to the extent provided in the resolution of the board of directors
designating the committee or in the articles of incorporation or these bylaws,
shall have and may exercise all of the authority of the board of directors of
the corporation, except where action of the board of directors is required by
the act or by the articles of incorporation. Any member of a committee of the
board of directors may be removed, for or without cause, by the affirmative vote
of a majority of the whole board of directors. If any vacancy or vacancies occur
in a committee of the board of directors caused by death, resignation,
retirement, disqualification, removal from office or otherwise, the vacancy or
vacancies shall be filled by the affirmative vote of a majority of the whole
board of directors. Such committee or committees shall have such name or names
as may be designated by the board of directors and shall keep regular minutes of
their proceedings and report the same to the board of directors when required.
Section 3.10. Compensation of Directors.
Directors, as members of the board of directors or of any committee
thereof, shall be entitled to receive compensation for their services on such
terms and conditions as may be determined from time to time by the board of
directors. Nothing herein contained, however, shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
Section 3.11. Action by Unanimous Consent.
Any action required or permitted to be taken at any meeting of the
board of directors or of any committee thereof may be taken without a meeting if
a written consent, setting forth the action so taken, is signed by all the
members of the board of directors or the committee, as the case may be, and such
written consent shall have the same force and effect as a unanimous vote at a
meeting of the board of directors.
Section 3.12. Presence at Meetings by Means of Communications
Equipment.
Members of the board of directors of the corporation or any committee
designated by the board of directors, may participate in and hold a meeting of
such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
section 3.12 shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of
Objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
ARTICLE IV. NOTICES
Section 4.01. Form of Notice.
Whenever under the provisions of the act, the articles of incorporation
or these bylaws, notice is required to be given to any director or shareholder,
and no provision is made as to how such notice shall be given, it shall not be
construed to mean personal notice exclusively, but any such notice may be given
in writing, by mail, postage prepaid, or by telex, telecopy, or telegram, or
other means of immediate communication, addressed or transmitted to such
director or shareholder at such address as appears on the books of the
corporation. Any notice required or permitted to be given by mail shall be
deemed to be given at the time when the same be thus deposited, postage prepaid,
in the united states mail as aforesaid. Any notice required or permitted to be
given by telex, telecopy, telegram, or other means of immediate communication
shall be deemed to be given at the time of actual delivery.
Section 4.02. Waiver.
Whenever under the provisions of the act, the articles of incorporation
or these bylaws, any notice is required to be given to any director or
shareholder of the corporation, a waiver thereof in writing signed by the person
or persons entitled to such notice, whether before or after the time stated in
such notice, shall be equivalent to the giving of such notice.
Section 4.03. When Notice Unnecessary.
Whenever, under the provisions of the act, the articles of
incorporation or these bylaws, any notice is required to be given to any
shareholder, such notice need not be given to the shareholder if:
(A) notice of two consecutive annual meetings and all notices
of meetings held during the period between those annual meetings, if any, or
(B) all (but in no event less than two) payments (if sent by
first class mail) of distributions or interest on
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securities during a 12-month period, have been mailed to that person, addressed
at his address as shown on the records of the Corporation, and have been
returned undeliverable. Any action or meeting taken or held without notice to
such a person shall have the same force and effect as if the notice had been
duly given. If such a person delivers to the Corporation a written notice
setting forth his then current address, the requirement that notice be given to
that person shall be reinstated.
ARTICLE V. EXECUTIVE COMMITTEE
Section 5.01. Designation.
The Board of Directors may, by resolution adopted by a majority of the
whole board, designate an executive committee.
Section 5.02. Number; Qualification; Term.
The executive committee shall consist of two or more persons, one of
whom shall be the president. The executive committee shall serve at the pleasure
of the board of directors.
Section 5.03. Authority.
The executive committee, to the extent provided in such resolution,
shall have and may exercise all of the authority of the board of directors in
the management of the business and affairs of the corporation, except where
action of the full board of directors is required by statute or by the articles
of incorporation, and shall have power to authorize the seal of the corporation
to be affixed to all papers which may require it.
Section 5.04. Change in Number.
The number of executive committee members may be increased or decreased
(but not below two) from time to time by resolution adopted by a majority of the
whole board of directors.
Section 5.05. Removal.
Any member of the executive committee may be removed by the Board of
Directors by the affirmative vote of a majority of the whole Board, whenever in
its judgment the best interests of the Corporation will be served thereby.
Section 5.06. Vacancies.
A vacancy occurring in the executive committee (by death, resignation,
removal or otherwise) may be filled by the Board of Directors in the manner
provided for original designation in paragraph 4.01.
Section 5.07. Meetings.
Time, place, and notice (if any) of executive committee meetings shall
be determined by the executive committee.
Section 5.08. Quorum; Majority Vote.
At meetings of the executive committee, a majority of the number of
members designated by the Board of Directors shall constitute a quorum for the
transaction of business. The act of a majority of the members present at any
meeting at which a quorum is present shall be the act of the executive
committee, except as otherwise specifically provided by statute or by the
Articles of Incorporation or by these By-Laws. If a quorum is not present at a
meeting of the executive committee, the members present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
Section 5.09. Compensation.
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board.
Section 5.10. Procedure.
The executive committee shall keep regular minutes of its proceedings
and report the same to the Board of Directors when required. The minutes of the
proceedings of the executive committee shall be placed in the minute book of the
Corporation.
Section 5.11. Action Without Meeting.
Any action required or permitted to be taken at a meeting of the
executive committee may be taken without a meeting if a consent in writing,
setting forth the action so taken, is signed by all the members of the executive
committee. Such consent shall have the same force and effect as a unanimous vote
at a meeting. The signed consent, or a signed copy, shall be placed in the
minute book.
Section 5.12. Responsibility.
The designation of an executive committee and the delegation of
authority to it shall not operate to relive the Board of Directors, or any
member thereof, of any responsibility imposed upon it to him by law.
ARTICLE VI. OFFICERS AND AGENTS
Section 6.01. General.
The elected officers of the Corporation shall be a President and a
Secretary. The Board of Directors may also elect or appoint a Chairman of the
Board, Chief Executive Officer, one or more Vice Presidents, with or without
such descriptive titles as the Board of Directors shall deem appropriate, one or
more Assistant Vice Presidents, one or more Assistant Secretaries, a Treasurer,
one or more Assistant Treasurers, and such other officers as may be deemed
necessary, all of whom shall also be officers. Two or more offices may be held
by the same person.
Section 6.02. Election.
The Board of Directors shall elect the officers of the
Corporation who shall serve at the discretion of the Board of Directors until
such time as their successors are chosen and qualified. The Board of Directors
may appoint such other officers and agents as it shall deem necessary and shall
determine the salaries of all officers and agents from time to time. No officer
need be a member of the Board of Directors except the Chairman of the Board, if
one be elected. Any officer elected or appointed by the Board of Directors may
be removed, with or without cause, at any time by a majority vote of the whole
Board. Election or appointment of an officer or agent shall not of itself create
contract rights.
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Section 6.03. Chairman of the Board; Chief Executive Officer.
The Chairman of the Board, if one be elected, shall preside when
present at all meetings of the Board of Directors and, with the approval of the
Chief Executive Officer or President, may preside at meetings of the
shareholders. He shall advise and counsel the Chief Executive Officer or
President and other officers of the Corporation, and shall exercise such powers
and perform such duties as shall be assigned to or required of him from time to
time by the Board of Directors.
Section 6.04. Chief Executive Officer.
The Chief Executive Officer to the extent appointed by the Board of
Directors shall be the Chief Executive Officer of the Corporation and, subject
to the provisions of these Bylaws, shall have general supervision of the affairs
of the Corporation and shall have general and active control of all its
business. In the absence of a Chairman of the Board, the Chief Executive Officer
shall preside, when present, at all meetings of shareholders and at all meetings
of the Board of Directors and shall see that all orders and resolutions of the
Board of Directors and the shareholders are carried into effect. The Chief
Executive Offer shall have general authority to execute bonds, deeds and
contracts in the name of the Corporation and affix the corporate seal thereto;
to sign stock certificates; to cause the employment or appointment of such
employees and agents of the Corporation as the proper conduct of operations may
require, and to fix their compensation, subject to the provisions of these
Bylaws; to remove or suspend any employee or agent who shall have been employed
or appointed under his authority or under authority of an officer subordinate to
him; to suspend for cause, pending final action by the authority which shall
have elected or appointed him, any officer subordinate to the Chief Executive
Officer; and, in general, to exercise all the powers and authority usually
appertaining to the chief executive officer of a corporation, except as
otherwise provided in these Bylaws.
Section 6.05. President
In the absence of a Chief Executive Officer, the President shall be the
ranking and Chief Executive Officer of the Corporation, and shall have the
duties and responsibilities, and the authority and power, of the Chief Executive
Officer. The President shall be the Chief Operating Officer of the Corporation
and as such shall have, subject to review and approval of the Chief Executive
Officer, if one be elected, the responsibility for the operation of the
Corporation and the authority of the Chief Executive Officer.
Section 6.06. Vice Presidents.
In the absence of the President or in the event of his inability or
refusal to act, the Vice President, if any (or in the event there be more than
one, the Vice Presidents in the order designated or, in the absence of any
designation, then in the order of their election), shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. The Vice President shall perform
such other duties and have such other powers as the Board of Directors, the
Chief Executive Officer or the Chief Operating Officer may from time to time
prescribe. The Vice President in charge of finance, if any, shall also perform
the duties and assume the responsibilities described in Section 6.09 of this
Article for the Treasurer, and shall report directly to the Chief Executive
Officer of the Corporation.
Section 6.07. Assistant Vice Presidents.
In the absence of a Vice President or in the event of his inability or
refusal to act, the Assistant Vice President, if any (or, if there be more than
one, the Assistant Vice Presidents in the order designated or, in the absence of
any designation, then in the order of their election), shall perform the duties
and exercise the powers of that Vice President, and shall perform such other
duties and have such other powers as the Board of Directors, the Chief Executive
Officer, the Chief Operating Officer or the Vice President under whose
supervision he is appointed may from time to time prescribe.
Section 6.08. Secretary.
The Secretary shall attend and record minutes of the proceedings of all
meetings of the Board of Directors and any committees thereof and all meetings
of the shareholders. He shall file the records of such meetings in one or more
books to be kept by him for that purpose. Unless the Corporation has appointed a
transfer agent or other agent to keep such a record, the Secretary shall also
keep at the Corporation's registered office or principal place of business a
record of the original issuance of shares issued by the Corporation and a record
of each transfer of those shares that have been presented to the Corporation for
registration of transfer. Such records shall contain the names and addresses of
all past and current shareholders of the Corporation and the number and class of
shares issued by the Corporation held by each of them. He shall give, or cause
to be given, notice of all meetings of the shareholders and special meetings of
the Board of Directors, and shall perform such other duties as may be prescribed
by the Board of Directors or the Chief Executive Officer, under whose
supervision he shall be. He shall have custody of the corporate seal of the
Corporation and he, or an Assistant Secretary, shall have authority to affix the
same to any instrument requiring it, and when so affixed, it may be attested by
his signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature. The Secretary shall
keep and account for all books, documents, papers and records of the Corporation
except those for which some other officer or agent is properly accountable. He
shall have authority to sign stock certificates and shall generally perform all
the duties usually appertaining to the office of the secretary of a corporation.
Section 6.09. Assistant Secretaries.
In the absence of the Secretary or in the event of his inability or
refusal to act, the Assistant Secretary, if any (or, if there be more than one,
the Assistant Secretaries in the order designated or, in the absence of any
designation, then in the order of their election), shall perform the duties and
exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the Board of Directors, the Chief Executive Officer or
the Secretary may from time to time prescribe.
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Section 6.10. Treasurer.
The Treasurer, if any (or the Vice President in charge of finance, if
one be elected), shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the Chief Executive Officer and the
Board of Directors, at its regular meetings, or when the Board of Directors so
requires, an account of all his transactions as Treasurer and of the financial
condition of the Corporation. If required by the Board of Directors, he shall
give the Corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration of the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation. The Treasurer shall be under the supervision of the Vice President
in charge of finance, if any, and he shall perform such other duties as may be
prescribed by the Board of Directors, the Chief Executive Officer or any such
Vice President in charge of finance.
Section 6.11. Assistant Treasurers.
In the absence of the Treasurer or in the event of his inability or
refusal to act, the Assistant Treasurer, if one be elected (or, if there shall
be more than one, the Assistant Treasurer in the order designated or, in the
absence of any designation, then in the order of their election), shall perform
the duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board of Directors, the Chief Executive
Officer or the Treasurer may from time to time prescribe.
Section 6.12. Bonding.
If required by the Board of Directors, all or certain of the officers
shall give the Corporation a bond, in such form, in such sum and with such
surety or sureties as shall be satisfactory to the Board, for the faithful
performance of the duties of their office and for the restoration to the
Corporation, in case of their death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in their possession or under their control belonging to the Corporation.
ARTICLE VII. INTERESTED DIRECTORS, OFFICERS AND SHAREHOLDERS
Section 7.01. Validity.
If Section 7.02 is satisfied, no contract or other transaction between
the Corporation and any of its officers or shareholders (or any corporation or
firm which any of them are directly or indirectly interested) shall be invalid
solely because of this relationship or because of the presence of such director,
officer or shareholder at the meeting authorizing such contract or transaction,
or his participation in such meeting or authorization.
Section 7.02. Disclosure, Approval, Fairness Section.
7.01 shall apply only if:
(1) The material facts of the relationship or interest of each such
director, officer or shareholder are known or disclosed to the Board
of Directors and it nevertheless authorizes or ratifies the contract
or transaction by a majority of the directors present, each such
interested director to be counted in determining whether a quorum is
present but not in calculating the majority necessary to carry the
vote.
(2) The Contract or transaction is fair to the Corporation as of the
time it is authorized or ratified by the Board of Directors, a
committee of the Board, or the shareholders.
Section 7.03. Non-Exclusive.
This provision shall not be construed to invalidate a contract or
transaction which would be valid in the absence of this provision.
ARTICLE VIII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 8.01. General.
The Corporation shall indemnify persons who are or were a director or
officer of the Corporation both in their capacities as directors and officers of
the Corporation and, if serving at the request of the Corporation as a director,
officer, trustee, employee, agent or similar functionary of another foreign or
domestic corporation, trust, partnership, joint venture, sole proprietorship,
employee benefit plan or other enterprise, in each off those capacities, against
any and all liability and reasonable expense that may be incurred by them in
connection with or resulting from (a) any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, arbitrative
or investigative, (b) an appeal in such an action, suit or proceeding, or (c)
any inquiry or investigation that could lead to such an action, suit or
proceeding, all to the full extent permitted by Article 2.02-1 of the Act. The
Corporation shall indemnify persons who are or were an employee or agent o the
Corporation, or persons who are not or were not employees or agents of the
Corporate but who are or were serving at the request of the Corporation as a
director, officer, trustee: employee, agent or similar functionary of another
foreign or domestic corporation, truer partnership, joint venture, sole
proprietorship, employee benefit plan or other enterprise (collectively, along
with the directors and officers of the Corporation, such persons are referred to
herein as "Corporate Functionaries") against any and all liability and
reasonable expense that may be incurred by them in connection with or resulting
from (a) any threatened, pending of completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, (b) an
appeal in such an action, suit or proceeding, or (c) any inquiry or
investigation that could lead to such an action, suit or proceeding, all to the
full extent permitted by Article 2.02-1 of the Act, and the Corporation may
indemnify such persons to the extent permitted by the Act. The rights of
indemnification provided for in this Article VII shall be in addition to all
rights to which any Corporate Functionary may be entitled under any agreement or
vote of shareholders or as a matter of law or otherwise.
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Section 8.02. Insurance.
The Corporation may purchase or maintain insurance on behalf of any
Corporate Functionary against any liability asserted against him and incurred by
him in such a capacity or arising out of his status as a Corporate Functionary,
whether or not the Corporation would have the power to indemnify him or her
against the liability under the Act or these Bylaws; provided, however, that if
the insurance or other arrangement is with a person or entity that is not
regularly engaged in the business of providing insurance coverage, the insurance
or arrangement may provide for payment of a liability with respect to which the
Corporation would not have the power to indemnify the person only if including
coverage for the additional liability has been approved by the shareholders of
the Corporation. Without limiting the power of the Corporation to procure or
maintain any kind of insurance or arrangement, the Corporation may, for the
benefit of persons indemnified by the Corporation, (i) create a trust fund, (ii)
establish any form of self-insurance, (iii) secure its indemnification
obligation by grant of any security interest or other lien on the assets of the
Corporation, or (iv) establish a letter of credit, guaranty or surety
arrangement. Any such insurance or other arrangement may be procured, maintained
or established within the Corporation or its affiliates or with any insurer or
other person deemed appropriate by the Board of Directors of the Corporation
regardless of whether all or part of the stock or other securities thereof are
owned in whole or in part by the Corporation. In the absence of fraud, the
judgment of the Board of Directors of the Corporation as to the terms and
conditions of such insurance or other arrangement and the identity of the
insurer or other person participating in an arrangement shall be conclusive, and
the insurance or arrangement shall not be voidable and shall not subject the
director's approving the insurance or arrangement to liability, on any ground,
regardless of whether directors participating in approving such insurance or
other arrangement shall be beneficiaries thereof.
ARTICLE IX. EXECUTION OF INSTRUMENTS
The Board of Directors may, in its discretion, determine the method and
designate the signatory office or officers, or other person or persons, to
execute any corporation instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the Corporation.
ARTICLE X. CERTIFICATES REPRESENTING SHARES
Section 10.01. Form of Certificates.
The Corporation shall deliver certificates representing all shares to
which shareholders are entitled. Certificates representing shares of the
Corporation shall be in such form as shall be approved and adopted by the Board
of Directors and shall be numbered consecutively and entered in the share
transfer records of the Corporation as they are issued. Each certificate shall
state on the face thereof that the Corporation is organized under the laws of
the State of Texas, the name of the registered holder, the number and class of
shares, and the designation of the series, if any, which said certificate
represents, and either the par value of the shares or a statement that the
shares are without par value. Each certificate shall also set forth on the back
thereof a full or summary statement of matters required by the Act or the
Articles of Incorporation to be described on certificates representing shares,
and shall contain a conspicuous statement on the face thereof referring to the
matters set forth on the back thereof. Certificates shall be signed by the Chief
Executive Officer, President or any Vice President and the Secretary or any
Assistant Secretary, and may be sealed with the seal of the Corporation. Either
the seal of the Corporation or the signatures of the Corporation's officers or
both may be facsimiles. In case any officer or officers who have signed, or
whose facsimile signature or signatures have been used on such certificate or
certificates, shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the Corporation or its agents, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed the certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the Corporation.
Section 10.02. Lost Certificates.
The Corporation may direct that a new certificate be issued in place of
any certificate theretofore issued by the Corporation alleged to have been lost
or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost or destroyed. When authorizing the issue of
a new certificate, the Board of Directors, in its discretion and as a condition
precedent to the issuance thereof, may require the owner of the lost or
destroyed certificate, or his legal representative, to advertise the same in
such manner as it shall require and/or give the Corporation a bond in such form,
in such sum, and with such surety or sureties as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 10.03. Transfer of Shares.
Shares of stock shall be transferable only on the share transfer
records of the Corporation by the holder thereof in person or by his duly
authorized attorney. Subject to any restrictions on transfer set forth in the
Articles of Incorporation, these Bylaws or any agreement among shareholders to
which this Corporation is a party or has notice, upon surrender to the
Corporation or to the transfer agent of the Corporation of a certificate
representing shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation or the transfer agent of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 10.04. Registered Shareholders.
Except as otherwise provided in the Act or other Texas law, the
Corporation shall be entitled to regard the person in whose name any shares
issued by the Corporation are registered in the share transfer records of the
Corporation at any particular time (including, without limitation, as of the
record date fixed pursuant to Section 5 or Section 10 of Article II hereof) as
the owner of those shares and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
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ARTICLE XI. CONSIDERATION OF OFFERS
Section 11.01. Evaluation of Offers.
The Board of Directors, when evaluating any offer of another party to
(a) make a tender or exchange offer for the equity securities of the Corporation
or any subsidiary, (b) merge or consolidate the Corporation or any subsidiary
with another corporation, or (c) purchase or otherwise acquire all or
substantially all of the properties or assets of the corporation, or of any
subsidiary, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and its
stockholders, give due consideration to all relevant factors, including by way
of illustration, but not limitation, any or all of the following:
(1) Whether the offer is acceptable based on historical operating
results and the financial condition of the Corporation and its
subsidiaries, and its future prospects;
(2) Whether a more favorable offer could be obtained for the
Corporation's or its subsidiaries' securities or assets in the
foreseeable future.
(3) The social, economic or any other material impact which an
acquisition of the equity securities of the Corporation or
substantially all of its assets would have upon the employees and
customers of the Corporation and its subsidiaries and the community
which they serve;
(4) The reputation and business practices of the offeror and its
management and affiliates as they would affect the employees and
customers of the Corporation and its subsidiaries and the future
value of the Corporation's stock;
(5) The value of the securities, if any, which the offeror is offering
in exchange for the Corporation's or its subsidiaries' securities or
assets based on an analysis of the work of the Corporation or of its
subsidiaries as compared to the offeror corporation or other entity
whose securities are being offered; and
(6) Any antitrust or other legal or regulatory issues that are raised by
the offer.
Section 11.02. Rejection of Offers.
If the Board of Directors determines that an offer should be rejected,
it may take any lawful action to accomplish its purpose including, but not
limited to, any or all of the following:
(1) Advising shareholders not to accept the offer,
(2) Litigation against the offeror;
(3) Filing complaints with any governmental and regulatory authorities;
(4) Acquiring the Corporation's securities;
(5) Selling or otherwise issuing authorized but unissued securities or
treasury stock or options with respect thereto,
(6) Acquiring a company to create an antitrust or other regulatory
problem for the offeror;
(7) Obtaining a more favorable offer from another individual or entity.
Section 11.03. Amendment Requirements.
This Article Eleven can be amended only by the affirmative vote or
concurrence of shareholders holding at least eighteen percent of the issued and
outstanding shares of Common Stock, plus (if any Serial Preferred Stock is
issued and outstanding and entitled to vote) that percentage of the affirmative
vote of such Serial Preferred Stock as the Board of Directors has designated.
ARTICLE XII. GENERAL PROVISIONS
Section 12.01. Distributions and Share Dividends.
Distributions or share dividends to the shareholders of the
Corporation, subject to the provisions of the Act and the Articles of
Incorporation and any agreements or obligations of the Corporation, if any, may
be declared by the Board of Directors at any regular or special meeting.
Distributions may be declared and paid in cash or in property, provided that all
such declarations and payments of distributions, and all declarations and
issuances of share dividends, shall be in strict compliance with all applicable
laws and the Articles of Incorporation.
Section 12.02. Reserves.
There may be created by resolution of the Board of Directors out of the
surplus of the Corporation such reserve or reserves as the Board of Directors
from time to time, in its discretion, deems proper to provide for contingencies,
or to equalize distributions or share dividends, or to repair or maintain any
property of the Corporation, or for such other proper purpose as the Board shall
deem beneficial to the Corporation, and the Board may increase, decrease or
abolish any reserve in the same manner in which it was created.
Section 12.03. Fiscal Year.
The fiscal year of the Corporation shall be determined by the Board of
Directors.
Section 12.04. Seal.
The Corporation shall have a seal which may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced. Any
officer of the Corporation shall have authority to affix the seal to any
document requiring it.
Section 12.05. Resignation.
Any director, officer or agent of the Corporation may resign by giving
written notice to the President or the Secretary. The resignation shall take
effect at the time specified therein, or immediately if no time is specified
therein. Unless specified in such notice, the acceptance of such resignation
shall not be necessary to make it effective.
By-Laws
Page 10
<PAGE> 11
ARTICLE XIII. AMENDMENT OF BY-LAWS
Unless otherwise provided by the Articles of Incorporation or a bylaw
adopted by the shareholders of the Corporation, these Bylaws may be amended or
repealed, or new Bylaws may be adopted, at any meeting of the shareholders of
the Corporation or of the Board of Directors at which a quorum is present, by
the affirmative vote of the holders of a majority of the shares or the
directors, as the case may be, present at such meeting.
CERTIFICATION
I, Russell V. Oesch, Secretary of the Corporation, hereby certify that
the foregoing is true, accurate and complete copy of the Bylaws of Performance
Printing Corporation, adopted by its Board of Directors as of _______________,
1998.
----------------------------------
Russell V. Oesch, Secretary
<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
UNITS(WHICH INCLUDES 180,000 UNITS PURSUANT TO THE UNDERWRITERS'
OVER-ALLOTMENT OPTION), EACH UNIT CONSISTING OF ONE SHARE of common stock
("Common Stock"), $.01 par value per share, AND ONE REDEEMABLE COMMON STOCK
PURCHASE WARRANT ("WARRANTS") at a purchase price of $5.125 PER UNIT
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.
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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
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Company at the office of the Warrant Agent, with the form of election to
purchase on the reverse side 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
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the Warrants in compliance with the requirements of Rule 13e-4 to the extent
applicable.
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
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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,
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.
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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 $10.00 per
share, 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
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
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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 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
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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 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
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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.
(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.
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(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 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
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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:
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.
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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.
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
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 $7.50 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> 14
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 $10.00 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
<PAGE> 15
exercise of the Warrants. 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.
Under certain circumstances, the REPRESENTATIVE (as that term is
defined in the Warrant Agreement) or ITS 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
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 16
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> 17
(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 10.1
1998 STOCK COMPENSATION PLAN
OF
PERFORMANCE PRINTING CORPORATION
(A TEXAS CORPORATION)
1. Purpose of Plan. This 1998 Stock Compensation Plan ("Plan") is intended
to encourage ownership of the common stock of Performance Printing Corporation
("Company") by certain officers, directors, employees and advisors of the
Company or any Subsidiary or Subsidiaries of the Company (as hereinafter
defined) in order to provide additional incentive for such persons to promote
the success and the business of the Company or its Subsidiaries and to encourage
them to remain in the employ of the Company or its Subsidiaries by providing
such persons an opportunity to benefit from any appreciation of the common stock
of the Company through the issuance of stock options to such persons in
accordance with the terms of the Plan. It is further intended that options
granted pursuant to this Plan shall constitute either incentive stock options
("Incentive Options") within the meaning of Section 422 (formerly Section 422A)
of the Internal Revenue Code of 1986, as amended ("Code"), or options which do
not constitute Incentive Options ("Nonqualified Options") as determined by the
Committee (as hereinafter defined) at the time of issuance of such options.
Incentive Options and Nonqualified Options are herein sometimes referred to
collectively as "Options". As used herein, the term Subsidiary or Subsidiaries
shall mean any corporation (other than the employer corporation) in an unbroken
chain of corporations beginning with the employer corporation if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
2. Stock Subject to the Plan. Subject to adjustment as provided in Section
12 hereof, there will be reserved for the use upon the exercise of Options to be
granted from time to time under the Plan, an aggregate of three hundred seven
thousand (300,000) shares of the common stock, $.01 par value, of the Company
("Common Stock"), which shares in whole or in part shall be authorized, but
unissued, shares of the Common Stock or issued shares of Common Stock which
shall have been reacquired by the Company as determined from time to time by the
Board of Directors of the Company ("Board of Directors"). To determine the
number of shares of Common Stock available at any time for the granting of
Options under the Plan, there shall be deducted from the total number of
reserved shares of Common Stock, the number of shares of Common Stock in respect
of which Options have been granted pursuant to the Plan which remain outstanding
or which have been exercised. If and to the extent that any Option to purchase
reserved shares shall not be exercised by the optionee for any reason or if such
Option to purchase shall terminate as provided herein, such shares which have
not been so purchased hereunder shall again become available for the purposes of
the Plan unless the Plan shall have been terminated, but such unpurchased shares
shall not be deemed to increase the aggregate number of shares specified above
to be reserved for purposes of the Plan (subject to adjustment as provided in
Section 12 hereof).
1
<PAGE> 2
3. Administration of the Plan.
(a) General. The Plan shall be administered by a Compensation
Committee ("Committee") appointed by the Board of Directors, which Committee
shall consist of not less than two (2) members of the Board of Directors who are
not eligible to participate in the Plan, and have not, for a period of at least
one (1) year prior thereto been eligible to participate in the Plan, except that
if at any time there shall be less than two (2) directors who are qualified to
serve on the Committee, then the Plan shall be administered by the full Board of
Directors. All references in this Plan to the Committee shall be deemed to refer
instead to the full Board of Directors at any time there is not a committee of
two (2) members qualified to act hereunder. The Board of Directors may from time
to time appoint members of the Committee in substitution for or in addition to
members previously appointed and may fill vacancies, however caused, in the
Committee. If the Board of Directors does not designate a Chairman of the
Committee, the Committee shall select one of its members as its Chairman. The
Committee shall hold its meetings at such times and places as it shall deem
advisable. A majority of its members shall constitute a quorum. Any action of
the Committee shall be taken by a majority vote of its members at a meeting at
which a quorum is present. Notwithstanding the preceding, any action of the
Committee may be taken without a meeting by a written consent signed by all of
the members, and any action so taken shall be deemed fully as effective as if it
had been taken by a vote of the members present in person at the meeting duly
called and held. The Committee may appoint a Secretary, shall keep minutes of
its meetings, and shall make such rules and regulations for the conduct of its
business as it shall deem advisable.
The Committee shall have the sole authority and power, subject to the
express provisions and limitations of the Plan, to construe the Plan and option
agreements granted hereunder, and to adopt, prescribe, amend, and rescind rules
and regulations relating to the Plan, and to make all determinations necessary
or advisable for administering the Plan, including, but not limited to, (i) who
shall be granted Options under the Plan, (ii) the term of each Option, (iii) the
number of shares covered by such Option, (iv) whether the Option shall
constitute an Incentive Option or a Nonqualified Option, (v) the exercise price
for the purchase of the shares of the Common Stock covered by the Option, (vi)
the period during which the Option may be exercised, (vii) whether the right to
purchase the number of shares covered by the Option shall be fully vested on
issuance of the Option so that such shares may be purchased in full at one time
or whether the right to purchase such shares shall become vested over a period
of time so that such shares may only be purchased in installments, and (viii)
the time or times at which Options shall be granted. The Committee's
determinations under the Plan, including the above enumerated determinations,
need not be uniform and may be made by it selectively among the persons who
receive, or are eligible to receive, Options under the Plan, whether or not such
persons are similarly situated.
The interpretation by the Committee of any provision of the Plan or of any
option agreement entered into hereunder with respect to any Incentive Option
shall be in accordance with Section 422 of the Code and the regulations issued
thereunder, as such section or regulations may be amended from time to time, in
order that the rights granted hereunder and under said option agreements shall
constitute "Incentive Stock Options" within the meaning of such section. The
interpretation and construction by the Committee of any provision of the Plan or
of any Option granted hereunder shall be final and conclusive, unless otherwise
determined by the Board of Directors. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under it. Upon issuing an Option
under the Plan, the Committee shall report to the Board of Directors the name of
the person granted the Option, whether the Option is an Incentive Option or a
Nonqualified Option, the number of shares of Common Stock covered by the Option,
and the terms and conditions of such Option.
(b) Changes in Law Applicable. If the laws relating to Incentive
Options or Nonqualified Options are changed, altered or amended during the term
of the Plan, the Board of Directors shall have full authority and power to alter
or amend the Plan with respect to Incentive Options or Nonqualified Options,
respectively, to conform to such changes in the law without the necessity of
obtaining further shareholder approval, unless the changes require such
approval.
2
<PAGE> 3
4. Types of Awards Under the Plan. Awards under the Plan may be in the
form of either Incentive Options or Nonqualified Options, or a combination
thereof.
5. Persons to Whom Options Shall be Granted.
(a) Nonqualified Options. Nonqualified Options shall be granted only
to officers, directors, employees and advisors of the Company or a Subsidiary
who, in the judgment of the Committee, are responsible for or contribute to the
management or success of the Company or a Subsidiary and who, at the time of the
granting of the Nonqualified Options, are either officers, directors, employees
or advisors of the Company or a Subsidiary.
(b) Incentive Options. Incentive Options shall be granted only to
employees of the Company or a Subsidiary who, in the judgment of the Committee,
are responsible for or contribute to the management or success of the Company or
a Subsidiary and who, at the time of the granting of the Incentive Option are
either an employee of the Company or a Subsidiary.
6. Factors to Be Considered in Granting Options. In making any
determination as to persons to whom Options shall be granted and as to the
number of shares to be covered by such Options, the Committee shall take into
account the duties and responsibilities of the respective officers, directors,
employees, or advisors, their current and potential contributions to the success
of the Company or a Subsidiary, and such other factors as the Committee shall
deem relevant in connection with accomplishing the purpose of the Plan.
7. Time of Granting Options. Neither anything contained in the Plan or in
any resolution adopted or to be adopted by the Board of Directors or the
Shareholders of the Company or a Subsidiary nor any action taken by the
Committee shall constitute the granting of any Option. The granting of an Option
shall be effected only when a written Option Agreement acceptable in form and
substance to the Committee, subject to the terms and conditions hereof including
those set forth in Section 8 hereof, shall have been duly executed and delivered
by or on behalf of the Company and the person to whom such Option shall be
granted. No person shall have any rights under the Plan until such time, if any,
as a written Option Agreement shall have been duly executed and delivered as set
forth in this Section 7.
8. Terms and Conditions of Options. All Options granted pursuant to this
Plan must be granted within ten (10) years from the date the Plan is adopted by
the Board of Directors of the Company. Each Option Agreement governing an Option
granted hereunder shall be subject to at least the following terms and
conditions, and shall contain such other terms and conditions, not inconsistent
therewith, that the Committee shall deem appropriate:
(a) Number of Shares. Each Option shall state the number of
shares of Common Stock which it represents.
(b) Type of Option. Each Option shall state whether it is
intended to be an Incentive Option or a Nonqualified Option.
(c) Option Period.
(1) General. Each Option shall state the date upon
which it is granted. Each Option shall be exercisable in whole or in
part during such period as is provided under the terms of the Option
subject to any vesting period set forth in the Option, but in no event
shall an Option be exercisable either in whole or in part after the
expiration of ten (10) years from the date of grant.
(2) Termination of Employment. Except as otherwise
provided in case of Disability (as hereinafter defined), death or
Change of Control (as hereinafter defined), no Option shall be
exercisable after an optionee who is an employee of the Company or a
Subsidiary ceases to be employed by the Company or a Subsidiary as an
employee; provided, however, that the Committee shall have the right
in its sole discretion, but not the obligation, to extend the exercise
period for not more than three (3) months following the date of
termination of such optionee's employment; provided further, however,
3
<PAGE> 4
that no Option shall be exercisable after the expiration of ten (10)
years from the date it is granted.
(3) Cessation of Service as Director or Advisor. In
the event an optionee who was a director or advisor of the Company or
a Subsidiary ceases to be a director or advisor of the Company or a
Subsidiary for any reason, other than Disability or death, prior to
the full exercise of the Option, such optionee may exercise his Option
at any time within ninety (90) days after such optionee's status as a
director or advisor of the Company or a Subsidiary is so terminated to
the extent he was entitled to exercise such Option at the date such
optionee's status as a director or advisor of the Company or a
Subsidiary terminated; provided, however, that no Option shall be
exercisable after the expiration of ten (10) years from the date it is
granted.
(4) Disability. If an optionee's employment is
terminated by reason of the permanent and total Disability of such
optionee or if an optionee who is a director or advisor of the Company
or a Subsidiary ceases to serve as a director or advisor by reason of
the permanent and total Disability of such optionee, the Committee
shall have the right in its sole discretion, but not the obligation,
to extend the exercise period for not more than one (1) year following
the date of termination of the optionee's employment or the date such
optionee ceases to be a director or advisor of the Company or a
Subsidiary, as the case may be, subject to the condition that no
Option shall be exercisable after the expiration of ten (10) years
from the date it is granted. For purposes of this Plan, the term
"Disability" shall mean the inability of the optionee to fulfill such
optionee's obligations to the Company or a Subsidiary by reason of any
physical or mental impairment which can be expected to result in death
or which has lasted or can be expected to last for a continuous period
of not less than twelve (12) months as determined by a physician
acceptable to the Committee in its sole discretion.
(5) Death. If an optionee dies while in the employ of
the Company or a Subsidiary, or while serving as a director or advisor
of the Company or a Subsidiary, and shall not have fully exercised
Options granted pursuant to the Plan, such Options may be exercised in
whole or in part at any time within one (1) year after the optionee's
death, by the executors or administrators of the optionee's estate or
by any person or persons who shall have acquired the Options directly
from the optionee by bequest or inheritance, but only to the extent
that the optionee was entitled to exercise such Option at the date of
such optionee's death, subject to the condition that no Option shall
be exercisable after the expiration of ten (10) years from the date it
is granted.
(6) Acceleration and Exercise Upon Change of Control.
Notwithstanding the preceding provisions of this Section 8(c), if any
Option granted under the Plan provides for either (a) an incremental
vesting period whereby such Option may only be exercised in
installments as such incremental vesting period is satisfied or (b) a
delayed vesting period whereby such Option may only be exercised after
the lapse of a specified period of time, such as after the expiration
of one (1) year, such vesting period shall be accelerated upon the
occurrence of a Change of Control (as hereinafter defined) of the
Company, or a threatened Change of Control of the Company as
determined by the Committee, so that such Option shall thereupon
become exercisable immediately in part or its entirety by the holder
thereof, as such holder shall elect. For the purposes of this Plan, a
"Change of Control" shall be deemed to have occurred if:
(i) Any "person", including a "group"
as determined in accordance with Section 13(d)(3) of the
Securities Exchange Act of 1934 ("Exchange Act") and the Rules
and Regulations promulgated thereunder, is or becomes, through
one or a series of related transactions or through one or more
intermediaries, the beneficial owner, directly or indirectly, of
securities of the Company representing 25% or more of the
combined voting power of the
4
<PAGE> 5
Company's then outstanding securities, other than a person who is
such a beneficial owner on the effective date of the Plan and any
affiliate of such person;
(ii) As a result of, or in connection
with, any tender offer or exchange offer, merger or other
business combination, sale of assets or contested election, or
any combination of the foregoing transactions ("Transaction"),
the persons who were Directors of the Company before the
Transaction shall cease to constitute a majority of the Board of
Directors of the Company or any successor to the Company;
(iii)Following the effective date of the
Plan, the Company is merged or consolidated with another
corporation and as a result of such merger or consolidation less
than 40% of the outstanding voting securities of the surviving or
resulting corporation shall then be owned in the aggregate by the
former stockholders of the Company, other than (x) any party to
such merger or consolidation, or (y) any affiliates of any such
party;
(iv) A tender offer or exchange offer is
made and consummated for the ownership of securities of the
Company representing 25% or more of the combined voting power of
the Company's then outstanding voting securities; or
(v) The Company transfers more than 50%
of its assets, or the last of a series of transfers result in the
transfer of more than 50% of the assets of the Company, to
another corporation that is not a wholly-owned corporation of the
Company. For purposes of this subsection 8(c)(6)(v), the
determination of what constitutes more than 50% of the assets of
the Company shall be determined based on the sum of the values
attributed to (i) the Company's real property as determined by an
independent appraisal thereof, and (ii) the net book value of all
other assets of the Company, each taken as of the date of the
Transaction involved.
In addition, upon a Change of Control, any Options previously
granted under the Plan to the extent not already exercised may be
exercised in whole or in part either immediately or at any time during
the term of the Option as such holder shall elect.
(d) Option Prices.
(1) Nonqualified Options. The purchase price or
prices of the shares of the Common Stock which shall be offered to any
person under the Plan and covered by a Nonqualified Option shall be
the price determined by the Committee at the time of granting of the
Nonqualified Option, which price may be less than, equal to or higher
than one hundred percent (100%) of the fair market value of the Common
Stock at the time of granting the Nonqualified Option.
(2) Incentive Options. The purchase price or
prices of the shares of the Common Stock which shall be offered to any
person under the Plan and covered by an Incentive Option shall be one
hundred percent (100%) of the fair market value of the Common Stock at
the time of granting the Incentive Option or such higher purchase
price as may be determined by the Committee at the time of granting
the Incentive Option.
(3) Determination of Fair Market Value. During
such time as the Common Stock of the Company is not listed upon an
established stock exchange, the fair market value per share shall be
deemed to be the closing sales price of the Common Stock on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") on the day the Option is granted, as reported by NASDAQ, if
the Common Stock is so quoted, and if not so quoted, the mean between
dealer "bid" and "ask," prices of the Common Stock in the New York
over-the-counter market on the day the Option is
5
<PAGE> 6
granted, as reported by the National Association of Securities
Dealers, Inc. If the Common Stock is listed upon an established stock
exchange or exchanges, such fair market value shall be deemed to be
the highest closing price of the Common Stock on such stock exchange
or exchanges on the day the Option is granted or, if no sale of the
Common Stock of the Company shall have been made on established stock
exchange on such day, on the next preceding day on which there was a
sale of such stock. If there is no market price for the Common Stock,
then the Board of Directors and the Committee may, after taking all
relevant facts into consideration, determine the fair market value of
the Common Stock.
(e) Exercise of Options. To the extent that a
holder of an Option has a current right to exercise, the Option may be
exercised from time to time by written notice to the Company at its
principal place of business. Such notice shall state the election to
exercise the Option, the number of whole shares in respect of which it
is being exercised, shall be signed by the person or persons so
exercising the Option, and shall contain any investment representation
required by Section 8(i) hereof. Such notice shall be accompanied by
payment of the full purchase price of such shares and by the Option
Agreement evidencing the Option. In addition, if the Option shall be
exercised, pursuant to Section 8(c)(4) or Section 8(c)(5) hereof, by
any person or persons other than the optionee, such notice shall also
be accompanied by appropriate proof of the right of such person or
persons to exercise the Option. The Company shall deliver a
certificate or certificates representing such shares as soon as
practicable after the aforesaid notice and payment of such shares
shall be received. The certificate or certificates for the shares as
to which the Option shall have been so exercised shall be registered
in the name of the person or persons so exercising the Option. In the
event the Option shall not be exercised in full, the Secretary of the
Company shall endorse or cause to be endorsed on the Option the number
of shares which has been exercised thereunder and the number of shares
that remain exercisable under the Option and return such Option
Agreement to the holder thereof.
(f) Nontransferability of Options. An Option
granted pursuant to the Plan shall be exercisable only by the optionee
or the optionee's court appointed guardian as set forth in Section
8(c)(4) hereof during the optionee's lifetime and shall not be
assignable or transferable by the optionee otherwise than by Will or
the laws of descent and distribution. An Option granted pursuant to
the Plan shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise other than by Will or the
laws of descent and distribution) and shall not be subject to
execution, attachment, or similar process. Any attempted transfer,
assignment, pledge, hypothecation, or other disposition of any Option
or of any rights granted thereunder contrary to the foregoing
provisions of this Section 8(f), or the levy of any attachment or
similar process upon an Option or such rights, shall be null and void.
(g) Compliance with Securities Laws. The Plan and
the grant and exercise of the rights to purchase shares hereunder, and
the Company's obligations to sell and deliver shares upon the exercise
of rights to purchase shares, shall be subject to all applicable
federal and state laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may, in the opinion of
counsel for the Company, be required, and shall also be subject to all
applicable rules and regulations of any stock exchange upon which the
Common Stock of the Company may then be listed. At the time of
exercise of any Option, the Company may require the optionee to
execute any documents or take any action which may be then necessary
to comply with the Securities Act of 1933, as amended ("Securities
Act"), and the rules and regulations promulgated thereunder, or any
other applicable federal or state laws regulating the sale and
issuance of securities, and the Company may, if it deems necessary,
include provisions in the stock option agreements to assure such
compliance. The Company may, from time to time, change its
requirements with respect to enforcing compliance with federal and
state securities laws, including the request for and enforcement of
letters of investment intent, such requirements to be
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<PAGE> 7
determined by the Company in its judgment as necessary to assure
compliance with said laws. Such changes may be made with respect to
any particular Option or stock issued upon exercise thereof. Without
limiting the generality of the foregoing, if the Common Stock issuable
upon exercise of an Option granted under the Plan is not registered
under the Securities Act, the Company at the time of exercise will
require that the registered owner execute and deliver an investment
representation agreement to the Company in form acceptable to the
Company and its counsel, and the Company will place a legend on the
certificate evidencing such Common Stock restricting the transfer
thereof, which legend shall be substantially as follows:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW BUT HAVE
BEEN ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER
HEREOF AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED UNTIL
EITHER (i) A REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) THE COMPANY
SHALL HAVE RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY AND ITS COUNSEL THAT REGISTRATION UNDER SUCH
SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED OFFER, SALE OR
TRANSFER.
(h) Additional Provisions. The Option Agreements
authorized under the Plan shall contain such other provisions as the
Committee shall deem advisable, including, without limitation,
restrictions upon the exercise of the Option. Any such Option
Agreement with respect to an Incentive Option shall contain such
limitations and restrictions upon the exercise of the Incentive Option
as shall be necessary in order that the option will be an "Incentive
Stock Option" as defined in Section 422 of the Code.
9. Medium and Time of Payment. The purchase price of the shares of the
Common Stock as to which the Option shall be exercised shall be paid in full
either (i) in cash at the time of exercise of the Option, (ii) by tendering to
the Company shares of the Company's Common Stock having a fair market value (as
of the date of receipt of such shares by the Company) equal to the purchase
price for the number of shares of Common Stock purchased, or (iii) partly in
cash and partly in shares of the Company's Common Stock valued at fair market
value as of the date of receipt of such shares by the Company. Cash payment for
the shares of the Common Stock purchased upon exercise of the Option shall be in
the form of either a cashier's check, certified check or money order. Personal
checks may be submitted, but will not be considered as payment for the shares of
the Common Stock purchased and no certificate for such shares will be issued
until the personal check clears in normal banking channels. If a personal check
is not paid upon presentment by the Company, then the attempted exercise of the
Option will be null and void. In the event the optionee tenders shares of the
Company's Common Stock in full or partial payment for the shares being purchased
pursuant to the Option, the shares of Common Stock so tendered shall be
accompanied by fully executed stock powers endorsed in favor of the Company with
the signature on such stock power being guaranteed. If an optionee tenders
shares, such optionee assumes sole and full responsibility for the tax
consequences, if any, to such optionee arising therefrom, including the possible
application of Code Section 424(c), or its successor Code section, which negates
any nonrecognition of income rule with respect to such transferred shares, if
such transferred shares have not been held for the minimum statutory holding
period to receive preferential tax treatment.
10. Rights as a Shareholder. The holder of an Option shall have no rights
as a shareholder with respect to the shares covered by the Option until the due
exercise of the Option and the date of issuance of one
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<PAGE> 8
or more stock certificates to such holder for such shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Section 12 hereof.
11. Optionee's Agreement to Serve. Each employee receiving an Option
shall, as one of the terms of the Option Agreement agree that such employee will
remain in the employ of the Company or Subsidiary for a period of at least one
(1) year from the date on which the Option shall be granted to such employee;
and that such employee will, during such employment, devote such employee's
entire time, energy, and skill to the service of the Company or a Subsidiary as
may be required by the management thereof, subject to vacations, sick leaves,
and military absences. Such employment, subject to the provisions of any written
contract between the Company or a Subsidiary and such employee, shall be at the
pleasure of the Board of Directors of the Company or a Subsidiary, and at such
compensation as the Company or a Subsidiary shall reasonably determine. Any
termination of such employee's employment during the period which the employee
has agreed pursuant to the foregoing provisions of this Section 11 to remain in
employment that is either for cause or voluntary on the part of the employee
shall be deemed a violation by the employee of such employee's agreement. In the
event of such violation, any Option or Options held by such employee, to the
extent not theretofore exercised, shall forthwith terminate, unless otherwise
determined by the Committee. Notwithstanding the preceding, neither the action
of the Company in establishing the Plan nor any action taken by the Company, a
Subsidiary or the Committee under the provisions hereof shall be construed as
granting the optionee the right to be retained in the employ of the Company or a
Subsidiary, or to limit or restrict the right of the Company or a Subsidiary, as
applicable, to terminate the employment of any employee of the Company or a
Subsidiary, with or without cause.
12. Adjustments on Changes in Capitalization.
(a) Changes in Capitalization. Subject to any required
action by the Shareholders of the Company, the number of shares of Common
Stock covered by the Plan, the number of shares of Common Stock covered by
each outstanding Option, and the exercise price per share thereof specified
in each such Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Company
resulting from a subdivision or consolidation of shares or the payment of a
stock dividend (but only on the Common Stock) or any other increase or
decrease in the number of such shares effected without receipt of
consideration by the Company after the date the Option is granted, so that
upon exercise of the Option, the optionee shall receive the same number of
shares the optionee would have received had the optionee been the holder of
all shares subject to such optionee's outstanding Option immediately before
the effective date of such change in the number of issued shares of the
Common Stock of the Company.
(b) Reorganization, Dissolution or Liquidation. Subject to
any required action by the Shareholders of the Company, if the Company
shall be the surviving corporation in any merger or consolidation, each
outstanding Option shall pertain to and apply to the securities to which a
holder of the number of shares of Common Stock subject to the Option would
have been entitled. A dissolution or liquidation of the Company or a merger
or consolidation in which the Company is not the surviving corporation,
shall cause each outstanding Option to terminate as of a date to be fixed
by the Committee (which date shall be as of or prior to the effective date
of any such dissolution or liquidation or merger or consolidation);
provided, that not less than thirty (30) days written notice of the date so
fixed as such termination date shall be given to each optionee, and each
optionee shall, in such event, have the right, during the said period of
thirty (30) days preceding such termination date, to exercise such
optionee's Option in whole or in part in the manner herein set forth.
(c) Change in Par Value. In the event of a change in the
Common Stock of the Company as presently constituted, which change is
limited to a change of all of its authorized shares with par value into the
same number of shares with a different par value or without par value, the
shares resulting from any change shall be deemed to be the Common Stock
within the meaning of the Plan.
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<PAGE> 9
(d) Notice of Adjustments. To the extent that the
adjustments set forth in the foregoing paragraphs of this Section 12 relate
to stock or securities of the Company, such adjustments, if any, shall be
made by the Committee, whose determination in that respect shall be final,
binding and conclusive, provided that each Incentive Option granted
pursuant to this Plan shall not be adjusted in a manner that causes the
Incentive Option to fail to continue to qualify as an "Incentive Stock
Option" within the meaning of Section 422 of the Code. The Company shall
give timely notice of any adjustments made to each holder of an Option
under this Plan and such adjustments shall be effective and binding on the
optionee.
(e) Effect Upon Holder of Option. Except as hereinbefore
expressly provided in this Section 12, the holder of an Option shall have
no rights by reason of any subdivision or consolidation of shares of stock
of any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class by reason of any
dissolution, liquidation, merger, reorganization, or consolidation, or
spin-off of assets or stock of another corporation, and any issue by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to the Option. Without limiting the generality of the
foregoing, no adjustment shall be made with respect to the number or price
of shares subject to any Option granted hereunder upon the occurrence of
any of the following events:
(1) The grant or exercise of any other options
which may be granted or exercised under any qualified or nonqualified
stock option plan or under any other employee benefit plan of the
Company whether or not such options were outstanding on the date of
grant of the Option or thereafter granted;
(2) The sale of any shares of Common Stock in the
Company's initial or any subsequent public offering, including,
without limitation, shares sold upon the exercise of any overallotment
option granted to the underwriter in connection with such offering;
(3) The issuance, sale or exercise of any warrants
to purchase shares of Common Stock whether or not such warrants were
outstanding on the date of grant of the Option or thereafter issued;
(4) The issuance or sale of rights, promissory
notes or other securities convertible into shares of Common Stock in
accordance with the terms of such securities ("Convertible
Securities") whether or not such Convertible Securities were
outstanding on the date of grant of the Option or were thereafter
issued or sold;
(5) The issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities, whether or not
any adjustment in the purchase price was made or required to be made
upon the issuance or sale of such Convertible Securities and whether
or not such Convertible Securities were outstanding on the date of
grant of the Option or were thereafter issued or sold; or
(6) Upon any amendment to or change in the terms
of any rights or warrants to subscribe for or purchase, or options for
the purchase of, Common Stock or Convertible Securities or in the
terms of any Convertible Securities, including, but not limited to,
any extension of any expiration date of any such right, warrant or
option, any change in any exercise or purchase price provided for in
any such right, warrant or option, any extension of any date through
which any Convertible Securities are convertible into or exchangeable
for Common Stock or any change in the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock.
(f) Right of Company to Make Adjustments. The grant of an
Option pursuant to the Plan shall not affect in any way the right or power
of the Company to make adjustments, reclassification, reorganizations, or
changes of its capital or business structure or to
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<PAGE> 10
merge or to consolidate or to dissolve, liquidate or sell, or transfer all
or any part of its business or assets.
13. Investment Purpose. Each Option under the Plan shall be granted on the
condition that the purchase of the shares of stock thereunder shall be for
investment purposes, and not with a view to resale or distribution; provided,
however, that in the event the shares of stock subject to such Option are
registered under the Securities Act or in the event a resale of such shares of
stock without such registration would otherwise be permissible, such condition
shall be inoperative if in the opinion of counsel for the Company such condition
is not required under the Securities Act or any other applicable law,
regulation, or rule of any governmental agency.
14. No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the optionee to exercise such Option.
15. Modification, Extension, and Renewal of Options. Subject to the terms
and conditions and within the limitations of the Plan, the Committee and the
Board of Directors may modify, extend or renew outstanding Options granted under
the Plan, or accept the surrender of outstanding Options (to the extent not
theretofore exercised). Neither the Committee nor the Board of Directors shall,
however, modify any outstanding Options so as to specify a lower price or accept
the surrender of outstanding Options and authorize the granting of new Options
in substitution therefor specifying a lower price. Notwithstanding the
foregoing, however, no modification of an Option shall, without the consent of
the optionee, alter or impair any rights or obligations under any Option
theretofore granted under the Plan.
16. Effective Date of the Plan. The Plan shall become effective on the date
of execution hereof, which date is the date the Board of Directors approved and
adopted the Plan ("Effective Date"); provided, however, if the Shareholders of
the Company shall not have approved the Plan by the requisite vote of the
Shareholders, within twelve (12) months after the Effective Date, then the Plan
shall terminate and all Options theretofore granted under the Plan shall
terminate and be null and void.
17. Termination of the Plan. This Plan shall terminate as of the expiration
of ten (10) years from the Effective Date. Options may be granted under this
Plan at any time and from time to time prior to its termination. Any Option
outstanding under the Plan at the time of its termination shall remain in effect
until the Option shall have been exercised or shall have expired.
18. Amendment of the Plan. The Plan may be terminated at any time by the
Board of Directors of the Company. The Board of Directors may at any
time and from time to time without obtaining the approval of the Shareholders of
the Company or a Subsidiary, modify or amend the Plan (including such form of
Option Agreement as hereinabove mentioned) in such respects as it shall deem
advisable in order that the Incentive Options granted under the Plan shall be
"Incentive Stock Options" as defined in Section 422 of the Code or to conform to
any change in the law, or in any other respect which shall not change: (a) the
maximum number of shares for which Options may be granted under the Plan, except
as provided in Section 14 hereof; or (b) the option prices other than to change
the manner of determining the fair market value of the Common Stock for the
purpose of Section 8(d) hereof to conform with any then applicable provisions of
the Code or regulations thereunder; or (c) the periods during which Options may
be granted or exercised; or (d) the provisions relating to the determination of
persons to whom Options shall be granted and the number of shares to be covered
by such Options; or (e) the provisions relating to adjustments to be made upon
changes in capitalization. The termination or any modification or amendment of
the Plan shall not, without the consent of the person to whom any Option shall
theretofore have been granted, affect that person's rights under an Option
theretofore granted to such person. With the consent of the person to whom such
Option was granted, an outstanding Option may be modified or amended by the
Committee in such manner as it may deem appropriate and consistent with the
requirements of this Plan applicable to the grant of a new Option on the date of
modification or amendment.
19. Withholding. Whenever an optionee shall recognize compensation income
as a result of the exercise of any Option granted under the Plan, the optionee
shall remit in cash to the Company or Subsidiary the minimum amount of federal
income and employment tax withholding which the Company or Subsidiary is
required to remit to the Internal Revenue Service in accordance with the then
current provisions of the Code.
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<PAGE> 11
The full amount of such withholding shall be paid by the optionee simultaneously
with the award or exercise of an Option.
20. Indemnification of Committee. In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees actually and necessarily incurred
in connection with the defense of any action, suit or proceedings, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the performance of
his duties; provided that within sixty (60) days after institution of any such
action, suit or proceeding a Committee member shall in writing offer the Company
the opportunity, at its own expense, to pursue and defend the same.
21. Application of Funds. The proceeds received by the Company from the
sale of Common Stock pursuant to Options granted hereunder will be used for
general corporate purposes.
22. Governing Law. This Plan shall be governed and construed in accordance
with the laws of the state of incorporation of the Company.
11
<PAGE> 12
EXECUTED this day of 1998.
-------- -------------
PERFORMANCE PRINTING CORPORATION
By:
---------------------------------------
John T. White
Chief Executive Officer and Director
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<PAGE> 1
EXHIBIT 10.3
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 units (the "Units")
at $5.125 per Unit (the "Unit IPO Price"); and
WHEREAS, each Unit is comprised of one share of common stock (the
"Common Stock") and one Redeemable Common Stock Purchase Warrant (the "Public
Warrants"); 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 (the
"Representative's Warrants") to purchase 120,000 Units (the "Representative's
Units"), each Unit being comprised of one share of the Common Stock (the
"Shares") and one Redeemable Common Stock Purchase Warrant ("Underlying
Warrants") exercisable to purchase 120,000 shares of the Company's Common Stock
(the "Underlying Warrant Shares"). The "Representative's Warrants" and the
"Representative's Units" are collectively referred to as the "Representative's
Securities." The "Representative's Units", the "Shares," the "Underlying
Warrants" and the "Underlying Warrant Shares" are collectively referred to as
the "Warrant Securities"; and
WHEREAS, the Representative's 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, relating to the purchase
of the Representative's Warrants, 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 Representative's 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 Units at an initial exercise
price (subject to adjustment as provided in Article 8 hereof) of $6.15 per share
(the "Unit Exercise Price"). Each Underlying Warrant is exercisable to purchase
one (1) share of Common Stock at $7.50 (the "Underlying Warrant Share Exercise
Price") per Underlying Warrant during the four (4) year period commencing one
year from the Effective Date.
Except as specifically otherwise provided herein, the Representative's
Units, the Shares, the Underlying Warrants and the Underlying Warrant Shares
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 Units, 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, omissions, substitutions, and other variations as
required or permitted by this Agreement.
<PAGE> 3
3. Exercise of Representative's Warrant.
3.1 Full Exercise.
(i) The Holder hereof may effect a cash exercise of the
Representative's 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 Securities that are
the subject of such exercise (as adjusted as hereinafter provided).
(ii) The Holder hereof may effect a cashless exercise of the
Representative's 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
Units to be purchased by each Holder hereof shall be determined by dividing: (i)
the number obtained by multiplying the number of Units that are the subject of
each Holder's Representative's Warrants Certificate by the sum of (1) Unit
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 Unit Exercise Price or the Underlying Warrant Share
Exercise Price, as applicable; by (ii) the Unit 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 security basis
as of the close of the business day preceding the exercise, which determination
shall be made as follows: (a) if the Units (or if the Units have become
detachable, the Common Stock and/or Warrants) are 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 the ten (10) trading days immediately preceding the date of
exercise, or if no trade of such securities 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 securities was so reported; or (b) if the securities 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
3
<PAGE> 4
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 securities are traded. Appropriate adjustments will be
made if the Units are separated and the Shares and the Underlying Warrants trade
independently.
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 Representative's Warrants or the Underlying
Warrants, the issuance of certificates for the Units or 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 Units or
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 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.
4
<PAGE> 5
5. Restriction On Transfer of Warrants.
The Holder of a Warrant Certificate, by acceptance thereof, covenants
and agrees that the Representative's 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 Representative's Warrants shall be
$6.15 per Warrant. The initial exercise price of each Underlying Warrant shall
be $7.50 per share. 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
Representative's 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 Units, 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 Representative's Warrants, certificates representing the
Units (or if the Units have become detachable, the Shares and the Underlying
Warrants) or, upon the exercise of the Underlying Warrants, the Underlying
Warrant Shares, shall bear the following legend in the event there is no current
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
5
<PAGE> 6
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 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.
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<PAGE> 7
(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 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.
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<PAGE> 8
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 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.
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<PAGE> 9
(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.
(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),
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<PAGE> 10
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 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.
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<PAGE> 11
(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".
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<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 Unit Unit Exercise Price, the Underlying Warrant Exercise
Price and the number of Representatives' 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 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
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<PAGE> 13
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 Representative's 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 Representative's
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 Representative's 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 Representative's 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
Representative's 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 the number of securities issuable
upon exercise of the Representative's Warrants and the Underlying Warrants
immediately prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price.
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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 Unit Exercise
Price, Underlying Warrant Exercise Price or the number of any securities
issuable upon exercise of the Representative's 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
Representative's 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 Representative's 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 Warrant Share Exercise Price 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.
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<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 Representative's
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 Representative's 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 Representative's 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 Representative's 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 Representative's 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.
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<PAGE> 16
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Representative's 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 substantially as set forth in the exhibits to the Warrant Agreement.
Subject to the
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<PAGE> 17
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 Representative's 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
(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.
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<PAGE> 18
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 __________,
2003. Notwithstanding the foregoing, the indemnification provisions of Section 7
shall survive such termination.
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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
NO. W-______
___________ Representative's ___________ Representative's
Warrants Units
or
___________ Underlying
Warrants
This Warrant Certificate certifies that ___________________, or
registered assigns, is the registered holder of _____________ Representative's
Warrants and/or ________ Representative's Units and/or _________________
Underlying Warrants of Performance Printing Corporation (the "Company"). Each
Representative's 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 Unit, each Unit consisting of one share of
the Company's Common Stock and one Redeemable Common Stock Purchase Warrant. The
Representative's Warrant has an initial exercise price, subject to adjustment in
certain events (the "Unit Exercise Price"), of $6.15 per Unit. Each
Representative's Warrant permits the Holder hereof to purchase initially, at any
time from the Purchase Date until four (4) years from the Purchase Date, one
Unit. Each Underlying Warrant permits the Holder thereof to purchase, at any
time from the Purchase Date until four (4) years from the Purchase
23
<PAGE> 24
Date, one (1) share of the Company's Common Stock at the Exercise Price of $7.50
per share.
Any exercise of Representative's Warrants and/or Representative's Units
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 Representative's Warrants, the
Representative's Units 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 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
24
<PAGE> 25
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 ______________ Representative's Warrants and/or
__________ Representative's Units 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,
_________ Units or _____________ Shares and/or _____________ Underlying Warrants
(if the Units become detachable) 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 ___________ Representative's 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,
Units or Shares, as applicable, 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 Units or 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 10.6
FIRST RENEWAL
PACKAGING SERVICES AGREEMENT
This First Renewal Packaging Services Agreement (this "Agreement"),
dated as of March 1, 1997, is made by and among Pinnacle Trading Card Company,
a Delaware corporation ("Pinnacle"), Performance Printing Corporation, a Texas
corporation ("Performance"), and Performance Packaging, L.C., a Texas Limited
Liability Company ("Packaging").
In consideration of the mutual covenants and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Engagement. Packaging hereby agrees to provide to Pinnacle
or any Affiliate of Pinnacle (hereinafter defined), the slitting, collating,
over wrapping and boxing of any projects and other requested services relating
thereto (collectively, the "Services") as requested by Pinnacle during the
Normal Term (as such term is hereinafter defined), upon the terms and subject
to the conditions set forth herein. Pinnacle shall not be obligated to request
that Packaging perform any Services during the term of this Agreement. As used
herein, an "Affiliate" of Pinnacle shall mean any person or entity controlling,
controlled by or under common control with Pinnacle.
2. Services.
(a) Capacity. Packaging owns certain equipment and
leases certain facilities including, but not limited to, those
described on Schedule A hereto (along with replacements thereof and
substitutions therefor, the "Initial Equipment on Hand"). Packaging
has agreed to acquire additional equipment and a new facility
designated by Pinnacle and reasonably acceptable to Performance at a
cost not in excess of $1,230,000 (along with replacements thereof and
substitutions therefor, the "Initial Expansion Equipment").
If Pinnacle wants Packaging to acquire additional equipment
and/or facilities (in addition to the Initial Equipment on Hand and
the Initial Expansion Equipment) to meet Pinnacle's needs and agrees
in writing that its Fixed Cost Payments (hereinafter defined) will be
adjusted in the manner set forth in Section 4(a)(i) hereof, then
Packaging shall use its best efforts to acquire such additional
equipment and/or facilities (along with replacements thereof and
substitutions therefor, the "Additional Expansion Equipment"). It is
possible that Pinnacle will
<PAGE> 2
desire that Packaging acquire additional equipment and/or facilities
to meet Pinnacle's needs but that Pinnacle does not require the
full-time use of such additional equipment and/or facilities. If
Pinnacle and Packaging agree in writing that Pinnacle's Fixed Cost
Payments will be adjusted as a result of the acquisition of such
equipment and/or facilities (which adjustment would not reflect the
full amount of the debt service relating to the acquisition of such
equipment and/or facilities), such additional equipment and/or
facilities shall also be "Additional Expansion Equipment."
Except as hereinafter set forth in this Section 2(a),
Packaging shall at all times dedicate such equipment and labor as may
be necessary to provide the Services required by Pinnacle within the
time periods required by Pinnacle (even if that means preempting the
work of other Packaging customers). If the Services requested by
Pinnacle require the use of equipment then owned by Packaging other
than Initial Equipment on Hand, the Initial Expansion Equipment or any
Additional Expansion Equipment (the "Non-Fixed Cost Capacity
Equipment"), then such Non-Fixed Cost Capacity Equipment shall be
available to Pinnacle on a first-come, first- served basis along with
Packaging's other customers. If the Services requested by Pinnacle
require the use of Partial Additional Expansion Equipment (hereinafter
defined), then such Partial Additional Expansion Equipment shall be
available to Pinnacle on such basis (i) as is agreed to by Packaging,
Pinnacle and Performance at the time such Partial Additional Expansion
Equipment is acquired, or (ii) if they do not agree, as is determined
by the Board of Packaging (hereinafter defined) (such basis to mean
whether Pinnacle will be entitled to use such Partial Additional
Expansion Equipment on the basis described in the first sentence of
this paragraph or on a first-come, first-served basis along with
Packaging's other customers). The term "Partial Additional Expansion
Equipment" means Additional Expansion Equipment for which (i) Pinnacle
indicated at the time of the proposed acquisition of such Additional
Expansion Equipment that Pinnacle did not require the full-time use of
such Additional Expansion Equipment, and (ii) Pinnacle and Packaging
are able to agree in writing to the amount of Pinnacle's Fixed Cost
Payments for such Additional Expansion Equipment.
(b) Supply of Materials. Pinnacle will timely provide
Packaging with all direct materials such as printed sheets, packaging
and packing materials including all boxes, wrapping materials and tape
that are required by Packaging in order to provide the Services. Said
materials shall be of the types and quality compatible with the
equipment to be used by Packaging in performing the
<PAGE> 3
Services. To the extent that additional costs are incurred by
Packaging due to delays in delivery of materials by Pinnacle or due to
substandard quality or incompatibility of materials supplied by
Pinnacle, Packaging shall timely inform Pinnacle (in advance of
performing the Services relating to such project when feasible), that
the cost to Pinnacle for that particular job shall be increased by the
amount of increased costs incurred by Packaging as a result of such
delays, substandard quality or incompatibility. If Packaging,
Pinnacle and Performance do not agree whether there are, or the amount
of, additional costs incurred, such additional costs, if any, shall be
determined by the Board of Packaging. Packaging is responsible for
providing normal operating supplies.
(c) Quality of Products; Scrap. All finished products,
when delivered to Pinnacle by Packaging in accordance herewith, will
adhere to the high standards of quality associated with Pinnacle's
products. For services listed on Schedule B hereto and under existing
production practices, to the extent 5% or more scrap is created on any
Program (i.e. -- a year specific, brand specific, sport specific,
product specific, packaging type specific and series specific
project), Packaging shall be liable to Pinnacle for Pinnacle's cost of
such excess scrap. Similar maximum acceptable scrap rates for new
services or new production practices will be set either (i)
unanimously by Packaging, Pinnacle and Performance or (ii) if they do
not agree, by the Board of Packaging. By written notice from
Pinnacle's President or Chief Financial Officer, Pinnacle shall be
entitled to offset such excess scrap cost against any payments due to
Packaging hereunder. If any party believes the then applicable
maximum acceptable scrap rate for a particular service or production
practice (whether the 5% or another rate) should be changed, it may
petition the Board of Packaging to change the rate and if the Board so
agrees the rate shall be so amended. All scrap shall be the property
of Pinnacle.
(d) Equipment. Packaging will at all times adequately
maintain the condition of, and repair, its equipment and machinery.
(e) Inspection. Packaging will provide to Pinnacle for
inspection the initial packages with respect to each project performed
pursuant to this Agreement. Prior to Packaging's going forward with
any such project, Pinnacle's representatives may inspect and approve
the initial packages for content, collation and quality (although it
shall have no obligation to do so). At any time and from time to time
during a project, Packaging shall deliver to Pinnacle for inspection,
such packages as Pinnacle may
<PAGE> 4
request. If a representative of Pinnacle disapproves of the initial
packages or any other packages, then Packaging shall, upon notice,
correct any such errors or flaws. Pinnacle may also inspect the
facilities of Packaging and observe the Services at any time or from
time to time.
(f) Delivery. Final products will be shipped by
Packaging as designated by Pinnacle. All shipping costs (both to and
from Packaging) will be payable by Pinnacle including all delivery
costs for materials, scrap and inspection items. Packaging is
responsible for (both with respect to physically and paying for)
loading and unloading products onto the trucks (or other
transportation) and for providing administrative support relating to
shipping. If Pinnacle requests fulfillment services from Packaging,
then such fulfillment services will be available to Pinnacle on such
basis (i) as is agreed to by Packaging, Pinnacle and Performance at
the time such fulfillment services are requested, or (ii) if they do
not agree, as is determined by the Board of Packaging.
3. Term. This Agreement shall commence on the date first above
written and terminate on the last day of the Normal Term.
(a) Normal Term. The "Normal Term" shall commence on
March 1, 1997, and shall end on (i) the fifth anniversary date of the
commencement of the Normal Term (or on such later date as to which
Pinnacle renews and extends the Normal Term), or (ii) such earlier
date as Pinnacle terminates this Agreement in accordance with the
terms hereof.
(b) Renewal. Pinnacle may, at its sole option and at any
time, renew and extend the Normal Term of this Agreement for up to
five successive one year terms (for one year at a time). If Pinnacle
does not provide written notice to Performance and Packaging at least
90 days prior to the end of the Normal Term (as it may be extended
from time to time) that it is not renewing and extending this
Agreement, the Normal Term of this Agreement shall automatically be
extended for a one year term on the terms and provisions hereinafter
set forth relating to renewals and extensions.
(c) Termination.
(i) Pinnacle may terminate this
Agreement at any time without further obligation and without
payment of cancellation fees or other amounts upon giving 90
days' advance written notice of the termination to Packaging
and Performance if Pinnacle
<PAGE> 5
believes that the delivery times or quality of services
rendered by Packaging hereunder is not up to the standards
expected by Pinnacle whether or not it is entitled to
terminate this Agreement pursuant to Section 3(c)(iii) hereof
(such delivery and quality standards to include, but not be
limited to (A) Packaging's failure to meet Pinnacle's delivery
schedule twice during the term of this Agreement, or (B) with
respect to any Program, Packaging's making more than two
specific quality infractions which have been designated in
writing by Pinnacle). The effective date of the termination
shall be the ninetieth day following delivery of the written
notices to Packaging and Performance.
(ii) Pinnacle may terminate this Agreement at any
time without cause and without further obligation upon
tendering to Packaging the cancellation fee specified opposite
from the year of cancellation below, such termination to be
effective as of the date such cancellation fee is tendered:
(A) the cancellation fee for
termination of this Agreement pursuant to this
Section 3(c)(ii) in any year shall be equal to the
amount set forth opposite that year below:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDING MARCH 1ST: PAYMENT
<S> <C>
1998 $500,000
1999 $400,000
2000 $300,000
2001 $200,000
2002 $100,000
</TABLE>
(B) In addition, if Packaging has
acquired prior to such date of termination any
Additional Expansion Equipment and this Agreement is
being terminated pursuant to this Section 3(c)(ii),
then an amount, if any, equal to the excess of the
debt then owing on such Additional Expansion
Equipment over the aggregate fair market value of the
Initial Equipment on Hand, the Initial Expansion
Equipment, and other Additional Expansion Equipment
shall also be paid by Pinnacle (but such additional
payment shall not be considered part of the
cancellation fee).
(iii) Pinnacle may terminate this Agreement
at any time without further obligation and without payment of
cancellation fees or other amounts
<PAGE> 6
upon giving written notice thereof to Performance upon the
occurrence of any of the following events:
(A) the material breach by Packaging
or Performance of any covenant or other agreement set
forth in this Agreement, the Amended and Restated
Regulations of Packaging; that certain Acquisition
Agreement entered into on June 13, 1994 (the
"Acquisition Agreement") or that certain
Organizational Agreement entered into on June 13,
1994 (the Organizational Agreement); provided that,
if such breach is curable, such breach is not cured
by Packaging or Performance within 30 days after
Pinnacle notifies Packaging of such breach and
provided further that Packaging and Performance shall
be entitled to cure the breach of a particular
covenant or agreement only once during the term of
this Agreement, and Packaging and Performance shall
only be entitled to cure an aggregate of three
breaches of covenant or agreement during the term of
this Agreement;
(B) any representation or warranty
made by Packaging or Performance in this Agreement,
the Amended and Restated Regulations of Packaging,
the Acquisition Agreement or the Organizational
Agreement shall have been materially incorrect, false
or misleading when made;
(C) the commission by Packaging,
Performance or any of their employees of any criminal
act or act of dishonesty relating to the Services or
otherwise relating to or affecting Pinnacle;
(D) Packaging or Performance makes an
assignment for the benefit of creditors or becomes
insolvent or fails generally to pay its debts as they
become due, or petitions or applies to any tribunal
for the appointment of a trustee, custodian, receiver
(or other similar official) of Packaging or
Performance or of all or any substantial part of the
assets of Packaging or Performance or commences a
voluntary case or any other proceedings relating to
Packaging or Performance under any bankruptcy,
reorganization, compromise arrangement, insolvency,
readjustment of debt, dissolution or liquidation or
similar law ("bankruptcy law") of any jurisdiction;
or
<PAGE> 7
(E) any such petition or application
is filed, or any such proceedings are commenced,
against Packaging or Performance, and Packaging or
Performance by any act or omission indicates its
approval, consent, or acquiescence, or an order for
relief is entered in any involuntary case under the
federal bankruptcy laws as now or hereafter
constituted, or an order, judgment or decree is
entered appointing any such trustee, custodian,
receiver, liquidator, or similar official or
adjudicating Packaging or Performance bankrupt or
insolvent, or approving the petition in any such
proceedings, and such order, judgment, or decree
remains in effect for 60 days.
(iv) Pinnacle agrees to notify the Lender
(hereinafter defined) if it terminates this Agreement pursuant
to this Section 3(c). As used herein, the term "Lender" means
the lender, if any, designated by written notice from the
Board of Packaging to Pinnacle as the lender holding a
security interest in the rights of Packaging hereunder.
4. Payment.
(a) Fixed Cost Payments. Pinnacle shall pay Packaging
on the first day of each month during the Normal Term an amount
calculated as follows (the "Fixed Cost Payments"): (i) the budget
payments determined in accordance with Section 4(a)(iii), below; plus
(ii) the amount set forth as the "Financing Portion of the Fixed
Costs" on Schedule C hereto. Such Fixed Cost Payments are payable in
advance and cover the month beginning on the day such Fixed Cost
Payments are due and payable. Notwithstanding the foregoing, if this
Agreement terminates on a date other than the last day of a month, the
last Fixed Cost Payment shall be reduced pro rata based on the number
of days covered by the last month of this Agreement.
(iii) The budgeted payments each month shall be the
amount determined as follows:
(A) Pinnacle will designate a person (the
"Designated Reviewer") to receive the proposed fixed
cost budget (the "Fixed Cost Budget") for each month.
<PAGE> 8
(B) Performance will forward to the
Designated Reviewer the proposed Fixed Cost Budget no
less than one week prior to the start of the month,
along with a reconciliation of the prior month's
Fixed Cost Budget compared to the actual results for
the prior month. For example, for the month of
June, the proposed Fixed Cost Budget would include a
reconciliation for the month of April.
(C) Unless a proposed change is suggested by
Pinnacle within three working days of the date the
proposed Fixed Cost Budget is received by Pinnacle,
the proposed budget will become the Fixed Cost Budget
for that month and the amount will be paid by
Pinnacle along with the Financing Portion of the
Fixed Cost Payment by the first work day of the
month.
(D) If Pinnacle does timely propose a change
to the Fixed Cost Budget, Performance will work with
Pinnacle to reach an agreement on the Fixed Cost
Budget before the start of the month. If Performance
and Pinnacle are unable to reach agreement, the Board
of Packaging will meet and establish the Fixed Cost
Budget for the month.
(iv) Notwithstanding the foregoing and the
provisions set forth on Schedule C hereto, the Fixed Cost
Payments shall be altered to reflect additions of Additional
Expansion Equipment (which additions and agreement to alter
the Fixed Cost Payments would require the agreement of
Pinnacle) in an amount determined either (x) by the mutual
agreement of Packaging, Pinnacle and Performance, or (y) if
Packaging, Pinnacle and Performance do not agree on the amount
of an adjustment to Fixed Cost Payments to reflect additions
of Additional Expansion Capacity, the Board of Packaging shall
determine the amount of such adjustment.
(v) If the Normal Term is renewed and extended,
the Fixed Cost Payments during the extended term will be
reduced to reflect the completion or reduction of equipment
financing or other debt service payments. Changes to the
Fixed Cost Payments for the extended period (other than
reductions to reflect the completion or reduction of financing
or other debt service payments) will be determined either (x)
by the mutual agreement of Packaging, Performance and Pinnacle
determined on a basis consistent with the amount initially set
for the Fixed Cost Payments during the Normal Term, or (y) if
Packaging, Performance and Pinnacle do not so agree, the Board
of
<PAGE> 9
Packaging will make such determination on the basis set forth
in clause (x) of this sentence.
(vi) The Fixed Cost Payments of Pinnacle hereunder
shall cease on the earlier of: (x) the expiration of the
Normal Term (as it may be extended); or (y) the effective date
of the termination of this Agreement with or without cause by
Pinnacle in accordance herewith.
(b) Variable Prices. In addition to the Fixed Cost Payments,
Pinnacle shall pay a Variable Price for Services if and to the extent
such Services are requested by Pinnacle and rendered by Packaging
during the Normal Term. The Variable Price shall be computed using the
Variable Price List, except that:
(i) Beginning on the first anniversary of the
start of the Normal Term, and continuing on each anniversary
thereafter, the Variable Prices set forth on the Variable
Price List shall be adjusted to reflect changes in the wage
rates at Packaging and changes in efficiency in performing the
Services set forth on the Variable Price List. The adjusted
prices set forth in the Variable Price List shall be
determined either (x) by the mutual agreement of Packaging,
Pinnacle and Performance, or (y) if they do not so agree, by
the Board of Packaging.
(ii) If all or any of the Services provided by
Packaging to Pinnacle are different from those included in the
Variable Price List, the Variable Price for such different
Services shall be the amount determined either (x) by
agreement among Packaging, Pinnacle and Performance or (y) if
they do not so agree, by the Board of Packaging. The parties
hereto agree that it is intended that the Variable Prices for
such different Services shall be based on the methodology set
forth on Schedule B hereto and shall not be treated as an
opportunity to increase the profits of Packaging in excess of
the amount of profits which may result from application of
such methodology.
(iii) If the Services requested by Pinnacle are not
able to be provided by Packaging using the Initial Equipment
on Hand, the Initial Expansion Equipment and the Additional
Expansion Equipment because that equipment is not the right
type of equipment to provide such Services, but the Services
requested by Pinnacle are able to provided by Packaging using
Non-Fixed Cost Capacity Equipment, then Packaging shall
<PAGE> 10
offer such Services to Pinnacle at a cost to be agreed upon by
Pinnacle and Packaging that may be different from the variable
price set forth on the Variable Price List.
(iv) If the Normal Term is extended, any changes
in the Variable Prices during the extended term will be
determined before the start of the extended term by either (x)
the mutual agreement of Packaging, Performance and Pinnacle on
a basis consistent with the amount initially set for the
Variable Prices during the Normal Term, or (y) if Packaging,
Performance and Pinnacle do not agree on such Variable Prices,
the Variable Prices for the extended term will be determined
by the Board of Packaging on the basis set forth in clause (x)
of this sentence.
(c) Alternative Pricing. Pinnacle may at any time and
from time to time request a firm quote for all or a portion of the
Services provided during the Normal Term, in which event Packaging
shall offer to provide such Services to Pinnacle at a price determined
either (i) by the mutual agreement of Packaging, Pinnacle and
Performance or (ii) if they do not agree, by the Board of Packaging.
At Pinnacle's option, the quoted price may be substituted for the
Variable Price for the project quoted.
(d) Payment Terms. All Variable Prices payable by
Pinnacle and all alternative pricing amounts payable by Pinnacle shall
be due and payable 45 days after delivery of a completed project to
Pinnacle, subject to any advance deposit as may be determined to be
necessary by Pinnacle, Packaging and Performance or, if they do not
agree, by the Board of Packaging.
5. Miscellaneous.
(a) Relationship. Packaging is furnishing the Services
to Pinnacle hereunder only as an independent contractor. This
Agreement does not create, and shall not be construed to create, any
employer- employee, joint venture or partnership relationship between
Packaging and Pinnacle. No officer, employee, agent or independent
contractor of Packaging or Pinnacle shall at any time be deemed to be
an employee, agent or contractor of the other.
(b) Notices. Any notice, consent, or other communication
to be given under this Agreement by any party to any other party shall
be in writing and shall be either (i) personally delivered, (ii)
mailed by registered or certified mail, postage prepaid with return
receipt requested, (iii) delivered by overnight express delivery
<PAGE> 11
service or same-day local courier service, or (iv) delivered by telex
or facsimile transmission, to the address set forth below or such
other address as may be designated by the parties from time to time in
accordance with this Section 5(b). Notices delivered personally, by
overnight express delivery service or by local courier service shall
be deemed given as of actual receipt. Mailed notices shall be deemed
given three business days after mailing. Notices delivered by telex
or facsimile transmission shall be deemed given upon receipt by the
sender of the answer back (in the case of a telex) or transmission
confirmation (in the case of a facsimile transmission).
If to Pinnacle: Pinnacle Brands, Inc.
1845 Woodall Rodgers
Suite 1300
Dallas, TX 75201
Attention: Chief Financial Officer
Telecopier: (214) 981-8200
with a copy (which Gardere & Wynne, L.L.P.
shall not constitute 1601 Elm Street
notice) to: Suite 3000
Dallas, Texas 75201
Attention: Katherine M. Seaborn
Telecopier: (214) 999-4667
If to Performance: Performance Printing Corporation
3012 Fairmount
Dallas, Texas 75201
Attention: President
Telecopier: (214)665-1099
with a copy (which Brown McCarroll & Oaks Hartline
shall not constitute 300 Crescent Court
notice) to: Suite 1400
Dallas, Texas 75201-6929
Attention: Richard Cox
Telecopier: (214) 999-6170
If to Packaging: Performance Packaging, L.C.
3012 Fairmount
Dallas, Texas 75201
Telecopier: (214)665-1099
<PAGE> 12
Whenever a matter is required pursuant to this Agreement to be
approved or consented to by Pinnacle and Performance, such approvals
or consents must be obtained from Pinnacle by Michael Cleary or John
Worth and from Performance by John T. White or Chris Pumpelley, or
such other persons as the applicable Member shall designate from time
to time.
(c) Board of Packaging. The business and affairs of
Packaging are managed under the direction of its Managers in
accordance with its Amended and Restated Regulations. In this
Agreement, several items may be determined by the "Board of
Packaging." That phrase means a determination by a majority of the
Managers then serving provided that such determination is made in
accordance with the Amended and Restated Regulations of Packaging.
Performance and Pinnacle acknowledge and agree that the
members of Packaging have unanimously approved of this Agreement, and
that pursuant to the Amended and Restated Regulations of Packaging,
Pinnacle has the right to designate a majority of the Managers of
Packaging and that those designees and the designees of Performance
might be considered to be "interested" in a particular matter decided
by the Board of Packaging under this Agreement. Performance and
Pinnacle agree that (i) they have been informed of the material facts
as to the relationships between Pinnacle, Performance and Packaging,
the interests of the Managers of Packaging relating thereto, and as to
the contracts and transactions between them, (ii) Performance and
Pinnacle specifically approve of this Agreement, including but not
limited to the provision pursuant to which certain matters are decided
by a majority of the Managers (including interested Managers), (iii)
the above-described matters shall be voted upon by all Managers
including the above-referenced designees who might be considered to be
"interested", and (iv) neither this Agreement nor any decision made by
the "Board of Packaging" pursuant to this Agreement shall be void or
voidable solely because the Managers may be directors or officers or
have a financial interest in Pinnacle or Performance, solely because
such a Manager is present at or participates in the meeting of
Managers which decides an issue to be determined by the Board of
Packaging, or solely because such Manager's or Managers' votes are
counted for such purpose, if:
(i) The material facts as to the relationship or
interest and as to such contract or transaction are disclosed
or are known to the Managers, and the Managers in good faith
authorize the contract or transaction by the affirmative vote
of a majority of
<PAGE> 13
the disinterested Managers, even though the disinterested
Managers be less than a quorum; or
(ii) The material facts as to the relationship or
interest and as to such contract or transaction are disclosed
or are known to the Members entitled to vote thereon, and the
contract or transaction is specifically approved in good faith
by vote of the Members; or
(iii) The contract or transaction is fair as to
Packaging as of the time it is authorized, approved, or
ratified by the Managers or Members.
The parties hereto agree that neither Packaging nor any Member
of Packaging shall be entitled to assert that a contract or
transaction is not fair as to Packaging unless (i) Packaging or a
Member of Packaging asserts in writing within 100 days after such
contract or transaction is authorized, approved or ratified that it is
asserting a claim in accordance with this Section 5(c) that an
approved contract or transaction was not fair as to Packaging at the
time it was approved or ratified and (ii) such written claim is
delivered to each of the Managers of Packaging within 100 days after
such approval. The parties hereto agree that a failure to assert a
claim in the manner and within the time periods set forth herein shall
be deemed (i) specific approval in good faith by the Members of such
contract or transaction and (ii) conclusive proof that such
transaction is fair to Packaging. If any party challenges the
fairness of a particular contract or transaction (whether or not a
lawsuit is filed) but such party did not assert and deliver the
written claim in accordance with, and pursuant to the time
requirements set forth in, this Section 5(c), such party agrees to
indemnify the interested party and the Manager that is affiliated with
the interested party from and against any and all obligations,
liabilities, costs, damages and expenses ("Loss") (including
reasonable attorneys' fees and damages resulting from the cancellation
or voiding of an applicable contract or transaction) incurred by
either of them, as such Loss is incurred, arising out of or relating
to such challenge. In addition, Packaging and each Member agree that
they shall not be entitled to assert against a Manager a claim for
breach of fiduciary duty or any other claim relating in any way to
approval of a contract or transaction unless (i) Packaging or such
Member expressly asserts in writing within 100 days after such
approval that it is asserting a claim against a Manager and (ii) such
written claim is delivered to the Manager against which such claim is
asserted within 100 days after such approval. If Packaging or any
Member asserts against a Manager a claim for breach
<PAGE> 14
of fiduciary duty or any other claim relating in any way to approval
of a contract or transaction (whether or not a lawsuit is filed), but
Packaging or such Member did not assert and deliver the written claim
to the Manager against which such claim is asserted in accordance
with, and pursuant to the time requirements set forth in the immediate
preceding sentence of this Section 5(c), Packaging and/or such Member,
as applicable, agrees to indemnify the Manager against which such
claim is asserted from and against any and all Loss (including
reasonable attorneys' fees) incurred by him, as such Loss is incurred,
arising out of or relating to such claim or the assertion of such
claim.
None of the provisions of this Agreement (including this
Section 5(c)) are intended to supersede, limit or define the fiduciary
duties of the Managers to the Members of Packaging. The terms
"Managers" and "Members" have the same meanings herein as in the
Amended and Restated Regulations of Packaging.
(d) Amendment. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all of
the parties hereto.
(e) Waiver. The failure of any party hereto to seek
redress for violation, or to insist upon the strict performance, of
any covenant, agreement, provision or condition of this Agreement,
shall not constitute a waiver of the terms of such covenant,
agreement, provision or condition at that time or at subsequent times
or of the terms of any other covenant, agreement, provision or
condition, and the parties hereto shall have all remedies provided
herein with respect to that act or any subsequent act which would have
originally constituted the violation hereunder.
(f) Nondisclosure of Confidential Information. During
the term of this Agreement, Packaging and Performance will have access
to and become familiar with various trade secrets and proprietary and
confidential information of Pinnacle and its Affiliates, including,
but not limited to, processes, compilations of information, records,
sales procedures, customer requirements, pricing techniques, customer
lists, methods of doing business and other confidential information
(collectively referred to as "Confidential Information"), which are
owned by Pinnacle and/or its Affiliates and regularly used in the
operation of its business, and as to which Pinnacle and/or its
Affiliates take precautions to prevent dissemination. During the term
of this Agreement, Pinnacle may have access to and become familiar
with various trade secrets and
<PAGE> 15
proprietary and confidential information of Performance which are
owned by Performance and regularly used in the operation of its
business and as to which Performance takes precautions to prevent
dissemination. Packaging and Performance acknowledge and agree that
the Confidential Information (i) is secret and not known in the
industry; (ii) gives Pinnacle or its Affiliates an advantage over
competitors who do not know or use the Confidential Information; (iii)
is of such value and nature as to make it reasonable and necessary to
protect and preserve the confidentiality and secrecy of the
Confidential Information; and (iv) is comprised of valuable, special
and unique assets of Pinnacle or its Affiliates, the disclosure of
which could cause substantial injury and loss of profits and goodwill
to Pinnacle or its Affiliates. Packaging and Performance may not use
or in any way disclose any of the Confidential Information, directly
or indirectly, either during the term of this Agreement or at any time
thereafter, except for disclosure among employees of Packaging
necessary to carry out this Agreement. All files, records, documents,
information, data and similar items relating to the business of
Pinnacle, whether prepared by Packaging or Performance or otherwise
coming into their possession, will remain the exclusive property of
Pinnacle, and in any event must be promptly delivered to Pinnacle upon
termination of this Agreement. Packaging and Performance agree that
upon receipt of any subpoena, process or other request to produce or
divulge, directly or indirectly, any Confidential Information to any
entity, agency, tribunal or person, it shall timely notify and
promptly hand deliver a copy of the subpoena, process or other request
to Pinnacle. For this purpose, each of Packaging and Performance
irrevocably nominates and appoints Pinnacle (including any attorney
retained by Pinnacle), as its true and lawful attorney-in-fact, to act
in its name, place and stead to perform any act that Packaging or
Performance might perform to defend and protect against any disclosure
of any Confidential Information. Notwithstanding the provisions set
forth in Section 3 hereof, the provisions set forth in this Section
5(f) shall survive and remain effective after the other provisions set
forth herein terminate. Pinnacle agrees to be bound by the provisions
of this Section 5(f) with respect to the trade secrets and proprietary
and confidential information of Performance to the same extent as
Performance is bound by the provisions of this Section 5(f) with
respect to the Confidential Information. Pinnacle agrees that
Performance shall have the same rights, responsibilities and remedies
with respect to the trade secrets and proprietary and confidential
information of Performance as Pinnacle has pursuant to this Section
5(f) with respect to the Confidential Information.
<PAGE> 16
(g) Assignment. The rights and duties created by this
Agreement shall not be assigned or delegated by any party hereto
without the prior written consent of the other parties hereto. Any
assignment or delegation made without such prior written consent shall
be null and void.
(h) Entire Agreement. This Agreement, the schedules and
exhibits hereto, and the other documents executed or delivered
pursuant to this Agreement, contain the complete agreement among the
parties with respect to the transactions contemplated hereby and
supersede all prior agreements and understandings, whether oral or
written, among the parties with respect to such transactions, except
that the obligations of any party under any agreement executed
pursuant to or contemporaneously with this Agreement shall not be
affected by this Section 5(h).
(i) Governing Law and Venue. The parties acknowledge and
agree that this Agreement and the obligations and undertakings of the
parties hereunder will be performable in Dallas, Dallas County, Texas.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Texas. If any action is
brought to enforce or interpret this Agreement, venue for such action
shall be in Dallas County, Texas.
(j) Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered
shall be deemed an original, and such counterparts together shall
constitute only one original.
6. Condition Subsequent. In the event Packaging fails to obtain
the financing described below (the Refinancing") on or before March 31, 1997,
Packaging shall notify Pinnacle in writing and Pinnacle shall have the option
to terminate this Agreement.
(a) Refinancing. The Refinancing shall be in the total
amount of $2,425,000.00, payable in 60 equal installments of principal
and interest with interest accruing at the rate of eleven percent
(11%) per annum.
(b) Method of Termination. Pinnacle's termination of this
Agreement hereunder shall be effective as of the date on which written
notice is received by Performance and Packaging. No termination shall
be effective unless received by Performance and Packaging prior to
Packaging's obtaining the Refinancing, regardless of the date of the
Refinancing.
(c) Prior Agreement. In the event of termination
pursuant to this Section 6, this Agreement shall become null and void,
and the previous Packaging Services
<PAGE> 17
Agreement among the parties hereto, dated June 13, 1994, as amended
from time to time prior to the date hereof, shall be reinstated and
fully effective as the agreement of the parties hereto with respect to
the matters covered therein.
IN WITNESS WHEREOF, this Agreement has been entered into as of the
date first written above.
PINNACLE BRANDS, INC.
By:
Michael J. Cleary,
Executive Vice President
PERFORMANCE PRINTING CORPORATION
By:
John T. White,
President
PERFORMANCE PACKAGING, L.C.
By:
John T. White,
President
SCHEDULE C
FINANCING PORTION OF THE FIXED COSTS
The Financing Portion of the Fixed Costs shall be determined each month during
the Normal Term, in accordance with the following:
1. For the first sixty months of the Normal Term, beginning with the
Fixed Cost Budget for March, 1997, it shall include the monthly payments on
$2,425,000, in the amount of $52,725.38 per month.
2. If Pinnacle approves the acquisition of Additional Expansion
Equipment, the note payments for such equipment shall be payable as part of the
Financing Portion of the Fixed Costs. The notes shall be payable over the
balance of the Normal Term or if one or more of Packaging, Performance and/or
Pinnacle desire
<PAGE> 18
that the notes be payable over a period other than the balance of the Normal
Term, the period over which such notes shall be payable shall be determined
either (a) by the agreement of Packaging, Performance and Pinnacle or (b) by
the Board of Packaging. It is possible that Pinnacle, with the written consent
of Performance, will desire that Packaging acquire additional equipment and/or
facilities to meet Pinnacle's needs but that Pinnacle does not require the
full-time use of such additional equipment and/or facilities. If that is the
case, the full amount of the note payments for such equipment shall not be
payable as part of the Financing Portion of the Fixed Costs, and Pinnacle's
Fixed Cost Payments will only be adjusted in such amount as shall be agreed to
in writing by Pinnacle, Performance and Packaging (which adjustment would not
reflect the full amount of the debt service relating to the acquisition of such
equipment and/or facilities).
<PAGE> 1
EXHIBIT 10.7
ORGANIZATIONAL AGREEMENT
This Organizational Agreement, dated as of June 13, 1994, is by and
among Performance Packaging L.C., a Texas limited liability company (the
"Company"), Pinnacle Brands, Inc., a Delaware corporation ("Pinnacle"), and
Performance Printing Corporation, a Texas corporation ("Performance").
WHEREAS, Performance organized the Company as a limited liability
company under the laws of the State of Texas; and
WHEREAS, Pinnacle has agreed to acquire a limited liability company
interest in the Company and enter into that certain Packaging Services Agreement
(the "Packaging Agreement") with the Company on the condition that the parties
hereto enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the
representations, covenants and agreements contained herein, and certain other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
ADMINISTRATION AND FINANCIAL MATTERS
1.01. Management of the Company. Performance agrees that during the
Initial Term (hereinafter defined) of the Packaging Agreement so long as the
Board of the Company (hereinafter defined) so desires, Performance will provide
at no charge to the Company, general oversight and management services for the
Company. Initially, John T. White will serve as president of Packaging. Pinnacle
employees will work closely with the employees of the Company to make sure the
Company meets the needs of Pinnacle. The management personnel of Pinnacle will
be reasonably available to consult with the management personnel of Performance
on business issues facing the Company. As used herein, "Initial Term" means the
period beginning on the date hereof and ending on the last day of the Normal
Term (as defined in the Packaging Agreement) excluding any renewals or
extensions of the Normal Term.
1.02. Accounting Services. During the Bridge Term (as defined in the
Packaging Agreement), Performance will provide to the Company, at no charge, the
same types of in-house accounting services as have been provided for the Company
during the first three months of 1994. During the Normal Term (as defined in the
Packaging Agreement), Performance will provide such accounting services for a
fee of $1,700 per month. If Performance determines that its costs of providing
such accounting services to the Company are greater or less than the amount it
is charging the Company, Performance may give written notice to the Company and
Pinnacle that it is changing the accounting services fee to cover such increased
or decreased cost and a proposed date for the fee change not less than 30 days
from the date the notice is received by the Company and Pinnacle. The Company or
Pinnacle may at any time terminate such accounting services of Performance to
the Company by giving written notice of such termination to Performance stating
the date on which Performance shall cease to provide such services.
<PAGE> 2
1.03. Acquisition of Additional Assets. Performance agrees that, prior
to commencement of the Normal Term, it will arrange for the purchase by the
Company of approximately $530,000 of assets to be designated by Pinnacle,
provided that such assets are reasonably acceptable to Performance. Performance
further agrees that it will arrange financing for the Company's purchase of such
assets and guarantee the debt incurred by the Company therefor.
1.04. Working Capital. Performance will use its best efforts to obtain
a working capital line of credit for the Company during 1994 and 1995.
Performance will be responsible for providing working capital for jobs involving
projects whereby both Performance and the Company perform services for a third
party, and Pinnacle will be responsible for providing working capital for jobs
performed for Pinnacle or its Affiliates (as that term is defined in the
Packaging Agreement) and jobs involving projects whereby both Pinnacle and the
Company perform services for a third party.
1.05. Costs of Organization. The Company shall timely reimburse
Pinnacle and Performance for legal fees and related expenses actually paid by
each of them in connection with or related to the preparation and negotiation of
this Agreement, the Packaging Agreement, that certain Acquisition Agreement
between the parties hereto, the Amended and Restated Regulations of the Company,
and the agreements, documents and instruments executed pursuant hereto and
thereto.
ARTICLE II
PROVISION OF SERVICES
2.01. Services For Performance. The Company shall only provide services
to Performance at such prices and on such terms as may be agreed to from time to
time by the Board of the Company.
2.02. Sales to Third Parties. The Company, Performance and Pinnacle
shall mutually agree on prices and terms for services provided to parties other
than Performance and Pinnacle (the "Pricing Strategy"). Exceptions to the
Pricing Strategy will require either (a) the mutual agreement of the Company,
Pinnacle and Performance, or (b) if the Company, Pinnacle and Performance do not
so agree, the Board of the Company shall determine the Pricing Strategy and/or
whether such exception is acceptable.
2.03. Joint Projects. If at any time an opportunity arises whereby both
Performance and the Company or Pinnacle and the Company will provide services to
a third party or the Company will provide services to a customer of Performance
or Pinnacle (any of such events being called a "Joint Project"), then the
officers of the Company shall determine the price and terms for providing such
services (consistent with the Pricing Strategy) and shall, concurrently with
informing the third party of its proposed price for providing such services,
telecopy to the designated representatives of Pinnacle (or if a Performance
officer is not at the time the President of the Company, to the designated
representatives of Pinnacle and Performance) a copy of such proposed price,
along with other documents that Pinnacle (or if a Performance officer is not at
the time the President of the Company, that Pinnacle and Performance) may
reasonably request. The price for services provided by the Company to a third
party on a Joint Project shall be paid in full
<PAGE> 3
to the Company without any profit or mark-up to Pinnacle or Performance. The
allocation of proceeds received on a Joint Project (including the allocation of
mark-ups on outside services and materials) shall be determined either (a) by
agreement of the Company, Performance and Pinnacle, or (b) if they do not so
agree, by the Board of the Company. It is intended that the allocation of
proceeds is to be fairly allocated based on the materials and services provided.
The Company is not to receive a windfall from the allocation of sale proceeds,
and it is not to subsidize the profits of Performance or Pinnacle by charging
disproportionately low prices for the services to be performed by the Company.
The selling expenses (sales commissions, travel and other sales related
expenses) incurred in connection with a Joint Project are be allocated among the
parties providing materials and services for the Joint Project either (a) by the
agreement of the Company, Performance and Pinnacle, or (b) if they do not so
agree, by the Board of the Company. The collection risks are to be borne
proportionately between each of the service providers. For example, if a joint
project is invoiced at $100,000 for a job with printing (by Performance) being
30%, marked-up outside services and materials being 40% and packaging (by the
Company) being 30%, and if the job is completed, the outside services and
materials would be paid for first, 50% of the other payments received on the job
would belong to the Company and 50% would belong to Performance, and if
additional amounts remained they would be paid based on the agreed allocation of
the mark-up on outside services and materials. If a Joint Project is cancelled
or otherwise not completed, the proceeds received shall be allocated among the
parties providing materials and services for the incomplete Joint Project either
(a) by the agreement of the Company, Performance and Pinnacle, or (b) if they do
not so agree, by the Board of the Company.
2.04. Business Opportunity. During the Initial Term of the Packaging
Agreement, Performance and John T. White, Chris Pumpelly and Joey Pate (certain
of its principals) agree not to render any services that the Company is capable
of performing or enter into any packaging business unless Performance or such
principal notifies Pinnacle and the Company that it is providing the Company the
opportunity to perform such services or get into such business (in accordance
with the procedures hereinafter set forth) and the Company declines such
opportunity to perform such services or enter into such proposed business
opportunity. In the event that Performance or such principals would like to
render such services or enter into such line of business, whether in response to
a particular opportunity or otherwise, it must first provide the Company and
Pinnacle with a detailed description of such services or such line of business
and of any particular opportunity or job to provide such services of which it is
aware or which it has been offered, indicating in writing that should the
Company choose not to provide such services or enter into such line of business,
Performance or its principals plan to do so. Pinnacle shall have ten days from
the date of such notice to indicate to Performance that the Company would like
to provide such services or enter into such line of business. If Pinnacle so
indicates and the Company diligently pursues entry into such line of business,
demonstrating, on a timely basis, its financial ability and commitment to pursue
such line of business, then Performance or such principals may not provide such
services or enter into such line of business thereafter during the Initial Term
of the Packaging Agreement. Any disputes arising from this Section 2.04 shall be
resolved by the Board of the Company.
<PAGE> 4
ARTICLE III
PREEMPTIVE RIGHTS
The Company may issue, sell or distribute limited liability company
interests in the Company ("Interests") only on the terms and conditions of this
Article III. If the Company desires to offer Interests to existing members or to
third parties, the Company shall notify Pinnacle and Performance in writing of
such intended sale at least 30 days prior to the date thereof, the purchase
price and other terms and conditions of such proposed issuance (or the purchase
price or basis for determining the same), and the date on or about which such
sale is to be made.
(a) Within 30 days after receipt of notice from the Company,
each of Pinnacle and Performance may notify the Company that it intends to
purchase an amount of such Interests equal to up to the percentage ownership
interest it then holds in the Company multiplied by the amount of the Interests
offered, on the same terms and conditions set forth in the Company's notice to
Pinnacle and Performance. The closing of such purchase shall be within 45 days
after the notice from the Company is received by such member.
(b) If, within 30 days after receipt by a member of notice
from the Company, the member does not send notice pursuant to subsection (a)
above, then the Company shall offer to sell the Interests to the other member
(if the other member exercised its right to purchase its percentage of the
offered Interests pursuant to subsection (a) above) on substantially the same
terms and conditions as those contained in the notice sent to Pinnacle and
Performance. If, within 15 days after receipt by such member of the offer to
purchase the remaining Interests pursuant to this subsection (b), the member
does not accept such offer, then the Company shall be free to sell the Interests
to a third party but only on substantially the same terms and conditions as
those contained in the notice sent to Pinnacle and Performance.
(c) Any notice given by the Company as described above, shall,
when taken together with the notice sent by Pinnacle or Performance to the
Company pursuant to subsection (a) or (b) above, constitute a legal, valid and
binding agreement on the terms and conditions therein set forth, it being
understood that any modification, amendment, variance or other charge by
Pinnacle or Performance to the terms and conditions set forth in such notice
given by the Company other than as provided herein shall be of no force and
effect unless consented to in writing by the Company.
(d) The Company shall be entitled to rely conclusively upon
any notice received, or the failure to receive any notice, pursuant to this
Article III and shall not be affected by or be required to give any effect to
any notice received pursuant thereto or otherwise from any persons other than
Pinnacle or Performance.
ARTICLE IV
MISCELLANEOUS
4.01. Termination of this Agreement. This Agreement shall continue
until, and shall terminate immediately upon, (a) execution of a written
agreement of termination by the Company, Pinnacle and Performance or (b)
effectiveness of a registration statement filed with the Securities and Exchange
Commission pursuant to which the Company would become a public company.
<PAGE> 5
4.02. Amendment. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by the party against
which enforcement of the amendment, modification or supplement is sought.
4.03. Notice. Any notice or communication must be in writing and given
by (a) deposit in the United States mail, addressed to the party to be notified,
postage prepaid and registered or certified with return receipt requested, (b)
delivery in person or by courier service providing evidence of delivery or (c)
transmission by telecopy. Each notice or communication that is mailed, delivered
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received, in the case of mailed notices, on the third business
day following the date on which it is mailed and, in the case of notices
delivered by hand, courier service or telecopy, at such time as it is delivered
to the addressee (with the delivery receipt or the affidavit of messenger) or at
such time as delivery is refused by the addressee upon presentation. For
purposes of notice, the addresses of the parties shall be: If to Pinnacle:
Pinnacle Brands, Inc.
924 Avenue J East
Grand Prairie, Texas 75050
Attention: Chief Financial Officer
Telecopier: (214) 601-7095
with a copy (which Gardere & Wynne, L.L.P.
shall not constitute 1601 Elm Street
notice) to: Suite 3000
Dallas, Texas 75201
Attention: Katherine M. Seaborn
Telecopier: (214) 999-4667
If to Performance: Performance Printing Corporation
1314 Motor Circle
Dallas, Texas 75207
Attention: President
Telecopier: (214) 819-9898
with a copy to (which) Brown McCarroll & Oaks Hartline
shall not constitute 300 Crescent Court
notice) to: Suite 1400
Dallas, Texas 75201-6929
Attention: Richard Cox
Telecopier: (214) 999-6170
If to the Company: Performance Packaging L.C.
9011 Governors Row
Dallas, Texas 75247
Telecopier: (214) 819-9898
Any party may change its address for notice by written notice given to
the other parties.
4.04. Board of the Company. The business and affairs of the Company are
managed under the direction of Managers. In this Agreement, several items may be
determined by the
<PAGE> 6
"Board of the Company". That phrase means a determination by a majority of the
Managers then serving.
4.05. Entire Agreement. This Agreement supersedes all prior agreements
and understandings relating to the subject matter hereof, except that the
obligations of any party under the Acquisition Agreement, the Packaging
Agreement, the Amended and Restated Regulations of the Company and any agreement
executed or required to be executed pursuant hereto or thereto shall not be
affected by this Section.
4.06. Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part hereof; and the remaining provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
4.07. Governing Law. This Agreement and rights and obligations of the
parties hereto shall be governed, construed and enforced in accordance with the
laws of the State of Texas.
4.08. Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
4.09. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
4.10. Number and Gender. Whenever the context requires, references in
this Agreement to the singular number shall include the plural, the plural
number shall include the singular and words denoting gender shall include the
masculine, feminine and neuter.
4.11. Legal Representation. All of the parties to this Agreement
acknowledge that they have had the opportunity to seek and have sought counsel
to review this Agreement and to obtain the advice of such counsel relating
thereto.
4.12. Non-assignability. This Agreement shall not be assignable by any
party to this Agreement without the prior written consent of the other parties
hereto except that it may be transferred to a permitted transferee of a member's
limited liability company interest.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement effective as of the date first above written.
PERFORMANCE PACKAGING L.C.
By:
-----------------------------
Its:
-----------------------------
PINNACLE BRANDS, INC.
By:
-----------------------------
Its:
-----------------------------
PERFORMANCE PRINTING CORPORATION
By:
-----------------------------
Its:
-----------------------------
The undersigned join in this Agreement for purposes of agreeing to be
bound by the provisions of Section 2.04 hereof applicable to "principals."
-----------------------------
John T. White
-----------------------------
Chris Pumpelly
-----------------------------
Joey Pate
<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
April 8, 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> YEAR
<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> 2,841,483
0
0
<COMMON> 44,000
<OTHER-SE> 1,342,308
<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> .08
<EPS-DILUTED> .08
</TABLE>
