AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1998
REGISTRATION NO. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SHOWPOWER, INC.
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(Name of small business issuer in its charter)
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<S> <C> <C>
DELAWARE 7359 95-4678707
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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18128 S. Santa Fe Avenue
Rancho Dominguez, California 90221
(310) 604-9676
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(Address and telephone number of principal executive
offices and principal place of business)
------------------------
JOHN J. CAMPION
Chief Executive Officer
Showpower, Inc.
18128 S. Santa Fe Avenue
Rancho Dominguez, California 90221
(310) 604-9676
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(Name, address and telephone number of agent for service)
------------------------
Copies to:
DAVID C. WORRELL HENRY O. SMITH III
Baker & Daniels Proskauer Rose LLP
Suite 2700 1585 Broadway
300 North Meridian Street New York, New York 10036-8294
Indianapolis, Indiana 46204-1782 (212) 969-3000
(317) 237-0300
------------------------
Approximate date 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. |_|
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Title of each class of Proposed maximum Amount of
securities to be registered aggregate offering price (1) registration fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share.................... $17,940,000 $ 5,293
Representative Warrants................................... $1,200 --(2)
Common Stock, par value $.01 per share, underlying
Representative Warrants.............................. $1,872,000 $553
- --------------------------------------------------------------------------------------------------------------------
Total................................................ --- $5,846
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
(2) Pursuant to Rule 457(g), the registration fee is included in the fee payable
for the underlying Common Stock.
-----------------------
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 the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Subject to Completion, Dated April __, 1998
PROSPECTUS
1,200,000 Shares
Showpower, Inc.
[Logo]
Common Stock
All of the 1,200,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), of Showpower, Inc. ("Showpower" or the "Company") offered
hereby are being sold for the account of the Company. Prior to this offering
(the "Offering"), there has been no public market for the Common Stock. It is
anticipated that the public offering price will be between $11.00 and $13.00 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the public offering price.
Application will be made to list the Common Stock on The American Stock
Exchange (the "AMEX") under the symbol "SHO."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK.
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.
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================================================================================================
Underwriting Discounts and Proceeds to
Price to the Public Commissions (1) the Company (2)
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<S> <C> <C> <C>
Per Share............. $ $ $
- ------------------------------------------------------------------------------------------------
Total (3)............. $ $ $
================================================================================================
</TABLE>
(1) Does not include a 3% non-accountable expense allowance payable to Prime
Charter Ltd. (the "Representative") and warrants to purchase 120,000
shares of Common Stock issuable to the Representative (the "Representative
Warrants"). In addition, the Company has agreed to indemnify the
Underwriters for certain liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company (including the
Representative's non-accountable expense allowance) estimated at $_______
($_______ if the Underwriters' over-allotment option is exercised in
full). See "Use of Proceeds."
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 180,000 additional shares of Common Stock at the Price to
the Public, less the Underwriting Discounts and Commissions, solely to
cover over-allotments, if any. If the Underwriters exercise such option in
full, the total Price to the Public, Underwriting Discounts and
Commissions, and Proceeds to the Company will be $______, $_______ and
$______, respectively. See "Underwriting."
The shares of Common Stock offered hereby are offered subject to receipt
and acceptance by the Underwriters, to prior sale and to the right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice and certain other conditions. It is expected that delivery of the shares
of Common Stock offered hereby will be made on or about _________ __, 1998.
PRIME CHARTER LTD.
The date of this Prospectus is _________ __, 1998.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[ARTWORK?]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under "Risk Factors." Unless otherwise indicated, the
information in this Prospectus: (i) gives effect to the Company's
reincorporation in Delaware; (ii) assumes no exercise of the Underwriters'
over-allotment option, the Representative Warrants or options outstanding under
the Company's 1998 Stock Option and Incentive Plan; and (iii) reflects a
754-for-one stock split of the Common Stock, which occurred on April 6, 1998. As
used in this Prospectus, unless the context indicates otherwise, the terms the
"Company" and "Showpower" refer to Showpower, Inc., its immediate predecessor
and its subsidiaries.
The Company
Showpower provides temporary power generation and temperature control
rental equipment and support services on a worldwide basis for entertainment,
corporate and special events. The Company's customers include corporations,
event producers, television networks, motion picture studios, performers and
facility operators that need electric power and/or temperature control services
to support events at locations where these services are inadequate or
unavailable. In addition to rental equipment, the Company provides fully
integrated, value-added services, including planning, technical advice,
customized installation, and on-site operation and support personnel. The
Company's power equipment consists of transportable, diesel-powered electricity
generators contained in acoustic enclosures and related power distribution
equipment. Temperature control equipment consists of transportable,
electrically-driven heating, ventilation and air conditioning ("HVAC") units.
The Company believes that its competitive advantages include the
relationships and name recognition it has established in the entertainment and
related industries and its ability to deploy and manage complex equipment
systems throughout the world. The Company believes that it will benefit from
certain trends within its target markets, including: (i) recognition among
customers that short-term equipment rental and support services provide a
cost-effective alternative to equipment ownership and related in-house support
capability; and (ii) growth in activities such as corporate sponsorship, live
television broadcasting and product promotions.
Initially, the Company provided power generation and distribution services
only for concert touring artists. In recent years, the Company has broadened its
customer base to include large-scale corporate and special events, live
television broadcasts, motion pictures, trade shows and conventions and has
expanded its capabilities to include temperature control services. The Company
has also expanded its operations geographically through acquisitions and by
opening new branch offices in order to capitalize on the worldwide growth in its
markets.
Showpower services three primary markets:
o Corporate and Special Events. Showpower services have been or will
be used by or in events for Pope John Paul II, the 1997
Presidential Inauguration, The Walt Disney Company, the 1998 World
Cup in France, Nike, Inc., Microsoft Corporation, Deutsche
Telekom, Inc., General Motors Corporation, NASCAR, Paramount
Pictures Corporation, the 1996 Republican National Convention, the
Hong Kong Handover Ceremonies and the National Football League.
o Concert Touring. The Company has provided services for the
worldwide concert tours of such artists as The Rolling Stones, U2,
Elton John, Billy Joel, Garth Brooks, Yanni, David Bowie, the
Three Tenors, Fleetwood Mac, Jimmy Buffet, Luciano Pavarotti,
Madonna, Paul McCartney, Bruce Springsteen, Pink Floyd and Spice
Girls, as well as touring festivals such as Lollapalooza.
o Television and Motion Pictures. Showpower has provided services
to all major U.S. broadcast and cable networks and many non-U.S.
networks in connection with more than 500 live broadcast events,
including
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<PAGE>
the summer and winter Olympic Games, the 1997 World Track and
Field Championships and other special broadcast events. The
Company also has provided services to major award shows, including
the Grammy Awards and European Music Awards. Recent film projects
have included Volcano, Dante's Peak, Starship Troopers, Broken
Arrow and Godzilla.
The Company's business strategy is to expand its rental service
capabilities and geographic scope, domestically and internationally, by: (i)
purchasing additional power generation and temperature control equipment; (ii)
enhancing existing customer relationships and attracting new business; (iii)
opening new branch offices; (iv) acquiring rental service businesses; and (v)
broadening the range of services it offers at existing branch offices. Showpower
intends to use a significant portion of the proceeds of the Offering to increase
the amount of equipment it owns, thereby significantly reducing the expense the
Company incurs in renting equipment for use in its customers' projects. In 1997,
rental expense was $2,810,241, or 16%, of revenue.
The Company's predecessor, Showpower, Inc., a California corporation, was
incorporated in 1991 to purchase the assets of a division of a theatrical
lighting company that had provided temporary power generation for touring
artists. In March 1998, the Company was reincorporated in Delaware. The
Company's principal executive offices are located at 18128 South Santa Fe
Avenue, Rancho Dominguez, California 90221. The Company's phone number is (310)
604- 9676.
The Offering
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<S> <C>
Common Stock offered hereby............. 1,200,000 shares
Common Stock to be outstanding
after the Offering.................... 3,241,848 shares
Use of proceeds......................... The net proceeds will be used to acquire power
generation, electrical distribution and temperature
control equipment, repay secured indebtedness, and
for other general corporate purposes. See "Use of
Proceeds."
Proposed AMEX symbol.................... SHO
</TABLE>
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<PAGE>
Summary Consolidated Financial Information
(Dollars in thousands, except per share data)
The financial data set forth below under the captions "Income Statement
Data" and "Other Financial Data" for the years ended December 31, 1996 and 1997,
and under the caption "Selected Balance Sheet Data--Actual" as of December 31,
1997, are derived from the consolidated financial statements of the Company,
included elsewhere in this Prospectus, audited by Deloitte & Touche LLP,
independent accountants. The data set forth below should be read in conjunction
with the Financial Statements and notes thereto included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1997 (1)
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<S> <C> <C>
Income Statement Data:
Revenue......................................................$ 11,567 $ 17,294
Cost of sales................................................ 7,609 9,790
---------------- -----------------
Gross profit................................................. 3,958 7,504
Selling, general and administrative expenses................. 3,552 6,179
Stock compensation........................................... --- 107
---------------- -----------------
Income from operations (2) (3)............................... 406 1,218
Other income and (expense)................................... (233) (171)
---------------- -----------------
Income before income taxes................................... 173 1,047
Provision for income taxes................................... 1 116
---------------- -----------------
Net income...................................................$ 172 $ 931
================ =================
Basic net income per share...................................$ 0.17 $ 0.54
Diluted net income per share................................. 0.17 0.52
Pro Forma Data: (4)
Income before income taxes...................................$ 173 $ 1,047
Pro forma provision for income taxes......................... 70 415
---------------- -----------------
Pro forma net income.........................................$ 103 $ 632
================ =================
Pro forma basic net income per share.........................$ 0.10 $ 0.37
Pro forma diluted net income per share....................... 0.10 0.35
Supplemental pro forma basic net income per share (5)........$ --- $ 0.35
Supplemental pro forma diluted net income per share (5)...... --- 0.34
Other Financial Data:
EBITDA (6)...................................................$ 1,469 $ 2,354
Net cash provided by operating activities.................... 969 2,363
Net cash used in investing activities........................ 1,801 4,018
Net cash provided by financing activities.................... 847 1,955
Capital expenditures, including non-cash items............... 1,699 2,903
Equipment rental expense..................................... 2,307 2,810
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<PAGE>
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<CAPTION>
As of December 31, 1997
-----------------------------------------------------------
Pro Forma As
Actual Pro Forma (7) Adjusted (7) (8)
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Selected Balance Sheet Data:
Working capital (deficit).............................. $ (1,608) $ (2,208) $ 9,302
Current assets......................................... 2,341 2,341 12,954
Total assets........................................... 11,725 11,725 22,338
Current liabilities.................................... 3,949 4,549 3,652
Long-term liabilities.................................. 2,470 3,170 2,380
Total liabilities...................................... 6,419 7,719 6,032
Stockholders' equity................................... 5,306 4,006 16,306
</TABLE>
- ----------
(1) Includes the results of operations of Templine subsequent to its
acquisition in March 1997.
(2) Includes a $417,048 reduction in the amount of depreciation and
amortization resulting from the change in 1997 in the estimated useful
lives of certain depreciable assets.
(3) Includes $162,800 of income recognized in January 1997 which was
attributable to a joint venture terminated in 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Consolidated Financial Statements and notes related thereto.
(4) Reflects the termination of the Company's S Corporation status. The pro
forma income statement data reflect provisions for federal and state income
taxes as if the Company's U.S. operations had been subject to federal and
state income taxation as a C Corporation at an assumed 40% combined federal
and state income tax rate during the periods presented. See "S Corporation
Conversion."
(5) Gives effect, as of the beginning of 1997, to an assumed issuance of 58,537
shares in connection with the $600,000 distribution to the Company's
existing stockholders for purposes of calculating supplemental pro forma
net income per share. See "Use of Proceeds" and "S Corporation Conversion."
(6) EBITDA is calculated herein as earnings before income taxes plus
depreciation, amortization and interest expense. The Company believes
EBITDA serves as an important financial analysis tool for measuring and
comparing financial information such as liquidity, operating performance
and leverage. EBITDA should not be considered an alternative to net income
or other cash flow measures determined under generally accepted accounting
principles as an indicator of the Company's performance or liquidity.
EBITDA as disclosed herein may not be comparable to EBITDA as disclosed by
other companies.
(7) Reflects the assumed conversion to C Corporation status, the establishment
of $700,000 of related deferred income taxes and distributions, immediately
prior to the Offering, of approximately $600,000 to the Company's existing
stockholders, representing taxes payable by such stockholders as a result
of the Company's historical treatment as an S Corporation.
(8) Gives effect to the receipt of the net proceeds of the sale of 1,200,000
shares of Common Stock offered hereby at an assumed public offering price
of $12.00 per share and the repayment of certain indebtedness. See "Use of
Proceeds" and "Capitalization."
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<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information in
this Prospectus, should be carefully considered in evaluating the Company and
its business before purchasing the shares of Common Stock offered hereby.
Unpredictable Nature of Business
The Company provides its services on a project-by-project basis and future
demand for its services cannot be predicted with any certainty. Although many
projects and touring events provide revenues over an extended period of time,
Showpower does not have agreements with its clients which require them to
utilize the Company on an ongoing basis. In addition, revenue derived from
triennial, quadrennial or special events has had in the past, and is expected to
have in the future, a significant effect on the Company's revenue and income,
causing the Company's revenue and operating results to fluctuate from period to
period. For example, revenue derived from two events, the Atlanta Olympic Games
and the Republican National Convention, accounted for approximately $3,825,000,
or 33%, of revenue in 1996. Consequently, the unpredictable timing and duration
of concert tours, the presence of large triennial and quadrennial events, such
as the World Cup, Olympics and national elections, the unpredictable timing,
duration and scale of corporate promotions and other special events, and general
national and international economic conditions may have a material adverse
effect on the Company. Most of the events serviced by the Company are held
outdoors in the northern hemisphere and typically occur during the second and
third quarters of the year.
Dependence on Entertainment Industry
A significant amount of the Company's business is derived from customers in
the entertainment and related industries. Spending by the public on
entertainment generally is considered highly discretionary and thus may be
adversely affected by general national and international economic or other
conditions or extraordinary events beyond the Company's control. Reduced
expenditures in the entertainment industry generally or significant reductions
in entertainment expenditures by the Company's customers or the general public
could have a material adverse effect on the Company. Concert touring customers
accounted for 21% and 23% of the Company's revenue in 1996 and 1997,
respectively. The concert touring business depends on the popularity and
commercial appeal of performing artists and their willingness to perform in
large arena and stadium venues around the world. Historically, a relatively
small number of performers has had sufficient commercial potential to make such
tours viable. There can be no assurance that these performers or others will
sustain the historical level of activity in the concert touring market or, if
they do, that they, or the promoters of their concerts, will continue to use
Showpower's services.
Management of Growth; Risks Associated with Acquisitions
The Company's business strategy is to expand by opening new branch offices,
acquiring existing businesses in new or existing markets and broadening the
range of services the Company offers at branch offices. Since September 1996,
the Company has made three acquisitions and has opened branch offices in the
United States, the United Kingdom and Brazil. This expansion has resulted in an
increase in the number of its employees and increased responsibility for
management. The Company's success depends to a significant extent on the ability
of its management, which has had limited management experience with public
companies, to manage growth and operate effectively. The Company's growth
strategy includes pursuing acquisitions in the rental services industry. The
success of the Company's acquisition strategy depends not only upon the
Company's ability to identify and acquire suitable businesses on a
cost-effective basis, but also upon its ability to integrate acquired personnel
and operations into its organization effectively, to retain and motivate key
personnel and to retain the customers of acquired businesses. There can be no
assurance that the Company will be able to achieve any of the foregoing. The
Company competes for acquisition opportunities with other companies that have
significantly greater financial and other resources than those of the Company.
The Company may use shares of Common Stock and/or preferred stock (which could
result in dilution to the purchasers of the Common Stock offered hereby) or may
incur long-term indebtedness or a combination thereof for all or a portion of
the
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<PAGE>
consideration to be paid for future acquisitions. The Company has no current
agreements or commitments and is not currently engaged in any negotiations with
respect to any acquisitions.
Dependence on Key Supplier
Beginning in 1992, the Company began using Caterpillar, Inc.
("Caterpillar") as its principal supplier of power generation equipment. The
Company has also established a credit relationship with a finance affiliate of
Caterpillar, as well as relationships and arrangements with certain independent
Caterpillar dealers (the "Caterpillar Dealers") under which the Caterpillar
Dealers acquire, maintain and rent power generation and temperature control
equipment to the Company for use in the Company's projects. The Company
considers its relationships with Caterpillar, Caterpillar's finance affiliate
and the Caterpillar Dealers to be mutually beneficial. Although management
believes that adequate alternative sources of rental equipment and financing
exist, an abrupt termination or change in the nature of Showpower's
relationships with Caterpillar, Caterpillar's finance affiliate or the
Caterpillar Dealers could adversely affect the Company's ability to implement
its expansion strategy. See "Business."
Dependence on Management
Certain of the executive officers of the Company, particularly John J.
Campion, Chief Executive Officer, and Laurence Anderson, President, are of
significant importance to the direction and management of the Company. The loss
of the services of such persons could have a material adverse effect on the
Company's business and future operations, and there can be no assurance that the
Company would be able to find replacements with comparable business experience.
The Company maintains key man insurance on the lives of Messrs. Campion and
Anderson in the amounts of $2,000,000 and $1,000,000, respectively. The Company
believes that its future success also will depend on its ability to retain,
motivate and attract additional managerial, operational, technical and sales
personnel. There can be no assurance that the Company will be successful in
retaining, attracting or training the personnel it requires to develop, assemble
and operate its equipment, market and provide its services or expand its
operations. See "Management."
Risks of Foreign Operations
In 1997, foreign operations accounted for 14% of the Company's revenue and
it is a part of the Company's strategy to increase its foreign operations. While
management believes its non-U.S. operations provide seasonal diversification as
well as diversification from dependence on the U.S. economy, operations and
investments in some foreign countries are subject to political and business
risks. The nature of these risks varies from country to country and from time to
time. The overall effect of the foregoing on the Company cannot be predicted
with any certainty.
The Company provides services on a worldwide basis, primarily to U.S.-based
customers, on terms denominated in U.S. dollars. In addition, Templine, the
Company's United Kingdom subsidiary, conducts most of its business in British
pounds sterling. The Company recently commenced operations in Brazil, where it
conducts business in Brazilian reals. The overall impact of foreign currency
fluctuations cannot be predicted with any certainty. Historically, Brazil has
experienced significant inflation and fluctuation in the value of its currency.
Despite recent reduction in inflation and currency volatility in Brazil, there
can be no assurance that such improvements will continue over the long term.
Competition
The Company faces significant competition in virtually all of its
geographical and product markets from general equipment rental companies,
specialized equipment rental companies, original equipment manufacturers
("OEMs") and their dealers or distributors. The Company also faces competition
from utility companies and from local and national electrical and HVAC
contractors. There are no significant barriers to entry into the power
generation and temperature control rental markets. Competition is based
primarily on the reputation, service quality, availability of equipment, and
price. Many of the Company's competitors are much larger and have greater
development, marketing and financial
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<PAGE>
resources. There can be no assurance that the Company will be able to compete
successfully in its markets or that competitive pressures will not have a
material adverse effect on the Company. See "Business - Competition."
Absence of Long-Term Contracts
The Company's customers generally retain the Company on a
project-by-project basis rather than under long-term contracts. Although
assignments from existing customers represented a significant portion of the
Company's revenue for 1997, there can be no assurance that a customer will
continue to use the Company in the future. To the extent that a large number of
the Company's current customers do not continue to use the Company's services,
and the Company is unable to attract new customers or extend existing customer
relationships, there would be a material adverse effect on the Company's
financial results.
Control of the Company by Existing Stockholders
After the sale of the shares of Common Stock offered hereby, the Company's
executive officers and directors will in the aggregate beneficially own
approximately 51% of the Company's outstanding Common Stock (48.4% if the
Underwriters' over-allotment option is exercised in full). Accordingly, such
persons, if they choose to act together, will be able to elect a majority of the
directors and exercise control over the business, policies and affairs of the
Company. Similarly, such persons, acting together, would be in a position to
prevent a takeover of the Company by one or more third parties, which could
deprive the Company's stockholders of a control premium that might otherwise be
realized by them in connection with an acquisition of the Company. See
"Principal Stockholders."
Substantial and Immediate Dilution
The initial public offering price is substantially higher than the pro
forma net tangible book value per share of Common Stock. Investors purchasing
shares of Common Stock in the Offering (at an assumed price of $12.00 per share)
will be subject to immediate dilution in net tangible book value of $7.37 per
share. See "Dilution."
Certain Transactions
The Company has engaged in, and expects to continue to engage in business
transactions with entities controlled by certain directors and stockholders of
the Company. Management believes that such transactions have been on terms no
less favorable to the Company than could have been obtained from unaffiliated
parties. See "Certain Transactions."
Government and Environmental Regulation
The Company and its operations are subject to numerous federal, state and
local laws and regulations governing, among other things, worker safety, air
emissions, water discharge and the generation, handling, storage,
transportation, treatment and disposal of hazardous substances and wastes. Under
laws and regulations relating to air emissions, the Company is required to
operate equipment within strict standards, and is required in certain areas,
such as southern California, to obtain operating permits for individual
generator sets. The Company expects that it, and other operators of equipment
utilizing diesel engines, will, in the future, become subject to stricter air
emissions standards, including requirements that engine manufacturers produce
cleaner-running products. In addition, the Company dispenses petroleum products
from temporary above-ground storage tanks at certain locations and operates
power generation equipment equipped with integral fuel tanks. There can be no
assurance, however, that these tanks have been or will at all times remain free
of leaks or that use of these tanks has not or will not result in releases. The
Company also uses hazardous materials such as solvents to clean and maintain its
rental equipment fleet. In addition, the Company generates and disposes waste
such as used motor oil, radiator fluid and solvents and may be liable under
various federal, state and local laws for environmental contamination at
facilities or project sites where its waste is or has been disposed. See
"Business-Government and Environmental Regulation."
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<PAGE>
No Prior Public Market; Possible Volatility of Stock Price
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
as a result of the Offering or, if a trading market does develop, that it will
be sustained or that the shares of Common Stock could be resold at or above the
public offering price. After completion of the Offering, the market price of the
Common Stock could be subject to significant variation due to fluctuations in
the Company's operating results, changes in earnings estimates by securities
analysts, the degree of success the Company achieves in implementing its
business and growth strategies, changes in business or regulatory conditions
affecting the Company, its customers or competitors, and other factors. In
addition, general economic, political and market conditions, may adversely
affect the market price of the Common Stock. The public offering price of the
Common Stock offered hereby has been determined through negotiations between the
Company and the Representative and may not be indicative of the market price of
the Common Stock after the Offering. See "Underwriting."
Shares Eligible for Future Sale
Upon consummation of the Offering, the Company will have outstanding
3,241,848 shares of Common Stock (3,421,848 shares if the Underwriters'
over-allotment option is exercised in full). Future sales of substantial amounts
of Common Stock (including 565,500 shares issuable upon the exercise of
outstanding stock options) by the Company's current stockholders after the
Offering, or the perception that such sales could occur, could adversely affect
the market price of the Common Stock. In addition, the Company has the authority
to issue additional shares of Common Stock and up to 1,000,000 shares of one or
more series of preferred stock (the "Preferred Stock"). The issuance of such
shares could result in the dilution of the voting power of the shares of Common
Stock purchased in the Offering and could have a dilutive effect on earnings per
share. The future sales of shares, or the availability of shares for future
sale, could have an adverse effect on the market price of the Common Stock. The
Company currently has no plans to designate or issue any shares of Preferred
Stock.
The Company, its directors and executive officers, and certain current
stockholders have agreed, not to directly or indirectly sell, offer to sell,
solicit an offer to buy, contract to sell, pledge, grant any option for the sale
of shares of Common Stock or otherwise transfer or dispose of any shares of
Common Stock, or any security convertible into, or exercisable or exchangeable
for, such shares of Common Stock, for a period of one year after the
consummation of the Offering without the prior written consent of the
Representative. See "Principal Stockholders," "Description of Capital Stock," "
Shares Eligible for Future Sale" and "Underwriting."
Discretionary Use of Proceeds
Although the Company anticipates utilizing the proceeds of this Offering as
stated herein, management will have broad discretion as to the actual uses of
such proceeds. Additionally, circumstances currently expected may change in the
future resulting in a reallocation of resources from that originally
contemplated. Approximately $7,000,000 of the proceeds received in this Offering
may be utilized to purchase power generation and temperature control equipment.
See "Use of Proceeds."
Anti-Takeover Effects of Certain Provisions of Delaware Law and the
Company's Certificate of Incorporation and Bylaws
Certain provisions of the Delaware General Corporation Law (the "DGCL") and
the Company's Certificate of Incorporation and Bylaws could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. Such provisions
could limit the price that investors might be willing to pay in the future for
the Common Stock.
Upon consummation of the Offering, the Board of Directors will be divided
into three classes, with each class serving a "staggered" term of office of
three years. In addition, the Company's Bylaws include requirements for advance
notification for certain items of business at stockholder meetings and for
stockholder nominees of directors.
-10-
<PAGE>
The Board of Directors of the Company has the authority to issue up to
1,000,000 shares of Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company.
In addition, the Company will, upon consummation of the Offering, be
subject to the anti-takeover provisions of Section 203 of the DGCL. In general,
this statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder unless such business combination is approved by the Board of
Directors or the stockholders as set forth in the DGCL. See
"Management--Executive Officers and Directors," "Description of Capital
Stock--Preferred Stock" and "--Delaware Law and Limitations on Changes in
Control."
Dividends Unlikely
The Company does not anticipate paying cash dividends on the Common Stock
in the foreseeable future (other than as described under "S Corporation
Conversion") and anticipates that any future earnings will be retained to
finance the Company's operations and expansion. See "Dividend Policy."
Forward-Looking Statements
This Prospectus contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by, and information currently available to, the Company. When
used in this Prospectus, the words "anticipate," "believe," "estimate,"
"expect," "will," "could," "may" and similar expressions, are intended to
identify forward-looking statements. Such statements reflect the current views
of management with respect to future events and are subject to certain risks,
uncertainties and assumptions, including those described in this Prospectus.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein. In addition to the other information in this Prospectus,
the above factors should be carefully considered in evaluating the Company and
its business and before purchasing the Common Stock offered hereby.
-11-
<PAGE>
USE OF PROCEEDS
Assuming an initial public offering price of $12.00 per share, the net
proceeds to the Company from the sale of the shares of Common Stock offered
hereby are estimated to be $12,300,000 ($14,244,000 if the Underwriters'
over-allotment option is exercised in full) after deducting underwriting
discounts and commissions of approximately $1,008,000 ($1,159,200 if the
Underwriters' over-allotment option is exercised in full) and expenses of the
Offering of approximately $1,092,000. The Company anticipates that the net
proceeds of the Offering will be applied substantially as follows:
<TABLE>
<CAPTION>
Approximate
Allocation of Proceeds Dollar Amount Percent
----------------------------- ------------------ ----------
<S> <C> <C>
Purchase of power generation and temperature control equipment............ $7,000,000 57%
Repayment of indebtedness (1)............................................. 3,900,000 32
Working capital........................................................... 800,000 6
Distribution to existing stockholders (2)................................. 600,000 5
----------- ---
$12,300,000 100%
=========== ===
</TABLE>
- ------------
(1) Consists primarily of notes payable to Caterpillar Financial Services
Corp., bearing interest at rates from 9.2% to 9.3% per annum and maturing
in 2002 through 2005 and two bank lines of credit bearing variable rates of
interest (8.4% and 9.8% at March 31, 1998, respectively) which mature in
1999. The debt to be repaid was incurred in 1997 (approximately $1,087,000)
and 1998 (approximately $2,813,000) primarily to acquire equipment.
(2) This amount approximates taxes paid or payable by the Company's existing
stockholders as a result of the Company's historical treatment as an S
Corporation. See "S Corporation Conversion."
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds of the Offering, together with
projected cash flow from operations, will be sufficient to satisfy its
contemplated cash requirements for at least 12 months following the consummation
of the Offering.
If the Underwriters' over-allotment option is exercised in full, additional
net proceeds of $1,944,000 will be added to working capital. Pending utilization
of the proceeds of the Offering, the Company may make temporary investments in
government securities or other short-term high quality, interest-bearing fixed
income investments.
S CORPORATION CONVERSION
The Company has been treated for federal and state income tax purposes as
an S Corporation under Subchapter S of the Internal Revenue Code of 1986, as
amended (the "Code"), since 1991. As a result of the Company's status as an S
Corporation, the Company's stockholders, rather than the Company, have been
taxed directly on the earnings of the Company for federal and certain state
income tax purposes, whether or not such earnings were distributed.
Simultaneously with this Offering the Company will terminate its status as an S
Corporation and will thereafter be subject to federal and state income taxes at
applicable C Corporation rates.
Distributions
Upon the termination of its Subchapter S status and its conversion to C
Corporation status, the Company will estimate the amount of undistributed 1998 S
Corporation earnings taxable to existing stockholders and make a distribution to
such stockholders of approximately 48% of that amount. The distribution is
estimated at approximately $600,000.
-12-
<PAGE>
Accounting Effect
In connection with the conversion of its S Corporation status to C
Corporation status, the Company is required by Statement of Financial Accounting
Standards No. 109 to record deferred tax liabilities. Such change will result in
a net charge to earnings of approximately $800,000 in the fiscal quarter in
which the conversion to C Corporation status takes place. This one-time charge
is a result of differences in the accounting and tax treatment of certain of the
Company's assets and liabilities and is reflected through an increase in
deferred income tax liabilities, $700,000 of which relates to tax and accounting
differences as of December 31, 1997.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future (other than as described above under "S
Corporation Conversion") and anticipates that any future earnings will be
retained to finance the Company's operations and expansion. The payment of cash
dividends in the future will be at the discretion of the Board of Directors and
will depend upon the Company's earnings levels, capital requirements,
restrictive loan covenants and other factors the Board of Directors may deem
relevant. The Company's bank line of credit agreement restricts payment of
dividends to 50% of net income.
DILUTION
The pro forma net tangible book value (total assets less total liabilities
and net intangible assets and after giving effect to deferred income taxes and
distribution to existing shareholders) of the Company's Common Stock at December
31, 1997 was $2,715,245 ($1.33 per share after giving effect to the 754-for-one
stock split).
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in the
Offering and the net tangible book value per share of the Common Stock
immediately after consummation of the Offering. After giving effect to the
754-for-one stock split, the sale of 1,200,000 shares of Common Stock in the
Offering at an assumed public offering price of $12.00 per share and the
application of the estimated net proceeds therefrom, the pro forma net tangible
book value of the Company as of December 31, 1997 would have been $15,015,245,
or $4.63 per share. See "Use of Proceeds." This represents an immediate increase
in net tangible book value of $3.30 per share to existing stockholders of the
Company and an immediate dilution in net tangible book value of $7.37 per share
to purchasers of Common Stock in the Offering, as illustrated in the following
table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share of Common Stock.................. $ 12.00
Pro forma net tangible book value per share before
giving effect to the Offering.................................. $ 1.33
Increase in pro forma net tangible book value per share
attributable to new investors.................................. 3.30
--------
Pro forma net tangible book value per share after
giving effect to the Offering.................................. 4.63
--------
Dilution per share to new investors...................................... $ 7.37
========
</TABLE>
-13-
<PAGE>
The following table summarizes, as of December 31, 1997, after giving
effect to the Offering, the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by the existing stockholders and by new investors purchasing Common
Stock in the Offering based on an assumed public offering price of $12.00 per
share before deducting underwriting discounts and estimated expenses of the
Offering payable by the Company.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------------- ------------------------------ Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 2,041,848 63.0% $ 7,157,199 33.2% $ 3.51
New investors................. 1,200,000 37.0% 14,400,000 66.8% $ 12.00
--------------- ------------ --------------- -----------
Total 3,241,848 100.0% $ 21,557,199 100.0%
=============== ============ =============== ===========
</TABLE>
-14-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company on an
actual, pro forma and pro forma as adjusted basis as of December 31, 1997. The
data set forth below should be read in conjunction with the other financial
information presented elsewhere in this Prospectus. The following table gives
effect to the Company's reincorporation in Delaware and the 754-for-one stock
split.
<TABLE>
<CAPTION>
As of December 31, 1997
-----------------------------------------------------------------
Pro Forma
Actual Pro Forma (1) As Adjusted (1)(2)
--------------------- ------------------ ---------------------
(In thousands)
<S> <C> <C> <C>
Debt:
Current:
Bank line of credit.............................. $ 119 $ 119 $ ---
Current portion of long-term debt................ 728 728 550
Current portion of capital lease obligations..... 135 135 135
Due to stockholders.............................. --- 600 ---
------------------- ----------------- ---------------------
Total 982 1,582 685
Long Term:
Long-term debt................................... 2,197 2,197 1,407
Capital lease obligations........................ 53 53 53
------------------- ----------------- ---------------------
Total 2,250 2,250 1,460
------------------- ----------------- ---------------------
Total debt (including current portion)....... 3,232 3,832 2,145
------------------- ----------------- ---------------------
Stockholders' equity:
Preferred Stock, $.01 par value,
1,000,000 shares authorized;
none outstanding................................. --- --- ---
Common Stock, $.01 par value:
Authorized shares - 6,500,000 Actual, Pro Forma
and Pro Forma As Adjusted; outstanding shares
- 2,041,848 Actual and Pro Forma and 3,241,848
Pro Forma As Adjusted........................ 20 20 32
Additional paid-in capital............................ 6,658 6,658 18,946
Notes receivable from stockholders.................... (479) (479) (479)
Cumulative foreign currency translation
adjustment.......................................... 17 17 17
Accumulated deficit................................... (910) (2,210) (2,210)
------------------- ----------------- ---------------------
Total stockholders' equity....................... 5,306 4,006 16,306
------------------- ----------------- ---------------------
Total capitalization......................... $ 8,538 $ 7,838 $ 18,451
=================== ================= =====================
</TABLE>
- ------------
(1) Gives effect to conversion of the Company to C Corporation status and the
related tax distribution to existing stockholders.
(2) Gives effect to the receipt and the application of the estimated net
proceeds of the Offering to reduce indebtedness of approximately $1,087,000
outstanding at December 31, 1997 and excludes indebtedness of approximately
$2,813,000 incurred subsequent to December 31, 1997, which will be repaid
from the proceeds of the Offering.
See "Use of Proceeds."
-15-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
The financial data set forth below under the captions "Income Statement Data"
and "Other Financial Data" for the years ended December 31, 1996 and 1997, and
under the caption "Selected Balance Sheet Data--Actual" as of December 31, 1997,
are derived from the consolidated financial statements of the Company, included
elsewhere in this Prospectus, audited by Deloitte & Touche LLP, independent
accountants. The data set forth below should be read in conjunction with the
Financial Statements and notes thereto included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1997 (1)
------------------ ------------------
<S> <C> <C>
Income Statement Data:
Revenue......................................................$ 11,567 $ 17,294
Cost of sales................................................ 7,609 9,790
---------------- -----------------
Gross profit................................................. 3,958 7,504
Selling, general and administrative expenses................. 3,552 6,179
Stock compensation........................................... --- 107
---------------- -----------------
Income from operations (2) (3)............................... 406 1,218
Other income and (expense)................................... (233) (171)
---------------- -----------------
Income before income taxes................................... 173 1,047
Provision for income taxes................................... 1 116
---------------- -----------------
Net income...................................................$ 172 $ 931
================ =================
Basic net income per share...................................$ 0.17 $ 0.54
Diluted net income per share................................. 0.17 0.52
Pro Forma Data: (4)
Income before income taxes...................................$ 173 $ 1,047
Pro forma provision for income taxes......................... 70 415
---------------- -----------------
Pro forma net income.........................................$ 103 $ 632
================ =================
Pro forma basic net income per share.........................$ 0.10 $ 0.37
Pro forma diluted net income per share....................... 0.10 0.35
Supplemental pro forma basic net $ --- $ 0.35
income per share (5).......................................
Supplemental pro forma diluted net --- 0.34
income per share (5).......................................
Shares used in computing basic net
income per share........................................... 990,294 1,724,580
Shares used in computing diluted net
income per share........................................... 990,294 1,801,143
Other Financial Data:
EBITDA (6)...................................................$ 1,469 $ 2,354
Net cash provided by operating activities.................... 969 2,363
Net cash used in investing activities........................ 1,801 4,018
Net cash provided by financing activities.................... 847 1,955
Capital expenditures, including non-cash items............... 1,699 2,903
Equipment rental expense..................................... 2,307 2,810
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1997
---------------------------------------------------------
Pro Forma As
Actual Pro Forma (7) Adjusted (7)(8)
---------------- ---------------- ------------------
<S> <C> <C> <C>
Selected Balance Sheet Data:
Working capital (deficit)....................... $ (1,608) $ (2,208) $ 9,302
Current assets.................................. 2,341 2,341 12,954
Total assets.................................... 11,725 11,725 22,338
Current liabilities............................. 3,949 4,549 3,652
Long-term liabilities........................... 2,470 3,170 2,380
Total liabilities............................... 6,419 7,719 6,032
Stockholders' equity............................ 5,306 4,006 16,306
</TABLE>
- ----------
(1) Includes the results of operations of Templine subsequent to its
acquisition in March 1997.
(2) Includes a $417,048 reduction in the amount of depreciation and
amortization resulting from the change in 1997 in the estimated
useful lives of certain depreciable assets.
(3) Includes $162,800 of income recognized in January 1997 which was
attributable to a joint venture terminated in 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Consolidated Financial Statements and notes related thereto.
(4) Reflects the termination of the Company's S Corporation status. The pro
forma income statement data reflect provisions for federal and state
income taxes as if the Company's U.S. operations had been subject to
federal and state income taxation as a C Corporation at an assumed 40%
combined federal and state income tax rate during the periods presented.
See "S Corporation Conversion."
(5) Gives effect, as of the beginning of 1997, to an assumed issuance of
58,537 shares in connection with the $600,000 distribution to the
Company's existing stockholders for purposes of calculating supplemental
pro forma net income per share. See "Use of Proceeds" and "S Corporation
Conversion."
(6) EBITDA is calculated herein as earnings before income taxes plus
depreciation, amortization and interest expense. The Company believes
EBITDA serves as an important financial analysis tool for measuring and
comparing financial information such as liquidity, operating performance
and leverage. EBITDA should not be considered an alternative to net income
or other cash flow measures determined under generally accepted accounting
principles as an indicator of the Company's performance or liquidity.
EBITDA as disclosed herein may not be comparable to EBITDA as disclosed by
other companies.
(7) Reflects the assumed conversion to C Corporation status, the establishment
of $700,000 of related deferred income taxes and distributions,
immediately prior to the Offering, of approximately $600,000 to the
Company's existing stockholders, representing taxes payable by such
stockholders as a result of the Company's historical treatment as an S
Corporation.
(8) Gives effect to the receipt of the net proceeds of the sale of 1,200,000
shares of Common Stock offered hereby at an assumed public offering price
of $12.00 per share and the repayment of certain indebtedness. See "Use of
Proceeds" and "Capitalization."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements, including the related notes thereto, and
other financial information included herein. The following information also
includes forward-looking statements, the realization of which may be impacted by
certain important factors discussed under "Risk Factors."
-17-
<PAGE>
Overview
Showpower provides temporary power generation and temperature control
rental equipment and support services on a worldwide basis for entertainment,
corporate and special events. The Company's customers include corporations,
event producers, television networks, motion picture studios, facility operators
and performers that need electric power and/or temperature control services to
support events at locations where these services are inadequate or unavailable.
In addition to rental equipment, the Company provides fully integrated,
value-added services, including planning, technical advice, customized
installations, on-site operations and support personnel. The Company's power
equipment consists of transportable, diesel-powered electricity generators
contained in acoustic enclosures and related power distribution equipment.
Temperature control equipment consists of transportable, electrically-driven
HVAC units.
The Company's predecessor, Showpower, Inc., a California corporation, was
formed in 1991 to purchase the assets of a division of a theatrical lighting
company that had provided temporary power generation and electrical distribution
services for touring artists since 1987. In 1992, the Company began providing
these services for live television broadcasts and large-scale special events. In
1995, the Company began providing power generation and distribution services to
the corporate special events industry and subsequently added temperature control
equipment and services. In 1997, the Company began to provide its services to
the motion picture, trade show and convention industries.
The Company has expanded geographically by making acquisitions and opening
new branch offices. During the third quarter of 1996, the Company acquired the
assets of a generator rental and electrical contracting company located in
Dallas, Texas and opened a corresponding branch office in Richardson, Texas. In
March 1997, the Company acquired Templine, headquartered in Bristol, England, to
expand its presence and scope of operations in Europe. In 1998, the Company
commenced operations in Brazil, and opened a branch office in Rio de Janeiro.
During the first quarter of 1998, the Company acquired the assets of a generator
rental company in Miami, Florida and opened a corresponding branch office in
Fort Lauderdale, Florida. During 1997, Templine and the Company's Texas branch
office contributed approximately $3,322,000 to total revenue.
Revenue is generated from the rental of equipment and related technical and
support services. Showpower provides services on a project-by-project basis.
Customers typically pay on a fixed-fee basis for each project or rental
transaction. Most transactions involve partial payment on or before delivery of
equipment to a customer's project site. Revenue is recognized as service is
provided. Services related to large-scale or longer-term projects typically
involve advance deposits and progress payments. Customer deposits and cash
received before services are performed are deferred and recorded as current
liabilities. Large-scale or longer-term projects also typically require
contractual documentation. Customer contracts generally cover service dates,
specify equipment and personnel requirements, delineate the services to be
provided and contain payment schedules. Certain costs, including airfare and
shipping, are usually borne by the customer.
Project lead times vary. Much of the Company's business is related to
scheduled television broadcasts, concerts, special events, corporate events and
motion pictures and, therefore, the Company receives advance notice of projects
ranging from one week to several months. Large projects often require research
and analysis, including site inspections, development of technical
specifications and performance standards, coordination with other service
vendors, production of electrical drawings and assembly of equipment, which may
be configured specifically to meet project needs. Frequently, however, the
Company is asked to deploy equipment systems or provide additional equipment and
services to existing projects on shorter notice. The Company also provides
equipment in response to weather-related emergencies and plant breakdowns, but
these applications constitute only a small portion of the Company's business.
Cost of sales consists primarily of rental expense, labor, shipping costs
and depreciation expense related to power generation and temperature control
equipment. Power generation and temperature control equipment rental expense is
a significant component of cost of sales. The Company expects to decrease
equipment rental and shipping expenses by reducing the proportion of rented
equipment used in its business and by locating more equipment at branch offices
within areas where demand for Showpower's services exist.
-18-
<PAGE>
Selling, general and administrative expenses consists primarily of
salaries, wages and benefits, insurance, occupancy costs, advertising, equipment
repairs and maintenance, supplies, communications, vehicles, depreciation and
amortization expense and bad debts.
Depreciation and amortization includes charges for rental equipment and
other equipment, as well as amortization of intangibles related to the
acquisition of Templine. The Company depreciates property and equipment over
estimated useful lives of five to ten years. Intangibles are amortized over a
period of fifteen years.
The Company experiences quarterly, seasonal and annual variations in
revenue and net income as a result of several factors, including the timing and
scale of concert tours, broadcast events and special events, delays in or
cancellations of customers' tours and events, the presence or absence of
triennial, quadrennial and large-scale special events, as well as changes in the
Company's revenue mix among its various rental services offered. Most of the
events serviced by the Company are held outdoors in the northern hemisphere and
typically occur during the second and third quarters of the year.
More than 85% of Showpower's revenue in 1997 was denominated in U.S.
dollars. The balance of the Company's revenue was primarily denominated in
British pounds sterling. Foreign currency denominated revenue in 1996 was not
significant. The Company anticipates that foreign currency denominated revenue
will become a more significant part of the Company's total revenue as it opens
additional branch offices outside of the United States.
Results of Operations
The following table sets forth components of the Company's statement of
operations as a percentage of revenue.
Year Ended
December 31,
-------------------
1996 1997
------- -------
Revenue 100% 100%
Cost of sales 66 57
------- -------
Gross profit 34 43
Selling, general and administrative 31 35
Stock compensation --- 1
------- -------
Operating income 3 7
Interest and other (net) (2) (1)
------- -------
Income before income taxes 1 6
Provision for income taxes --- (1)
------- -------
Net income 1% 5%
======= =======
Year ended December 31, 1997 Compared to Year ended December 31, 1996
Revenue. Revenue increased to $17,294,036 in 1997 from $11,567,589 in 1996,
an increase of $5,726,447, or 50%. Of this increase, $2,669,000, or 47%, was
attributable to increased revenues from concert touring, special events and
corporate events and $2,491,000, or 43%, and $566,000, or 10%, was attributable
to the acquisition of Templine in March 1997 and a full year of operations from
the Company's Texas branch office opened in September 1996, respectively. The
Company increased its 1997 television, special events and corporate events
revenue despite the absence of television, special events and corporate events
revenue associated with the Olympics and the Republican National Convention,
which accounted for $3,825,000, or 33%, of revenues in 1996. Concert touring
business increased principally because of the commencement of a tour by U2.
-19-
<PAGE>
Cost of sales. Cost of sales increased to $9,790,219 in 1997 from
$7,608,709 in 1996, an increase of $2,181,510, or 29%, as a result of increased
sales. Cost of sales as a percentage of total revenue decreased to 57% in 1997
from 66% in 1996. The reduction in cost of sales as a percent of revenue in 1997
reflected reduced equipment rental costs as a percent of revenue (partially
attributable to the acquisition of Templine), generally improved cost estimating
procedures for special events and corporate events, and the absence of higher
rental, transportation and other costs related to the 1996 Olympic Games.
The Company incurred rental expense for equipment used to provide service
to its customers of $2,810,241 (16% of revenue) and $2,306,528 (20% of revenue)
in 1997 and 1996, respectively. Short-term power and temperature control
equipment rental expense, a component of cost of sales, declined in 1997 as a
percentage of total revenues, partly as a result of increased capital
expenditures to purchase equipment and partly as a result of the acquisition of
Templine. Other significant components of cost of sales included personnel and
travel costs of $3,405,000 in 1997 (20% of revenue), transportation costs of
$1,452,000 in 1997 (8% of revenue) and depreciation expense of $881,460 (5% of
revenue). Personnel, travel and transportation costs in 1997 approximated 1996
amounts as a percent of revenue, while depreciation expense related to power
generation and temperature control equipment decreased $46,978 in 1997 from
$928,438 (8% of revenue) in 1996. Depreciation increased approximately $231,400
due to capital expenditures during 1997, as well as depreciation of $138,670
related to the acquisition of Templine in 1997. In 1997, the Company reevaluated
the useful lives of certain assets previously depreciated over five to seven
years and recorded depreciation using five- to ten-year useful lives, effective
January 1, 1997. The effect of this change in estimated useful lives resulted in
a decrease in depreciation charges of $417,048 in 1997, which offset increases
in depreciation.
In 1996, the Company recorded an expense of $218,000 relating to the
dissolution of a joint venture that had been formed to provide power generation
and temperature control services at the 1996 Atlanta Olympic Games. Following a
decision by the Olympic organizing committee not to use the joint venture's
services, the Company dissolved the joint venture, paid its former partners a
total of $218,000 and pursued Olympics-related business on an individual basis.
Gross profit. Gross profit increased to $7,503,817 in 1997 from $3,958,880
in 1996, an increase of $3,544,937, or 90%. Gross profit as a percentage of
revenues increased to 43% in 1997 from 34% in 1996, due to the above factors.
Templine contributed approximately $1,115,000 to the Company's 1997 gross
profit, or 31% of the increase.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $6,179,079 in 1997 from $3,552,297 in 1996,
an increase of $2,626,782, or 74%. Selling, general and administrative expenses
as a percentage of revenue increased to 35% in 1997 from 31% in 1996. Salaries
and other employee-related costs increased to $3,599,000 in 1997 from $1,757,000
in 1996, an increase of $1,842,000, or 105%. These increases resulted primarily
from the addition of new branch offices, the acquisition of Templine and the
addition of supervisory, sales and marketing and clerical personnel. Other
selling, general and administrative expense, including insurance, occupancy,
vehicles, supplies, equipment repairs and maintenance, telephone, depreciation
and amortization and other, increased to $2,580,000 in 1997 from $1,795,000 in
1996, an increase of $785,000, or 44%. Selling, general and administrative
expenses also included bad debt expense, which decreased by $227,000 to $168,000
in 1997 from $394,000 in 1996.
During 1997, the Company made restricted stock awards of an aggregate of
128,767 shares of Common Stock to certain executive officers of the Company. The
shares of Common Stock are restricted and subject to forfeiture upon termination
of employment. In connection with such awards, the Company recognized
compensation expense of $106,737 in 1997. Additional compensation expense will
be recognized over the three-year vesting period for the restricted shares based
on the value of the shares at the date of grant. Accordingly, stock compensation
expense of $142,317, $142,317 and $35,579 relating to this grant will be
recognized in 1998, 1999 and 2000, respectively.
Operating income. As a result of the foregoing, operating income increased
to $1,218,001 in 1997 from $406,583 in 1996, an increase of $811,418, or 200%.
Templine contributed $312,592, or 26%, of operating income in 1997. In addition,
$162,800 of operating income in 1997 was attributable to a joint venture formed
in 1994 to provide power generation services in Japan, which was terminated in
1997. In December 1997, the Company purchased the equipment
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formerly used by the joint venture and used the equipment to provide services
for other Showpower projects, including the 1998 Nagano Winter Olympic Games.
Interest expense. Interest expense decreased to $203,667 in 1997 from
$237,015 in 1996, a decrease of $33,348 or 14%. The decrease in interest expense
reflects lower average interest rates in 1997, offsetting an increase in total
debt outstanding.
Pro forma provision for income taxes. Pro forma provision for income taxes
reflects provisions for federal and state income taxes as if the Company's U.S.
operations had been subject to federal and state income taxation as a C
Corporation at an assumed 40% combined federal and state income tax rate during
the periods presented. Provision for income taxes (actual) of $116,562 consists
primarily of United Kingdom Corporation tax related to Templine. See "Income
Taxes" below.
Pro forma net income. As a result of the foregoing, pro forma net income
increased to $632,370 in 1997 from $103,021 in 1996, an increase of $529,349, or
514%. Templine contributed $200,000 to net income in 1997.
Liquidity and Capital Resources
The Company has made substantial capital expenditures to purchase equipment
and, in addition, has made a number of acquisitions. The Company intends to
continue these types of expenditures in order to expand in existing markets,
enter new markets and reduce the amount of equipment that it rents. Cash
generated by operations has not been sufficient to satisfy all of the Company's
working capital, capital expenditure and acquisition needs. Consequently, the
Company has depended and continues to rely, on external financing sources.
The Company currently has two asset-based financing commitments totaling
$6,500,000. Borrowings under a commitment with Caterpillar Financial Services
Corporation ("CAT Financial") bear interest at 9.2% to 9.3% per annum with
monthly principal and interest payments which must be paid on or before various
dates in 2002 and 2005 and may be repaid prior to maturity without penalty. As
of April 10, 1998, $3,419,000 was outstanding under such commitment and there
was additional availability of $81,000. The other financing commitment with
Charter Financial, Inc. ("Charter") bears interest at a rate determined by the
lender at the funding date, with monthly principal and interest payments payable
over a four-year term, with 20% of the principal amount due in 2002, the end of
the term. Prepayment prior to maturity may be made at an amount equal to the sum
of future principal and interest payments, discounted at an annual rate of 6%.
At April 10, 1998, the Company had outstanding borrowings under this commitment
aggregating $2,687,000 and there was additional availability of $313,000. The
borrowings are secured by power generation and temperature control equipment.
In March 1998, the Company obtained a $2,000,000 line of credit facility
and a $300,000 leasehold improvements facility (the "Facilities") from a bank.
Under the line of credit facility, availability of funds in excess of $750,000
is subject to an accounts receivable borrowing base formula and interest is
payable monthly at the lender's prime rate (8.5% at April 10, 1998) plus .75%,
or, at the Company's option, the London Interbank Offered Rate (LIBOR), plus
2.75%. The line of credit term is through May 1, 1999. The leasehold
improvements facility bears interest at the lender's prime rate, plus .875%, and
interest only is payable through September 1998 and monthly payments of interest
and principal are payable for the remaining 24 months thereafter. The Facilities
include customary negative covenants such as restriction on the Company's
ability to incur debt, make acquisitions, pay dividends, make investments or
sell assets. Also, the Facilities include financial covenants regarding the
Company's tangible net worth, ratio of cash and accounts receivable to current
liabilities, ratio of liabilities to tangible net worth and cash flow to fixed
charges ratio. Templine also has a line of credit with a bank in the amount of
150,000 British pounds sterling, bearing interest based on the bank's reference
rate with a term through December 1, 1999. At April 10, 1998, borrowings under
the two bank lines of credit totaled approximately $600,000.
The Company intends to use approximately $3,900,000 of the proceeds of the
Offering to repay its indebtedness to CAT Financial and amounts outstanding
under the two bank lines of credit.
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Capital expenditures (including assets acquired through capital lease and
note payable financing) were $2,903,239 and $1,698,528 in 1997 and 1996,
respectively. The purchase of additional power generation, distribution and
temperature control equipment accounted for virtually all of such expenditures.
From December 31, 1997 through March 31, 1998, the Company made capital
expenditures for the purchase of equipment in the amount of approximately
$3,100,000, which the Company financed with cash on hand and the borrowings
described above. The Company intends to use approximately $7,000,000 of the
proceeds of the Offering to acquire or construct power generation and
temperature control equipment. The Company has no other capital expenditure
plans or requirements other than in the ordinary course of its business
consistent with its prior practices. The Company intends to finance the opening
of new branch offices and possible future acquisitions with internally generated
funds, future issuances of Common Stock or preferred stock, and additional
borrowings, if available.
Cash provided by operating activities for 1997 and 1996 generated
$2,362,614 and $968,504, respectively. The increase of $1,394,110, or 144%,
resulted primarily from increased net income.
Cash used in investing activities for 1997 and 1996 totaled $4,018,343 and
$1,800,829, respectively. The increase of $2,217,514 resulted primarily from the
acquisition of Templine in 1997 for $2,105,361, and an increase in cash required
for capital expenditures of $280,472 over 1996.
Cash provided by financing activities for 1997 and 1996 generated
$1,955,137 and $847,160, respectively. In 1997, the Company issued 754,000
shares of Common Stock for cash of $2,042,730 and notes due from certain
officers of $457,270. See "Certain Transactions." In 1996, the Company issued
405,086 shares of Common Stock for $1,221,754.
In 1997, the Company incurred total long-term indebtedness of $3,010,110 to
CAT Financial ($1,036,365) and Charter ($1,973,745). Of the total amount
borrowed, $1,326,524 was used to repay stockholder loans, $998,869 was paid
directly to vendors for purchase of power generation and temperature control
equipment and the remaining $684,717 was added to working capital. In 1997, the
Company repaid principal of $242,043 on long-term borrowings and $149,762 on
capital lease obligations. The Company also made distributions to its
stockholders of $500,000 and $120,000 in 1997 and 1996, respectively.
The Company has formed a joint venture, Showpower Brasil S.A. ("Showpower
Brazil"), to conduct business in Brazil. The Company owns 70% of Showpower
Brazil, and its Brazilian partner, Transweg Ltda., owns the remaining 30%. The
Company has agreed to contribute approximately $350,000 to the joint venture to
fund start-up costs. As of December 31, 1997, the Company had incurred operating
expenses of approximately $200,000 and anticipates funding the balance of its
commitment during 1998. The Company may incur additional capital expenditures in
connection with Showpower Brazil in 1998, although it has no obligation to do
so. Showpower Brazil opened a branch office in Rio de Janeiro in January 1998.
The Company believes that cash flows from operations, the net proceeds from
the Offering and available existing credit facilities are sufficient to meet
operating needs and capital spending requirements and reasonably foreseeable
expansion for at least the next 12 months.
Income Taxes
The Company has historically elected to be taxed as an S Corporation for
federal and state income tax purposes and the Company's existing stockholders
have paid the income taxes on the Company's taxable income directly. The Company
has made distributions to stockholders primarily to provide the funds to the
stockholders to pay such taxes. Templine, the Company's United Kingdom
subsidiary, has been and will continue to be subject to United Kingdom corporate
taxes.
As a result of the termination of the Company's S Corporation status, which
will occur simultaneously with the consummation of the Offering, the Company
will be required to record a net deferred income tax liability of approximately
$800,000, which relates primarily to the differences between financial and
income tax reporting basis.
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Such change will result in a net charge to earnings of approximately $800,000 in
the quarter in which the conversion to C Corporation status occurs. See "S
Corporation Conversion."
Year 2000 Compliance
Computer software applications on which the Company relies for accounting,
management and operating information are recent releases of, or are readily
upgraded to, Year 2000 compliant, commercially available applications. While the
Company has no assurance all of its vendors and service providers are Year 2000
compliant, management believes the potential risk and any associated cost
resulting from the Year 2000 problem will not be material to the Company's
results of operations or financial condition.
Effects of Inflation
Inflation has not had a material impact upon the operating results of the
Company and the Company does not expect it to have such an impact in the future.
To date, in those instances in which the Company has experienced cost increases,
it has been able to increase selling prices to offset such increases in cost.
There can be no assurance, however, that the Company's business will not be
affected by inflation or that it can continue to increase its selling prices to
offset increased costs and remain competitive.
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BUSINESS
General
Showpower provides temporary power generation and temperature control
rental equipment and support services on a worldwide basis for entertainment,
corporate and special events. The Company's customers include corporations,
event producers, television networks, motion picture studios, facility operators
and performers that need electric power and/or temperature control services to
support events at locations where these services are inadequate or unavailable.
In addition to rental equipment, the Company provides fully integrated,
value-added services, including planning, technical advice, customized
installation, on-site operation and support personnel. The Company's power
equipment consists of transportable, diesel-powered electricity generators
contained in acoustic enclosures, and related power distribution equipment.
Temperature control equipment consists of transportable, electrically-driven
HVAC units.
The Company believes that its competitive advantages include the
relationships and name recognition it has established in the entertainment and
related industries and its ability to deploy and manage complex equipment
systems throughout the world. The Company believes that it will benefit from
certain trends within its target markets, including: (i) recognition among
customers that short-term equipment rental and support services provide a
cost-effective alternative to equipment ownership and related in-house support
capability; and (ii) growth in activities such as corporate sponsorship, live
television broadcasting and product promotions.
Initially, the Company provided power generation and distribution services
only to concert touring artists. In 1992, the Company began providing these
services for live television broadcasts and large-scale special events. In 1995,
the Company began providing power generation services to the corporate special
events industry and subsequently added temperature control services. In 1996,
the Company began marketing to the motion picture, trade show and convention
industries.
Showpower services three primary markets:
o Corporate and Special Events. Showpower services have been or will
be used by or in events for Pope John Paul II, the 1997
Presidential Inauguration, The Walt Disney Company, the 1998 World
Cup in France, Nike, Inc., Microsoft Corporation, Deutsche
Telekom, Inc., General Motors Corporation, NASCAR, Paramount
Pictures Corporation, the 1996 Republican National Convention, the
Hong Kong Handover Ceremonies and the National Football League.
o Concert Touring. The Company has provided services for the
worldwide concert tours of such artists as The Rolling Stones, U2,
Elton John, Billy Joel, Garth Brooks, Yanni, David Bowie, the
Three Tenors, Fleetwood Mac, Jimmy Buffet, Luciano Pavarotti,
Madonna, Paul McCartney, Bruce Springsteen, Pink Floyd and Spice
Girls, as well as touring festivals such as Lollapalooza.
o Television and Motion Pictures. Showpower has provided services to
all major U.S. broadcast and cable networks and many non-U.S.
networks in connection with more than 500 live broadcast events,
including the summer and winter Olympic Games, the 1997 World
Track and Field Championships and other special broadcast events.
The Company also has provided services to major award shows,
including the Grammy Awards and European Music Awards. Recent film
projects have included Volcano, Dante's Peak, Starship Troopers,
Broken Arrow and Godzilla.
The Company has expanded geographically by making acquisitions and opening
new branch offices. In March 1997, the Company acquired Templine, a generator
and distribution rental company based in Bristol, England, in order to expand
its presence and scope of operations in Europe. Since September 1996, the
Company has opened branch offices in Richardson, Texas, Fort Lauderdale, Florida
and Rio de Janeiro, Brazil. During 1997, Templine and the Company's Texas branch
office contributed approximately $3,322,000 to total revenue.
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Business Strategy
The Company's business strategy is to expand its rental service
capabilities and geographic scope, domestically and internationally, by: (i)
increasing the amount of power generation and temperature control equipment it
owns; (ii) enhancing existing customer relationships and attracting new
business; (iii) opening new branch offices; (iv) acquiring rental service
businesses; and (v) broadening the range of services it offers at existing
branch offices.
The Company will increase its available equipment by acquiring power
generation and temperature control equipment with a significant portion of the
net proceeds of the Offering. The Company expects to improve profit margins by
reducing the proportion of rented equipment used in its business. In 1997,
rental expense was $2,810,240, or 16% of revenue. Approximately 57% of the net
proceeds of the Offering is expected to be used to acquire equipment of the
types currently rented by the Company.
The Company intends to extend customer relationships by selling multiple
services to its existing customers, building relationships with affiliates of
existing customers and attracting new business. The Company's customer
relationships often begin with a single project or assignment, then evolve to a
point where a customer may use the Company on a regular basis and for more
extensive projects. For example, during 1997 Showpower provided services to
several units of The Walt Disney Company, including Buena Vista, ABC, Disney
Entertainment Projects (Asia Pacific) and ESPN.
The Company intends to expand, domestically and internationally, by opening
new branch offices and acquiring rental service businesses. Management believes
that the three acquisitions completed and the corresponding branch offices
opened since September 1996 (described below in this section) have allowed the
Company to acquire additional large customers and expand its relationships with
certain existing customers and have reduced equipment shipping expenses.
Management believes that the Company's utilization of its available equipment
can be enhanced by expanding its network of branch offices and managing its
assets on a worldwide basis, including seasonal rotation of equipment.
Typically, in selecting a new location for a branch office or acquisition, the
Company considers such factors as metropolitan population, climate and
seasonality, historical special events activity, quality and availability of
existing electrical and temperature control infrastructures, and the
availability of competitive rental services. Since the majority of the events
served by the Company are held outdoors, the Company has given priority in its
recent expansion to locations where temperatures are mild year-round.
On March 17, 1997, the Company acquired Templine, a provider of temporary
power and electrical distribution services to the entertainment industry,
primarily in the United Kingdom and continental Europe. The acquisition of
Templine enabled the Company to offer its rental services throughout Europe on a
more cost-effective basis (e.g., by reducing ocean shipping costs), and to carry
out sales and marketing activity on a more consistent basis with European
customers as well as U.S. customers doing business in Europe.
In September 1996, the Company opened a branch office in the Dallas
metropolitan area following an acquisition of the assets of an electrical
contracting and temporary power rental company. The Company has integrated the
acquired assets and operations and has introduced temperature control services
to service Texas and the surrounding region.
In January 1998, the Company opened a branch office in the Miami
metropolitan area following an acquisition of the assets of a temporary power
generation and electrical services company. The Company is in the process of
integrating the acquired assets and operations and expects to use the office to
service southern Florida.
The Company has formed a joint venture, Showpower Brazil, to conduct
business in Brazil. The Company owns 70% of Showpower Brazil, and its Brazilian
partner, Transweg Ltda., owns the remaining 30%. The Company has agreed to
contribute approximately $350,000 to the joint venture to fund start-up costs.
As of December 31, 1997, the Company had incurred operating expenses of
approximately $200,000 and anticipates funding the balance of its commitment
during 1998. The Company may incur additional capital expenditures in connection
with Showpower
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Brazil in 1998, although it has no obligation to do so. Showpower Brazil opened
a branch office in Rio de Janeiro in January 1998.
Industry Overview
The Company believes that the worldwide market for temporary power,
electrical distribution and temperature control rental services, for all
applications, including entertainment, commercial and industrial uses, is
increasing in size. The Company believes that the following trends will create
growing opportunities for its services in domestic and international markets:
Outsourcing. The Company believes that many businesses have recognized that
renting equipment and obtaining support services from an "outsource" such as the
Company offers substantial cost savings and flexibility compared to ownership of
such equipment and the need to establish in-house support capabilities.
The increasing use of professionally produced events as part of corporate
business communications and marketing strategies, including product launches and
promotions, sales meetings and conferences. These types of corporate and special
events incorporate a combination of communications elements and
entertainment/theatrical components, including live performances, video walls,
theatrical lighting and sophisticated audio systems. The Company believes that a
growing awareness among corporations and event producers of the availability and
cost effectiveness of rental support services will facilitate future growth in
this market and increase demand for Showpower's services.
The growth of corporate sponsorship of athletic and musical events,
entertainment tours and attractions, festivals, charitable causes and the arts.
Sponsors' use of temporary structures for retail, product demonstration or
hospitality purposes creates demand for power, electrical distribution and
temperature control services, especially in the context of large special events,
such as the Olympics, the Superbowl and the World Cup.
The growth of the television industry worldwide, including live and
live-for-tape broadcasting of sports contests, award shows, music and other
special events. The emergence of cable networks has increased the amount of
broadcast capacity and programming. The Company believes that sports programming
and specialized live programming, such as award shows and musical specials, are
less costly to produce than regular programming. Broadcasters often choose to
obtain generator-supplied power for qualitative reasons (e.g., superior
stability of voltage and frequency, which enhances the performance of sensitive
production and editing equipment) or quantitative reasons (e.g., power
requirements exceed installed service) or to secure stand-by generators as
protection against the possibility of utility power problems.
Increased exports of live entertainment to locations around the world.
Although the average number of large-scale concert tours has remained relatively
stable, the itineraries of such tours have changed significantly and now
regularly include venues in Asia, South America, South Africa and Central and
Eastern Europe, where local power supplies are often unreliable. In addition,
exports of touring theatrical and entertainment-related events are rising.
Outside of North America and Western Europe, a limited number of modern
performance venues and a general lack of adequate electrical and HVAC
infrastructure creates demand for the Company's services.
Services and Equipment
The Company differentiates itself from other equipment rental companies by
providing fully integrated, value-added services, including planning, technical
advice, customized installation, on-site operation and support personnel,
maintenance and removal, in combination with rental equipment. Large-scale
projects or concert tours can take several months to plan, requiring research
and analysis, including site tours, development of technical specifications and
performance standards, coordination with other service vendors, production of
electrical drawings and assembly of equipment, which may be designed or
configured to meet projects needs.
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The Company assembles equipment to meet the specific requirements of its
customers. Because equipment is transported regularly to locations around the
world and used in a wide variety of operating environments and climatic
conditions, emphasis is placed on durability, transportability, noise levels,
thermal efficiency and reliability. Many of the Company's rental power and
temperature control units and most of the Company's electrical distribution
equipment are assembled at its Rancho Dominguez, California headquarters and at
Templine's Bristol, England facility using components or subassemblies (engines,
alternators, coils, cable and pumps) purchased from OEMs. Other generators,
temperature control units and distribution equipment used by the Company are
assembled by third-party suppliers, often to Showpower's specifications. Major
suppliers include Caterpillar, Multiquip, Inc., Engine & Equipment Co., Inc.,
General Electric Company, Siemens and York International Corporation.
Certain equipment is used principally to support "local" rental
operations, which typically involve transportation and installation within 300
miles of a Showpower branch office. Generally, local rental services involve
smaller equipment systems and rentals of one week or less. The majority of the
Company's rental assets are deployed in support of touring events or at specific
large-scale project locations around the United States and around the world. The
duration of such touring and large-scale events generally ranges from one week
to more than 18 months. The Company attempts to maximize the utilization of its
assets on a national and worldwide basis. To do so, Showpower regularly
transfers assets and personnel from one branch office to another to meet
increases or decreases in demand.
The Company's power equipment consists of transportable, diesel-powered,
electricity generator sets contained in acoustic enclosures, and related
electrical distribution equipment that is used to transform and distribute
electricity. Individual generators provided by Showpower range in power output
from six kilowatts (kW) to 1,750 kW. Generators can be connected in parallel to
increase total output; the Company has installed up to 28,000 kW of temporary
generating capacity at a single location. All of the Company's generators are
designed to operate at low noise levels (generally less than 60 db at 50 feet)
and to meet applicable U.S. and international standards for emission and
pollution control and are capable of providing power over a wide range of
voltages and frequencies.
Related electrical distribution equipment includes transformers, switchgear
and cabling needed to transform voltage supplied by Showpower generators to the
voltage requirements of its customers, to switch electricity between different
voltages and to deliver power to end-use locations. The Company maintains
distribution equipment inventories required for both U.S. and international
electrical systems and that comply with all applicable domestic and
international standards for electrical equipment and appliances.
Temperature control equipment consists of water chillers, air handlers, air
conditioners, heaters and combination air conditioning and heating units.
Individual temperature control units range in capacity from one ton to 300 tons
and can be connected in parallel to provide larger cooling capacities; the
Company has installed up to 2,000 tons of cooling capacity at a single location.
Individual electric heating units range in capacity from 15 kW to 250 kW and
also can be combined to produce greater total output. Temperature control units
are often powered by Showpower generators.
Management believes that the basic diesel engine, electricity generation
and temperature control technologies used by the Company are not likely to
become obsolete for the foreseeable future. However, changes in environmental
regulations require continuing improvements in emissions control and refrigerant
technologies. Management generally concentrates its technological efforts on
equipment design and assembly, while OEMs generally maintain responsibility for
ensuring that their products meet established and developing environmental
standards. See "--Governmental and Environmental Regulations."
To supplement its owned equipment, the Company regularly rents power
generation and temperature control equipment from OEMs and their dealers and
distributors. The duration of such rentals range from a single day to more than
one year, generally with a month-to-month or shorter rental term. The related
rental agreements often contain options to purchase the rental equipment, with a
percentage of the monthly rent being applied toward the purchase price. Although
numerous sources of rental equipment exist, the Company has established close
working relationships with Caterpillar and the Caterpillar Dealers as primary
suppliers of rental equipment. The Company expects to maintain these
relationships in the future.
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Customers
The Company serves customers in three key markets of the entertainment and
related industries:
Corporate and Special Events. Customers in this category include
corporations, business communications firms, advertising and marketing firms,
event producers, lighting and set designers, event planners, public relations
firms, state or federal governments, and political, not-for-profit, spiritual
and religious organizations. The Company has provided services for many
prominent event producers and communications firms, including Robert Isabel,
Harris Productions, Merv Griffin Productions, Visual Services, Inc., Caribiner
International, Don Misher, and Momentum IMC. Showpower's systems also have been
used by or in events for Nike, Inc., Cirque de Soleil, Buena Vista Pictures,
AT&T Corporation, Microsoft Corporation, The Gap, Pope John Paul II, Republican
National Convention, Deutsche Telekom, Inc., General Motors Corporation, Macy's,
NASCAR, Georgio Armani, Paramount Pictures Corporation, Viacom, the 1997
Presidential Inauguration, Nissan, Bell South, Penske Motorsports, the Hong Kong
Handover Ceremonies, the National Football League and the United States Tennis
Association.
Concert Touring. The Company provides power and/or temperature control
services for the worldwide concert tours of such artists as The Rolling Stones,
U2, Elton John, Billy Joel, Yanni, The Three Tenors, Guns 'n Roses, Luis Miguel,
Michael Jackson, Janet Jackson, Madonna , Jimmy Buffet, Paul McCartney, the
Eagles, Fleetwood Mac, Tina Turner, Aerosmith, Spice Girls, KISS, Bruce
Springsteen, Pink Floyd, Oasis, Whitney Houston, Garth Brooks and David Bowie,
as well as touring and single-location festivals, including Lollapalooza, Horde,
Warped, Amnesty International World Tour, Woodstock 1994, the Glastonbury
(England) Festival, Rock in Rio, Free Jazz (Brazil), and numerous outdoor
classical and orchestral performances.
Television and Film. Showpower has provided power and/or temperature
control services for NBC, ABC, CBS, Fox, HBO, ESPN, TBS, Showtime, BBC, TV
Globo, NHK, UPN, The Golf Channel, MTV, Nickelodeon and VH1 in connection with
more than 500 live broadcast events, including power for all of NBC's site
broadcasts from the Atlanta Olympic Games and from the World Track and Field
Championships in Athens, all scheduled broadcasts for The Golf Channel, and
coverage of professional sports contests, political conventions, criminal
trials, presidential debates and the 1997 Presidential Inauguration. The Company
has provided services for or in connection with award shows (Grammy's, MTV Music
Awards, European Music Awards), and pay-per-view and HBO special broadcasts
(Garth Brooks in Central Park, professional boxing). The Company provided power
to CBS during the 1998 Winter Olympic Games in Nagano, Japan and has contracted
to provide power and temperature control services to the organizing committee of
World Cup '98 in France. The Company has recently begun providing services to
the feature film market, where power and/or temperature control services are
required on location, in studios and at special effects facilities. Recent film
projects have included Volcano, Dante's Peak, Starship Troopers, Broken Arrow
and Godzilla.
The Company provided services to more than 500 customers in 1997. One
customer accounted for more than 10% of the Company's revenue in 1996 and
another customer accounted for more than 10% of the Company's revenue during
1997. The 10 largest customers of the Company accounted for 56% and 47% of the
Company's revenue during the same periods.
Marketing and Sales
The Company's Chief Executive Officer directs Showpower's overall marketing
activities, identifies new end- markets and develops selected new business
prospects. The Company's salesforce currently consists of six full-time
employees with an average of six years experience. The salesforce concentrates
on cultivating and developing long-term relationships with customers and
communicating the Company's technical strengths and ability to solve customers'
power and temperature control needs. Certain sales personnel specialize in
selected markets (e.g., special events or broadcasting), or are responsible for
specified geographic areas. Managers of branch offices handle local sales as
part of their overall responsibility.
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The Company's marketing efforts are intended to create increased awareness
of the Company's services within relevant customer groups. The Company uses
brochures, participates in bid processes, attends trade shows and advertises in
trade publications as elements of its marketing strategy.
Training
Management believes highly trained, experienced and motivated employees are
critical to the Company's success as a value-added service provider. The Company
has established a training curriculum, under which each operating employee
receives a minimum of 35 hours of classroom training per year, in addition to
on-the-job training under the supervision of crew chiefs. New employees
typically are assigned first to warehouse, maintenance or fabrication positions
before progressing to positions involving installation and operation of power or
temperature control equipment at project sites or in conjunction with concert
tours.
The Company organizes project teams to execute large projects and tours.
Project teams typically consist of a project manager and one or more
technicians. A project manager is responsible for planning, budgeting and
pricing, installation, operation and ongoing liaison with a customer's
production personnel. A Showpower employee generally must have at least two
years of service with the Company before promotion to the position of project
manager. The Company's current project managers have an average of seven years
experience with Showpower.
Maintenance Program
The Company is responsible for repairing and maintaining its owned and
rented equipment. Showpower's preventive maintenance program establishes a
schedule of procedures customized to each equipment type and application.
Showpower establishes schedules that result in the performance of preventive
maintenance procedures at shorter intervals than are recommended by OEMs from
which the Company acquires components and equipment. Management and personnel
responsible for equipment operation meet regularly to review equipment
performance and maintenance procedures and to make modifications when needed.
Repairs and maintenance are performed at the Company's branch offices or at
project sites by Showpower employees or by authorized OEM dealers. Overhauls and
upgrades are performed at the Company's Rancho Dominguez, California and
Bristol, England facilities. Warranty repairs are generally the responsibility
of OEMs.
Government and Environmental Regulation
The Company and its operations are subject to numerous federal, state and
local rules and regulations governing, among other things, worker safety, air
emissions, water discharge and the generation, handling, storage, transportation
and treatment and disposal of hazardous substances and wastes. Under laws and
regulations relating to air emissions, the Company is required to operate
equipment within strict standards, and is required in certain areas, such as
southern California, to obtain operating permits for individual generator sets.
The Company expects that it, and other operators of equipment utilizing diesel
engines, will, in the future, become subject to stricter air emissions
standards, including requirements that engine manufacturers produce
cleaner-running products. Based on current laws and regulations, the Company
believes that it is in compliance with such laws and regulations and that its
policies, practices and procedures are designed to prevent unreasonable risk of
environmental damage or violation of environmental laws and regulations and any
resulting financial liability to the Company. Further, the Company is not aware
of any federal, state or local laws or regulations that have been enacted or
adopted, the compliance with which would have a material adverse effect on the
Company's results of operations or that would require the Company to make any
material capital expenditures. No assurance can be given that future changes in
such laws or regulations or changes in the nature of the Company's operations or
the effects of activities of prior occupants or activities at neighboring
facilities will not have an adverse impact on the Company's operations.
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<PAGE>
Intellectual Property
The Company does not own any patents. The Company has registered trademarks
for the Showpower name and Showpower logo in the United States, Japan and Brazil
and has applied for registration in the European Union. The Company intends to
protect its distinctive name and logo throughout the areas of the world where it
maintains a presence and, accordingly, will expand trademark and service mark
registrations as foreign operations increase.
Competition
The Company believes that the temporary power and temperature control
rental services market is both highly competitive and fragmented. Showpower
faces significant competition in virtually all of its markets from general
equipment rental companies, specialized equipment rental companies, and OEMs and
their dealers or distributors. The Company also faces competition from utility
companies and from local and national electrical and HVAC contractors. Company
believes that Aggreko Ltd., a power, temperature control and air compressor
equipment rental company based in the U.K., provides services that are the most
comparable in type and scope to those of Showpower. Aggreko Ltd. is
substantially larger than the Company and has a total of over 70 depots in more
than 20 countries worldwide.
There are no significant barriers to entry into the power generation or
temperature control rental markets. Competition is based primarily on the
availability of equipment, price, reputation and service quality and
capabilities. Many of the Company's competitors are larger and have greater
financial and other resources than the Company.
Showpower believes that its principal competitive strengths are its: (i)
established reputation and the relationships that it has developed with
customers in the entertainment and related industries; (ii) ability to provide
planning, rental, technical and personnel support services on a fully integrated
basis; (iii) ability to seek out and manage a large number of projects
simultaneously; and (iv) ability to assemble and rapidly deploy complex
equipment systems throughout the world. The Company also believes that it has an
advantage over general equipment rental firms, and rental firms specializing in
serving industrial and commercial customers, where management believes that
service requirements and performance expectations are less stringent.
Legal Proceedings
The Company is involved from time to time in various routine legal
proceedings incidental to its business. The Company is not engaged in any legal
proceeding that is expected to have a material adverse effect on the results of
operations or financial position of the Company.
Employees
As of December 31, 1997, the Company had approximately 135 full-time
employees. The Company also engages personnel, from time to time, on a part-time
or project-by-project basis. None of the Company's employees is covered by a
collective bargaining agreement. The Company believes that its relationship with
its employees is satisfactory.
Properties
The Company leases all of its facilities, including its executive offices
and main shop and warehouse facility in Rancho Dominguez, California,
supplementary warehouse space near its headquarters, and regional offices in
Richardson, Texas; Scotch Plains, New Jersey; Fort Lauderdale, Florida; Bristol,
England; Rio de Janeiro, Brazil and an administrative office in Irvington, New
York. The Company has agreed to lease a new headquarters and warehouse facility
in Rancho Dominguez, California. Current lease terms range from one to six
years. The Company believes all of its facilities are in good operating
condition.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Name Age Position
---- --- --------
John J. Campion 35 Chief Executive Officer and Director
Laurence Anderson 35 President
Stephen R. Bernstein 42 Executive Vice President, General
Counsel and Secretary
Gary M. Rosner 38 Vice President/Operations
Michael W. Crabbe 41 Vice President/Chief Financial Officer
Jeffrey B. Stone 42 Chairman of the Board
Joseph A. Ades 36 Director
Robert E. Masterson 52 Director
David C. Bernstein 40 Director
Vincent A. Carrino 42 Director designee*
Eric C. Jackson 53 Director designee*
- ------------
* The Board of Directors has elected Messrs. Carrino and Jackson to, and they
have agreed to become members of, the Board of Directors effective upon
consummation of the Offering.
John J. Campion has served as Chief Executive Officer of the Company since
its founding in 1991. He has served as a director of the Company from March 1991
to May 1996 and from December 1997 to the present.
Laurence Anderson has served as President since August 1996 and prior
thereto as a Vice President since 1991.
Stephen R. Bernstein has served as Executive Vice President, General
Counsel and Secretary of the Company since May 1996. From July 1991 to May 1996,
he served as Executive Vice President and General Counsel of Rock-It-Cargo, USA,
Inc., a freight forwarding and logistics company. From June 1994 to May 1995, he
was an officer of Viscount Air Services, Inc., a passenger charter airline,
which filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code in January 1996.
Gary M. Rosner has served as Vice President/Operations of the Company since
May 1991.
Michael W. Crabbe has served as Chief Financial Officer of the Company
since December 1997. From November 1996 to July 1997 Mr. Crabbe served as Vice
President Finance, Chief Financial Officer of Industrial Wire Products. From
January 1996 to October 1996, he served as Assistant Controller, Sony Television
Entertainment and from November 1988 to October 1996 served as Vice President,
Controller with E! Entertainment Television, Inc. Prior to October 1988, Mr.
Crabbe held the position of Senior Manager with Deloitte & Touche LLP. He is a
certified public accountant.
Jeffrey B. Stone became Chairman of the Board of the Company in May 1996.
He has been the President of Ironhorse Ventures, Inc., a private investment
firm, since November 1992. Mr. Stone served as Chairman of the Board of Darling
International Inc., a food byproducts co-processor, from January 1993 to March
1994 and as its interim Chief
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<PAGE>
Executive Officer from January 1994 to March 1994. Mr. Stone is also an advisory
director of Stewart Information Services Corporation, a title insurance and real
estate information company.
Joseph A. Ades became a director of the Company in May 1996. Since 1991, he
has been a partner in ABI Management Partners, a private investment firm.
Robert E. Masterson has served as a director of the Company since May 1996,
and previously served in the same capacity from 1991 to 1995. He has been the
Chief Executive Officer of Service Data Corporation, a data processing service
company, since 1991, and previously served as President of American Express
Travel Management Services, President and Chief Executive Officer of American
Express Data Base Services, Inc., and President and Chief Executive of First
Data Resources, Inc.
David C. Bernstein became a director of the Company in 1991, and served as
Chairman of the Board from 1991 to May 1996. He has served as Chief Executive
Officer of Rock-It-Cargo, USA, Inc., a freight forwarding and logistics company,
since 1985. From June 1994 to January 1996, he was the chief executive officer
of Viscount Air Services, Inc., a passenger charter airline, which filed a
voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in January 1996.
Vincent A. Carrino is President of Brookhaven Capital Management, Inc., an
investment management company which he founded in 1986. Mr. Carrino is also a
director of Rentway, Inc., an operator of rent-to-own stores.
Eric C. Jackson is the Chairman and Chief Executive Officer of Great Basin
Companies, a group of truck dealerships which he founded in 1976. He is also a
director of Intrenet, Inc., a holding company for truckload motor carriers.
Stephen R. Bernstein is the brother of David C. Bernstein. Jeffrey B. Stone
is the brother-in-law of Joseph A. Ades.
Effective upon the consummation of the Offering, the directors will be
divided into three classes with staggered three-year terms. The term of the
first class will expire at the 1999 annual meeting of stockholders and the terms
of the second and third classes will expire at the 2000 and 2001 annual
meetings, respectively. The terms of the Company's current and proposed
directors will expire as follows: Messrs. David C. Bernstein, Masterson and
Stone - 1999; Messrs. Carrino and Jackson - 2000; and Messrs. Ades and Campion -
2001.
Committees of the Board of Directors
Audit Committee. The Board of Directors of the Company has established an
audit committee (the "Audit Committee") effective upon consummation of the
Offering. The Audit Committee, which will consist of Messrs. Carrino and
Jackson, will make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the scope and
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls.
Compensation Committee. The Board of Directors' Compensation Committee
currently consists of Messrs. Ades and Masterson and will consist of Messrs.
Ades and Jackson effective upon consummation of the Offering. The Compensation
Committee is responsible for approving compensation for executive officers and
for administering the Company's 1998 Stock Option and Incentive Plan.
Director Compensation
Other than Mr. Stone, Chairman of the Board, directors do not receive any
compensation for their services as directors. Mr. Stone's arrangement with the
Company is described below. Directors receive reimbursements of expenses
incurred in attending meetings. Outside directors will receive compensation in
the form of stock options.
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<PAGE>
Executive Compensation
The following table shows compensation paid for the year ended December 31,
1997 to (i) the Chief Executive Officer and (ii) the Company's three other most
highly compensated individuals who were serving as officers on December 31, 1997
and whose salary and bonus exceeded $100,000 for the year ended December 31,
1997 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Annual Compensation -----------------------------
---------------------------------------------- Restricted Stock Awards
Other Annual ----------------------------- All Other
Name and Position Salary Bonus Compensation (1) $ Shares Compensation (2)
----------------- ------ ----- ---------------- --- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John J. Campion,
Chief Executive Officer $240,000 $ $ 28,135 $ 256,170 77,260 $ 9,868
Laurence Anderson,
President 150,000 11,847 170,780 51,507 4,376
Stephen R. Bernstein,
Executive Vice President 148,990 5,179 --- 4,928
Gary M. Rosner, 79,039 27,500 9,101 --- 2,371
Vice President/Operations
</TABLE>
- ------------
(1) Represents club membership and/or automobile allowance.
(2) Represents matching contributions by the Company to the Company's 401(k)
tax deferred savings plan (the "401(k) Plan") for the benefit of the
executive, and life insurance.
Employment Contracts
Each of Messrs. Campion, Anderson, Stephen R. Bernstein and Jeffrey B.
Stone has entered into an employment agreement with the Company.
The employment agreement with Mr. Campion provides for his employment as
Chief Executive Officer at an annual base salary of $240,000, plus a bonus to be
awarded annually. The agreement with Mr. Campion expires in May 2001.
The employment agreement with Mr. Anderson provides for his employment as
President at an annual base salary of $150,000, plus a bonus to be awarded
annually. The agreement with Mr. Anderson expires in May 1999.
The employment agreement with Mr. Bernstein provides for his employment as
Executive Vice President at an annual base salary of $150,000, plus a bonus to
be awarded annually. The agreement with Mr. Bernstein expires in June 1999.
The employment agreement with Mr. Stone provides for his employment as
Chairman at an annual base salary of $96,000, plus a bonus to be awarded
annually. The agreement with Mr. Stone expires in May 1998.
These employment agreements entitle these executive officers to participate
in the health, insurance, pension and other benefits, if any, generally provided
to employees of the Company. The employment agreements also contain covenants
prohibiting the solicitation of employees and the solicitation of customers and
vendors during certain periods and covenants prohibiting the improper disclosure
of confidential information at any time. The employment agreements also provide
that the executive officer, with certain exceptions, until three years after the
termination of employment with the Company, may not participate in any capacity
in any business activities with respect to the power, electrical distribution
and temperature control equipment rental or services businesses, and such other
businesses as the Company may conduct from time to time.
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<PAGE>
The Company may terminate the employment of the executive officers upon
death or extended disability or for cause (as defined). If employment is
terminated by the Company without cause, the Company must pay the executive
officer's salary and health and insurance benefits until the scheduled
termination date of the employment agreement.
1998 Stock Option and Incentive Plan
Effective January 1, 1998, the Board of Directors and the stockholders of
the Company adopted the 1998 Stock Option and Incentive Plan (the "1998 Stock
Option Plan"). Under the 1998 Stock Option Plan, the Company may award stock
options and performance shares to employees and directors of the Company. The
aggregate number of shares of Common Stock that may be awarded under the 1998
Stock Option Plan is 565,500, subject to adjustment in certain events. No
individual participant may receive awards for more than 141,375 shares in any
calendar year.
The 1998 Stock Option Plan is administered by the Compensation Committee of
the Board of Directors. Subject to the terms of the 1998 Stock Option Plan, the
Compensation Committee will have the sole discretion and authority to select
persons to whom awards will be made, to designate the number of shares to be
covered by each award, to establish vesting schedules, to specify all other
terms of the awards (subject to certain restrictions) and to interpret the 1998
Stock Option Plan.
With respect to stock options that are intended to qualify as "incentive
stock options" under Section 422 of the Code, the option price must be at least
100% (or, in the case of a holder of more than 10% of the total combined voting
power of the Company's stock, 110%) of the fair market value of a share of
Common Stock on the date of the grant of the stock option. The Compensation
Committee will establish the exercise price of options that do not qualify as
incentive stock options ("non-qualified stock options") at the time the options
are granted which may not be less than 85% of their market value. No incentive
stock option may be exercised more than 10 years (or, in the case of a holder of
more than 10% of the total combined voting power of the Company's stock, five
years) from the date of grant or such shorter period as the Compensation
Committee may determine from the date it is granted. Non-qualified stock options
may be exercised during such period as the Compensation Committee determines at
the time of grant, which period may not be more than 10 years from the date of
grant. The Compensation Committee may also make awards of performance shares, in
which case the grantee would be granted shares of Common Stock, subject to the
Company's satisfaction of such performance goals over such period of time as the
Compensation Committee specifies.
On _______ __, 1998, the Compensation Committee granted non-qualified stock
options to employees under the 1998 Stock Option Plan for an aggregate of
_______ shares of Common Stock, effective at the closing date of the Offering.
Each of such options has an exercise price equal to [___%] of the initial public
offering price set forth on the cover page of this Prospectus and has a term of
10 years. The options vest __% on each ________ in the years 1999 through ____.
Included in these grants were grants to [specify awards to named executive
officers].
401(k) Plan
Upon completion of one year of employment, all Company employees are
eligible to participate in the 401(k) Plan and may make elective salary
reduction contributions to the 401(k) Plan of up to 15% of their annual
compensation, subject to a dollar limit established by law. In addition, the
Company provides a matching contribution of up to 50% of the employee's
contribution, subject to a maximum of six percent of the employee's salary.
Participants are fully vested at all times in the amounts they contribute to the
401(k) Plan; however amounts contributed by the Company are subject to vesting
over a five-year period. The Company's contributions are tax deductible to the
Company. Benefits under the 401(k) Plan generally become payable upon
retirement, death or disability.
CERTAIN TRANSACTIONS
The Company has historically engaged in transactions with entities
controlled by its stockholders and their affiliates. It is anticipated that,
subsequent to the Offering, the Company will continue to engage in certain of
these transactions
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<PAGE>
if economically advantageous to the Company. Future related party transactions
will be subject to the review and approval of the Company's Audit Committee,
which will be composed exclusively of the Company's outside directors, and such
transactions will be on terms no less favorable to the Company than those that
could be obtained from unaffiliated third parties.
Transactions with Officers
In May 1996, the Company issued and sold 405,086 shares of Common Stock to
eight investors, including Stephen R. Bernstein, for an aggregate purchase price
of $1,370,000.
In March 1997, the Company issued and sold 754,000 shares of Common Stock
to existing stockholders, including three directors and four officers of the
Company, and seven additional investors for an aggregate purchase price of
$2,500,000. In connection with this transaction, the Company loaned Messrs.
Campion, Anderson and Stephen R. Bernstein an aggregate of $457,270 to purchase
shares of Common Stock. The loans are evidenced by promissory notes which mature
in 2002, bear interest at the rate of 6.25% per annum and are secured by a
pledge of other shares of Common Stock owned by the makers of the notes.
Interest and principal is payable at maturity of the notes. The principal
obligation outstanding at December 31, 1997 was as follows: Mr. Campion -
$229,763; Mr. Anderson - $113,338 and Stephen R. Bernstein - $114,169.
During the fourth quarter of 1997, the Company extended interest-free
advances to two executive officers in the aggregate account of $90,340 in
anticipation of salary and bonus payments. As of the date of this Prospectus,
all such advances have been repaid.
Rock-It Cargo, USA, Inc. and Air Apparent, Inc.
During 1996 and 1997, the Company purchased freight forwarding services in
the amounts of $218,704 and $217,098, respectively, from Rock-It Cargo, USA,
Inc., which is an affiliate of David C. Bernstein, a director of the Company,
and Mr. Masterson, a director of the Company. During 1996 and 1997, the Company
purchased travel agency services, primarily in the form of airline tickets, in
the amounts of $109,619 and $117,607, respectively, from Air Apparent, Inc.,
which is an affiliate of David C. Bernstein and Mr. Masterson, and Andrew Dietz
and Donna Dietz, two stockholders of the Company. The Company believes that all
of the foregoing transactions were made on terms no less favorable to the
Company than could have been obtained from unaffiliated third parties. All
future transactions between the Company and any entities controlled by directors
and shareholders of the Company will also be on terms believed to be no less
favorable to the Company than could be obtained from unrelated third parties.
Notes Payable to Stockholders
At January 1, 1996, the Company had outstanding notes payable to
stockholders in the aggregate principal amount of $1,406,709 bearing interest at
rates of 10% and 15% with principal and interest payable monthly and due on
various dates through May 31, 2000. Certain of the notes were secured by
equipment. The stockholders elected, effective May 1996, to receive
interest-only payments on these notes. During 1996, interest and principal paid
to David C. Bernstein, Stephen R. Bernstein and Messrs. Masterson and Dietz were
$333,817, $28,575, $5,854 and $17,554, respectively. The notes were paid in full
in January 1997 with the proceeds of long-term debt as follows: Mr. Masterson -
$1,135,898; David C. Bernstein - $121,152; Stephen R. Bernstein - $17,366 and
Mr. Dietz - $52,108. In addition, in March and April 1996, Mr. Masterson loaned
the Company an aggregate of $620,000, which was repaid in May 1996 with interest
of $9,092.
Modular Energy Systems (Ireland), Ltd.
During 1996, the Company purchased from Modular Energy Systems (Ireland),
Ltd. intellectual property rights relating to mobile generating equipment and
control systems for $66,945. Modular Energy Systems (Ireland), Ltd. is
beneficially owned by Mr. Campion.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of _____________ __, 1998, certain
information with respect to the beneficial ownership of the Common Stock by: (i)
each person (or group of affiliated persons) known by the Company to own
beneficially more than five percent of the outstanding Common Stock; (ii) each
director of the Company; (iii) the Named Executive Officers; and (iv) all
directors and executive officers as a group. Information is set forth on both a
pre-Offering and a post-Offering basis. Except as indicated in the footnotes to
this table, the persons named in the table, based on information provided by
such persons, have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
Percentage of Total Shares (1)
------------------------------------------------------------------
Shares of
Common Stock
Name of Beneficial Owner Beneficially Owned Before Offering After Offering
------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
John J. Campion 204,185(1) 10.0% 6.3%
Laurence Anderson 104,012(2) 5.1 3.2
Stephen R. Bernstein 133,832(3) 6.6 4.1
Jeffrey B. Stone 354,828 17.4 10.9
Joseph A. Ades 208,952(4) 10.2 6.4
Robert E. Masterson 244,329 12.0 7.5
David C. Bernstein 180,093(5) 8.8 5.6
Michael E. Crabbe 0 --- ---
Gary M. Rosner 0 --- ---
Vincent A. Carrino* 150,800(6) 7.4 4.6
Eric C. Jackson* 75,493 3.7 2.3
Albert J. Ades 208,952(4) 10.2 6.4
All directors, director designees and 1,805,156 88.4 55.7
executive officers as a group
(12 persons)
</TABLE>
- ------------
* Director designee
(1) Mr. Campion shares voting and investment power with respect to 126,925
shares with his spouse. Includes 77,260 shares granted by the Company as a
Restricted Stock Award, which are subject to certain forfeiture provisions
until March 18, 2000.
(2) Mr. Anderson shares voting and investment power with respect to 52,505
shares with his spouse. Includes 51,507 shares granted by the Company as a
Restricted Stock Award, which are subject to certain forfeiture provisions
until March 18, 2000.
(3) Includes 20,159 shares owned by a family trust of which Mr. Bernstein is a
trustee. Mr. Bernstein has sole voting power but shares investment power
with respect to such 20,159 shares.
(4) Includes 60,320 shares owned by a general partnership of which Mr. Ades is
a partner. Mr. Ades shares voting and investment power with his partners
with respect to such 60,320 shares.
(5) Mr. Bernstein shares voting and investment power with respect to these
shares with his spouse.
(6) Includes 120,640 shares owned by two limited partnerships, the general
partner of which is a corporation controlled by Mr. Carrino.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport
to be complete and is subject in all respects to applicable Delaware law and to
the provisions of the Company's Certificate of Incorporation and Bylaws, copies
of which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
The authorized capital stock of the Company consists of 6,500,000 shares of
Common Stock, $.01 par value per share, and 1,000,000 shares of Preferred Stock,
$.01 par value per share. As of April __, 1998, there were 2,041,848 shares of
Common Stock issued and outstanding and no shares of Preferred Stock
outstanding. Upon consummation of the Offering, and assuming no exercise of the
Underwriters' over-allotment option, there will be 3,241,848 shares of Common
Stock issued and outstanding and no shares of Preferred Stock issued and
outstanding. An additional _____ shares of Common Stock will be issuable upon
exercise of outstanding options granted under the 1998 Stock Option Plan and
120,000 shares of Common Stock will be issuable upon exercise of the
Representative Warrants.
Common Stock
Each holder of Common Stock is entitled to one vote per share of record on
all matters to be voted upon by the stockholders. Holders will not have
cumulative voting rights in connection with the election of directors or any
other matter. Subject to the preferential rights of any Preferred Stock that may
at the time be outstanding, each share of Common Stock will have an equal and
ratable right to receive dividends when, if and as declared from time to time by
the Board of Directors out of funds legally available therefor. The Company has
been, and may in the future be, subject to certain agreements which restrict the
payment of dividends. The Company does not anticipate paying cash dividends in
the foreseeable future. See "Dividend Policy."
In the event of the liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payments to creditors and after satisfaction of the liquidation
preference, if any, of any Preferred Stock that may at the time be outstanding.
Holders of Common Stock have no preemptive or redemption rights and are not
subject to further calls or assessments by the Company. All of the currently
outstanding shares of Common Stock are, and all of the shares of Common Stock to
be issued and sold in the Offering will be, immediately upon consummation of the
Offering, validly issued, fully paid and nonassessable.
Preferred Stock
The Board of Directors has the authority to issue up to 1,000,000 shares of
Preferred Stock in one or more series, to fix the rights, preferences,
privileges and restrictions granted to or imposed upon any unissued shares of
Preferred Stock and to fix the number of shares constituting any series and the
designations of such series, without any further vote or action by the
stockholders. The Board of Directors, without stockholder approval, will be able
to issue Preferred Stock with voting and conversion rights which could adversely
affect the voting power of the holders of Common Stock. The Company has no
present plans to issue any Preferred Stock.
Delaware Law and Limitations on Changes in Control
Section 203 of the DGCL prevents an "interested stockholder" (defined in
Section 203, generally, as a person owning 15% or more of a corporation's
outstanding voting stock) from engaging in a "business combination" (as defined
in Section 203) with a publicly-held Delaware corporation for three years
following the date such person became an interested stockholder unless: (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
right to determine confidentially
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<PAGE>
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) following the transaction in which such person became an
interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of 66-2/3 of the outstanding voting stock of the
corporation not owned by the interested stockholder.
The Company's Certificate of Incorporation provides that at any time when
the Board of Directors consists of six or more members, a majority of the Board
of Directors may divide the Board into three classes, with each class serving
"staggered" terms of office of three years.
The Company's Bylaws generally require advance notice of any action to be
proposed at any meeting of stockholders and set forth other specific procedures,
including advance notice, for the nomination of a person to the Board of
Directors when such person is nominated other than at the direction of the
Board.
The provisions of the DGCL, Certificate of Incorporation and Bylaws
described above, together with the ability to issue Preferred Stock without
further stockholder action could have the effect of delaying, deferring or
preventing a change in control of the Company or the removal of existing
management.
Limitation on Directors' and Officers' Liability
The Certificate of Incorporation provides that a director of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except in certain cases
where liability is mandated by the DGCL. The provision has no effect on any
non-monetary remedies that may be available to the Company or its stockholders,
nor does it relieve the Company or its directors from compliance with federal or
state securities laws. The Certificate of Incorporation of the Company generally
provides that the Company shall indemnify, to the fullest extent permitted by
law, any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, investigation, administrative
hearing or any other proceeding (each, a "Proceeding") by reason of the fact
that he is or was a director or officer of the Company, or is or was serving at
the request of the Company as a director, officer, employee or agent of another
entity, against expenses (including attorneys' fees) and losses, claims,
liabilities, judgments, fines and amounts paid in settlement actually incurred
by him in connection with such Proceeding.
Certain Effects of Authorized But Unissued Stock
Upon consummation of the Offering, there will be 2,572,652 shares of Common
Stock available for future issuance without stockholder approval (assuming no
exercise of the Underwriters' over-allotment option). These additional shares
may be utilized for a variety of corporate purposes, including future public
offerings to raise additional capital or to facilitate corporate acquisitions.
The Company does not currently have plans to issue additional shares of capital
stock, other than shares of Common Stock which may be issued upon the exercise
of outstanding options or warrants.
See "Shares Eligible for Future Sale."
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is ________________.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, 3,241,848 shares of Common Stock will be
outstanding (3,421,848 shares if the over-allotment option is exercised in
full). Of these shares, the 1,200,000 shares of Common Stock sold in the
Offering (1,380,000 shares if the over-allotment option is exercised in full)
will be freely tradeable under the Securities Act, except that any shares of
Common Stock purchased by affiliates of the Company ("Affiliates"), as that term
is defined in Rule 144 under the Securities Act ("Rule 144"), may generally be
sold only in compliance with the limitations of Rule 144 described below. The
remaining 2,041,848 shares of Common Stock (the "Restricted Shares") held by
existing stockholders were sold by the Company in reliance on exemptions from
the registration requirements of the Securities Act and may be restricted
securities within the meaning of Rule 144.
In general, under Rule 144 as currently in effect, beginning after the
effective date of the Registration Statement of which this Prospectus is a part,
a stockholder, including an Affiliate, who has beneficially owned his or her
Restricted Shares for at least one year from the date those Restricted Shares
were acquired from the Company or an Affiliate, is entitled to sell, within any
three-month period, a number of such shares that does not exceed certain volume
restrictions, provided that certain requirements concerning availability of
public information, manner of sale and notice of sale are satisfied. In
addition, under Rule 144(k), if a period of at least two years has elapsed from
the date any Restricted Shares were acquired from the Company or an Affiliate, a
stockholder that is not an Affiliate at the time of sale and has not been an
Affiliate for at least three months prior to the sale is entitled to sell those
shares without compliance with the above-referenced requirements of Rule 144. An
Affiliate must comply with the volume restrictions and the other requirements
referred to above whenever that Affiliate sells any securities of the Company.
Following consummation of the Offering, the Company intends to register on
Form S-8 under the Securities Act 565,500 shares of Common Stock reserved for
issuance under the 1998 Stock Option Plan. Shares registered on Form S-8 will be
available for resale in the open market subject to the limitations applicable to
Affiliates as provided in Rule 144.
The Company and certain of its existing stockholders have agreed that they
will not, directly or indirectly, without the prior written consent of the
Representative for a period of one year after the date of this Prospectus sell,
contract to sell pledge, grant any option for the sale of, or otherwise transfer
or dispose of, or cause the transfer or disposition of, any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for any
shares of Common Stock or exercise any registration rights with respect to any
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for any shares of Common Stock. The foregoing restrictions do not
apply to grants or awards by the Company under the 1998 Stock Option Plan. The
Representative may, in its sole discretion and at any time without notice,
release all or a portion of the shares subject to such restrictions therefrom,
although it has no present intention of doing so. See "Underwriting."
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that future sales
of shares of Common Stock, including Restricted Shares, or the availability of
shares of Common Stock, including Restricted Shares, for future sale, will have
on the market price of the Common Stock prevailing from time to time. Sales of a
substantial number of Restricted Shares in the public market following the
Offering, or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital through an offering of its equity securities.
-39-
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part (the "Underwriting Agreement"),
the Underwriters named below, acting through Prime Charter Ltd., as
Representative, have severally agreed to purchase from the Company, and the
Company has agreed to sell to the Underwriters, an aggregate of 1,200,000 shares
of Common Stock. The Underwriting Agreement provides that the Underwriters'
obligations to pay for and accept delivery of those shares of Common Stock are
subject to certain conditions precedent, and that the Underwriters are committed
to purchase all of those shares of Common Stock if any shares are purchased.
Under certain circumstances, the commitments of non-defaulting Underwriters may
be increased as set forth in the Underwriting Agreement.
Number
Underwriter of Shares
----------- ---------
Prime Charter Ltd.........................................
Total.................................................. 1,200,000
=========
The Underwriters propose to offer the shares of Common Stock offered hereby
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers, who are members of the National Association
of Securities Dealers, Inc. (the "NASD"), at such price less a concession not in
excess of $.__ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $.__ per share to other dealers who are
members of the NASD. After the commencement of the Offering, the public offering
price, the concession and the reallowance may be changed.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the aggregate offering price of the shares of Common Stock
offered hereby (including any shares of Common Stock purchased pursuant to the
over-allotment option), of which $100,000 has been paid by the Company to cover
some of the due diligence expenses and underwriting costs related to the
Offering.
The Company has agreed to indemnify the Underwriters against certain
liabilities in connection with the Offering, including liabilities under the
Securities Act.
The Company has agreed to sell to the Representative or its designees, for
nominal consideration, the Representative Warrants to purchase an aggregate of
120,000 shares of Common Stock. The shares of Common Stock subject to the
Representative Warrants will be in all respects identical to the shares of
Common Stock offered to the public hereby. The Representative Warrants will be
exercisable for a four-year period commencing one year after the effective date
of the Registration Statement of which this Prospectus forms a part at a per
share exercise price equal to 120% of the public offering price. During the
period beginning one year from the effective date of the Registration Statement
and ending five years after such effective date, the Company has agreed at its
expense to register once under the Securities Act the shares of Common Stock
issued or issuable upon exercise of the Representative Warrants and, for the
period beginning one year from the effective date of the Registration Statement
and ending seven years after such effective date, to include such shares of
Common Stock in any appropriate registration statement which is filed by the
Company. The Representative Warrants will contain anti-dilution provisions
providing for appropriate adjustment of the exercise price and number of shares
that may be purchased upon the occurrence of certain events. The Representative
Warrants may be exercised by paying the exercise price in cash, through the
surrender of shares of Common Stock, through a reduction in the number of shares
covered thereby, or by using a combination of such methods.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus to purchase up to 180,000
additional shares of Common Stock at the public offering price, less the
underwriting discounts and commissions and a pro-rata portion of the
non-accountable expense allowance. The
-40-
<PAGE>
Underwriters may exercise this option solely to cover over-allotments, if any,
made in the sale of the shares of Common Stock offered hereby. To the extent
that this option is exercised, each Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the percentage of shares of Common Stock it
was originally obligated to purchase pursuant to the Underwriting Agreement.
Application will be made to list the Common Stock on The American Stock
Exchange.
Prior to this Offering, there has been no public market for the Common
Stock. Accordingly, the public offering price for the Common Stock was
determined by negotiation among the Company and the Representative. Among the
factors considered in determining the public offering price were the services,
the experience of management, the economic conditions of the Company's industry
in general, the general condition of the equity securities market and the demand
for similar securities of companies considered comparable to the Company and
other relevant factors. There can be no assurance, however, that the prices at
which the Common Stock will sell in the public market after this Offering will
not be lower than the price at which the shares of Common Stock are sold by the
Underwriters.
Until the distribution of Common Stock in this Offering is completed, rules
of the Securities and Exchange Commission (the "Commission") may limit the
ability of the Underwriters and certain selling group members to bid for and
purchase the Common Stock. As an exception to these rules, the Representative is
permitted to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock. If the
Underwriters create a short position in the Common Stock in connection with this
Offering, i.e., if they sell more shares of Common Stock than are set forth on
the cover page of this Prospectus, the Representative may reduce the short
position by purchasing Common Stock in the open market. The Representative may
also elect to reduce any short position by exercising all or part of the
over-allotment option described above. The Representative may also impose a
penalty bid on certain Underwriters and selling group members. This means that
if the Representative purchases shares of Common Stock in the open market to
reduce the Underwriters' short position or to stabilize the price of the Common
Stock, it may reclaim the amount of the selling concession from the Underwriters
and selling group members who sold those shares as part of this Offering. In
general, purchases of a security for the purpose of stabilization or to reduce a
short position could cause the price of the security to be higher than it might
be in the absence of such purchases. The imposition of a penalty bid might also
have an effect on the price of a security to the extent that it discouraged
resales of any security. Neither the Company nor any of the Underwriters makes
any representation or predictions as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Common Stock.
In addition, neither the Company nor any of the Underwriters makes any
representation that the Representative will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Company and its existing stockholders who beneficially own 5% or more
of the outstanding shares of Common Stock, have agreed that they will not,
directly or indirectly, without the prior written consent of the Representative,
for a period of twelve months after the date of this Prospectus sell, offer to
sell, solicit an offer to buy, contract to sell, pledge, grant any option for
the sale of, or otherwise transfer or dispose of or cause the transfer or
disposition of, any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for any shares of Common Stock or exercise any
registration rights with respect to any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for any shares of Common Stock.
The foregoing restrictions do not apply to grants or awards under the Company's
Stock Option Plan. See "Shares Eligible for Future Sale."
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Baker & Daniels, Indianapolis, Indiana. Certain legal matters will be
passed upon for the Underwriters by Proskauer Rose LLP, New York, New York.
-41-
<PAGE>
EXPERTS
The historical financial statements of the Company as of December 31, 1997
and for each of the two years ended December 31, 1997, included in this
Prospectus and Registration Statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein (which
report expresses an unqualified opinion and includes an explanatory paragraph
referring to a change in the Company's estimated useful lives of and method of
accounting for depreciation of property and equipment) and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
with respect to the Common Stock offered hereby (the "Registration Statement").
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to the
Company and the shares of Common Stock offered hereby, reference is hereby made
to the Registration Statement, including the exhibits, financial statements and
schedules thereto. Statements contained in this Prospectus regarding the
contents of any contract or other document are not necessarily complete; with
respect to each such contract or document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
As a result of this Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, will file reports and other
information with the Commission. A copy of the Registration Statement, including
the exhibits, financial statements and schedules thereto, may be inspected
without charge at the principal office of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at its regional
offices located at Seven World Trade Center, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661, and copies of
such materials may be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 upon payment of the fees prescribed by the Commission. The Commission
also maintains a Web site that contains reports, proxy and information
statements and other materials that are filed through the Commission's
Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. This Web site
can be accessed at http://www.sec.gov.
-42-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report............................................................................. F-2
Consolidated Balance Sheet as of December 31, 1997....................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1996 and 1997......................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996 and 1997.......................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and 1997..................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Showpower, Inc.
We have audited the accompanying consolidated balance sheet of Showpower, Inc.
and subsidiaries (the "Company") as of December 31, 1997 and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended December 31, 1997 and 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly in all
material respects, the financial position of the Company, as of December 31,
1997 and the results of its operations and its cash flows for the years ended
December 31, 1997 and 1996 in conformity with generally accepted accounting
principles.
As discussed in Note 4 to the financial statements, in 1997, in addition to
prospectively changing the assets' estimated useful lives, the Company changed
its method of accounting for depreciation of property and equipment from an
accelerated method to the straight-line method and, retroactively, restated the
1996 financial statements for the change.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 6, 1998
(except for the last paragraph of Note 17, as to which the date is April 6,
1998)
F-2
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 485,788
Accounts receivable, net of allowance for doubtful accounts of $114,980 1,388,480
Due from employees (Note 12) 57,191
Prepaid expenses and other current assets 409,499
--------
Total current assets 2,340,958
----------
PROPERTY AND EQUIPMENT (Notes 4, 5 and 11):
Property and equipment 12,056,711
Less accumulated depreciation and amortization (4,026,299)
-----------
Property and equipment, net 8,030,412
----------
OTHER ASSETS:
Intangible assets, less accumulated amortization of $158,461 (Note 3) 1,291,127
Deposits 62,161
--------
Total other assets 1,353,288
-----------
TOTAL $11,724,658
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY See Note 16
-----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,404,330 $ 1,404,330
Due to stockholders 600,000
Due to affiliates (Note 12) 42,834 42,834
Accrued payroll and related expenses 378,716 378,716
Other accrued expenses 335,740 335,740
Customer deposits 578,429 578,429
Current portion of long-term debt (Note 6) 727,687 727,687
Current portion of capital lease obligations (Note 11) 134,891 134,891
Income taxes 226,286 226,286
Bank line of credit 119,495 119,495
-------- -------
Total current liabilities 3,948,408 4,548,408
---------- ---------
LONG-TERM LIABILITIES:
Long-term debt (Note 6) 2,196,938 2,196,938
Long-term portion of capital lease obligations (Note 11) 52,591 52,591
Deferred income taxes (Note 9) 220,349 920,349
-------- -------
Total long-term liabilities 2,469,878 3,169,878
---------- ---------
Total liabilities 6,418,286 7,718,286
---------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 11 and 15)
STOCKHOLDERS' EQUITY:
Preferred stock; $0.01 par value; authorized,
1,000,000 shares; none outstanding
Common stock; $0.01 par value; authorized,
6,500,000 shares; 20,418 20,418
outstanding, 2,041,848 shares
Additional paid-in capital 6,658,073 6,658,073
Notes receivable from stockholders (Note 7) (478,944) (478,944)
Cumulative foreign currency translation adjustment 16,762 16,762
Accumulated deficit (909,937) (2,209,937)
---------- -----------
Total stockholders' equity 5,306,372 4,006,372
---------- ---------
TOTAL $11,724,658 $11,724,658
=========== ===========
</TABLE>
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
SALES $11,567,589 $17,294,036
COST OF SALES 7,608,709 9,790,219
---------- ---------
GROSS PROFIT 3,958,880 7,503,817
---------- ---------
OPERATING EXPENSES:
Selling, general and administrative 3,552,297 6,179,079
Stock compensation expense 106,737
---------- --------
Total operating expenses 3,552,297 6,285,816
---------- ----------
INCOME FROM OPERATIONS 406,583 1,218,001
-------- ----------
OTHER INCOME AND (EXPENSE):
Interest expense (237,015) (203,667)
Interest and other income 3,883 32,832
------ -------
Total other expense (233,132) (170,835)
---------- ----------
INCOME BEFORE INCOME TAXES 173,451 1,047,166
PROVISION FOR INCOME TAXES (Note 9) 1,050 116,562
------ -------
NET INCOME $ 172,401 $ 930,604
========== ===========
BASIC NET INCOME PER SHARE $ 0.17 $ 0.54
DILUTED NET INCOME PER SHARE $ 0.17 $ 0.52
PRO FORMA AMOUNTS (Unaudited) (Note 16):
Income before income taxes, as reported $ 173,451 $ 1,047,166
Pro forma provision for income taxes 70,430 414,796
------- -------
Pro forma net income $ 103,021 $ 632,370
========== ===========
Pro forma basic net income per share $ 0.10 $ 0.37
Pro forma diluted net income per share $ 0.10 $ 0.35
Supplemental pro forma basic net income per share - $ 0.35
Supplemental pro forma diluted net income per share - $ 0.34
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Notes
Additional Receivable
Common Paid-in from
Shares Stock Capital Stockholders
------ ----- ------- ------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996, As previously reported 753,994 $ 7,540 $2,842,460
Change in method of depreciation (Note 4)
---------- -------- ----------
BALANCE, JANUARY 1, 1996, As restated 753,994 7,540 2,842,460
Issuance of common stock (Note 7) 405,086 4,051 1,217,703
Net income
Distribution to stockholders
---------- -------- ----------
BALANCE, DECEMBER 31, 1996 1,159,080 11,591 4,060,163
Issuance of common stock (Note 7) 754,000 7,540 2,492,460
Stock granted to officers (Note 7) 128,768 1,287 425,663
Unearned compensation expense (Note 7) (320,213)
Stockholders notes, including accrued interest of $21,674
(Note 7) $(478,944)
Net income
Distribution to stockholders
Foreign currency translation adjustment
---------- -------- ---------- ----------
BALANCE, DECEMBER 31, 1997 2,041,848 $20,418 $6,658,073 $(478,944)
========== ======== ========== ==========
<CAPTION>
Cumulative
Foreign
Currency
Translation Accumulated
Adjustment Deficit Total
---------- ------- -----
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1996, As previously reported $(2,311,662) $ 538,338
Change in method of depreciation (Note 4) 918,720 918,720
-------- --------
BALANCE, JANUARY 1, 1996, As restated (1,392,942) 1,457,058
Issuance of common stock (Note 7) 1,221,754
Net income 172,401 172,401
Distribution to stockholders (120,000) (120,000)
---------- ----------
BALANCE, DECEMBER 31, 1996 (1,340,541) 2,731,213
Issuance of common stock (Note 7) 2,500,000
Stock granted to officers (Note 7) 426,950
Unearned compensation expense (Note 7) (320,213)
Stockholders notes, including accrued interest of $21,674
(Note 7) (478,944)
Net income 930,604 930,604
<PAGE>
Distribution to stockholders (500,000) (500,000)
Foreign currency translation adjustment $16,762 16,762
-------- ------------ -------
BALANCE, DECEMBER 31, 1997 $16,762 $ (909,937) $5,306,372
======== ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 172,401 $ 930,604
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,058,529 1,103,332
Stock compensation expense 106,737
Gain on settlement (Note 13) (162,800)
Deferred income taxes 28,981
Changes in operating assets and liabilities:
Accounts receivable (607,854) (276,492)
Prepaid expenses and other current assets (27,840) (350,212)
Other assets 114,612 19,347
Accounts payable 230,280 487,260
Due to affiliate 39,504 (53,024)
Other accrued expenses 310,232 (73,608)
Customer deposits (321,360) 482,945
Income taxes 119,544
--------- -------
Net cash provided by operating activities 968,504 2,362,614
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquired businesses, net of cash acquired (170,000) (2,105,361)
Purchases of property and equipment (1,623,898) (1,904,370)
Other (6,931) (8,612)
-------- --------
Net cash used in investing activities (1,800,829) (4,018,343)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,221,754 2,042,730
Proceeds from issuance of long term debt 684,717
Borrowing under bank line of credit 119,495
Principal payments on long-term debt (18,899) (242,043)
Principal payments on stockholder loans (80,185)
Principal payments on capital lease obligations (155,510) (149,762)
Distributions to stockholders (120,000) (500,000)
---------- ---------
Net cash provided by financing activities 847,160 1,955,137
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 14,835 299,408
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 171,545 186,380
-------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 186,380 $ 485,788
========== =========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION (Note 13)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
- --------------------------------------
1. ORGANIZATION
Showpower, Inc. and subsidiaries (the "Company") provides temporary power
generation and temperature control rental equipment and support services
on a worldwide basis for entertainment, corporate and special events. The
Company's customers include corporations, event producers, television
networks, motion picture studios, facility operators and performers that
need electric power and/or temperature control services to support events
at locations where these services are inadequate or unavailable. In
addition to rental equipment, the Company provides fully integrated,
value-added services, including planning, technical advice, customized
installations, on-site operations and support personnel. The Company's
power equipment consists of transportable, diesel-powered electricity
generators contained in acoustic enclosures, and related power
distribution equipment. Temperature control equipment consists of
transportable, electrically driven ventilation, heating and air
conditioning units.
In March 1997, the Company acquired 100% ownership in Templine, Ltd.
("Templine"), a United Kingdom corporation. The financial statements of
Templine are consolidated with those of the Company, and all significant
intercompany balances and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents - The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
Prepaid Expenses and Other Current Assets - Costs related to scheduled
future projects for which contracts are in place are deferred and charged
to expense in the period revenue is recognized.
Property and Equipment - Property and equipment are stated at cost.
Leasehold improvements are amortized over the related lease term.
After the effect of accounting changes (see Note 4), depreciation is
computed on a straight-line basis using the following estimated useful
lives:
Rental equipment 7-10 years
Vehicles 5 years
Furniture and fixtures 7 years
Other equipment 5-7 years
A portion of the Company's interest expense was incurred to fund the
construction of certain assets. Interest capitalized during the years
ended December 31, 1996 and 1997 amounted to $27,775 and $30,972,
respectively.
F-7
<PAGE>
Revenue Recognition - Revenue is recognized over the term of and
commensurate with the scope of services provided. Customer deposits and
cash received before services are performed are deferred and recorded as
current liabilities.
Intangibles - Intangible assets, primarily goodwill, are stated at cost
and are amortized on the straight-line method over periods from 2 to 15
years.
Income Taxes - The Company accounts for income taxes in conformity with
Statement of Financial Accounting Standards ("SFAS") No. 109. The Company
has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code and similar state tax provisions. Under those
provisions, the Company is not subject to federal corporate income taxes.
The earnings of S corporations are reported on the tax returns of the
stockholders. For California State Franchise Tax purposes, a 1.5% tax is
assessed on the taxable income of the Company. The Company's United
Kingdom subsidiary is subject to United Kingdom corporation tax.
Foreign Currency - Templine conducts its primary business in the United
Kingdom, and the British pound sterling is the functional currency.
Results of operations are converted at average rates of exchange during
the year and balance sheet amounts are translated at exchange rates at the
balance sheet date. The results from such conversion and changing exchange
rates are recorded as a separate component of stockholders' equity.
Earnings per Share - The Company has adopted the provisions of SFAS No.
128, "Earnings Per Share" ("EPS"). Basic EPS is calculated based on
weighted average outstanding shares. Diluted EPS includes the dilutive
effect of restricted shares issued to officers.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain amounts and disclosures.
Actual results could differ from those estimates.
Financial Instruments - The Company's financial instruments that are
exposed to concentrations of credit risk consist primarily of cash
equivalents and accounts receivable. The Company's cash equivalents are
placed primarily with institutions with high credit ratings.
The concentration of credit risk with respect to accounts receivable is
generally diversified, as the Company has a broad customer base nationwide
and, to a lesser extent, worldwide. Customers are primarily within the
entertainment industry. Although receivables are unsecured, the Company
routinely assesses the financial strength of its customers and provides
allowances for potential credit losses. In 1996, two customers comprised
33% and 17% of the outstanding accounts receivable balance, and two other
customers comprised 11% and 10% of total sales. In 1997, one customer
comprised 10% of accounts receivable, and another customer comprised 11%
of total sales.
The carrying values of cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value due to the short maturities of
such instruments. Short-term and long-term notes payable are carried at
amounts approximating fair value based on current rates that would be
offered to the Company for debt with similar terms.
F-8
<PAGE>
Long-Lived Assets - The Company reviews long-lived assets and identifiable
intangibles whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss is
recognized when estimated undiscounted cash flows expected to result from
the use of the asset and its eventual disposition are less than its
carrying amount.
New Accounting Pronouncements - In June 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying
comprehensive income and its components in a full set of financial
statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997, and requires reclassification of comparative financial
statements for earlier periods. Management of the Company believes that
the adoption of SFAS No. 130 will result in a presentation of
comprehensive income that differs from net income as presented in the
accompanying financial statements to the extent of foreign currency
translation adjustments as shown in the accompanying consolidated
statements of stockholders' equity.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
reporting information about operating segments in annual and interim
financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." Generally, financial information is
required to be reported on the basis that it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier periods is to be restated. Management
believes application of SFAS No. 131 will have no significant effect on
the Company's segment reporting.
3. ACQUISITIONS
In September 1996 the Company purchased substantially all of the assets of
Pannell Electric Co., Inc., ("Pannell") a Texas-based company, for
$170,000.
The Company also entered into consulting and non-competition agreements
with the former stockholder and the president of Pannell. The consulting
and non-competition agreements provide for monthly payments of $7,500,
commencing October 1, 1996 for a total of 24 consecutive months.
In March 1997, the Company acquired 100% of the common stock of Templine,
at a cost of $2,119,247, including acquisition costs. Templine operates in
the same business as the Company. Goodwill related to the acquisition
totaling $1,192,779 is being amortized on a straight-line basis over 15
years.
The Company accounted for the purchases of Pannell and Templine using the
purchase method of accounting, and results of operations have been
included since the acquisition date.
F-9
<PAGE>
The following unaudited supplemental information presents results of
operations on a pro forma basis as though the acquired companies had been
acquired at the beginning of each period presented:
1996 1997
---- ----
(Unaudited)
Sales $13,801,000 $17,495,000
Income before income taxes $ 604,000 $ 971,000
Net income $ 451,000 $ 876,000
Basic net income per share $ 0.46 $ 0.51
Diluted net income per share $ 0.46 $ 0.49
4. ACCOUNTING CHANGES
In 1997, the Company adopted the straight-line depreciation method while
in all prior years depreciation was recorded using an accelerated method,
which was also used for income tax purposes. The straight-line method was
adopted to better allocate the cost of property and equipment to periods
over which it is used to generate revenue. Financial statements for prior
periods have been restated to apply the new method retroactively in
contemplation of the Company's initial public offering.
Prior to 1997, the Company depreciated property and equipment over
estimated useful lives of five to seven years. In January 1997, the
Company prospectively changed its estimate of useful lives of property and
equipment to five to ten years.
The effect of these changes was an increase in net income and net income
per share, as follows:
1996 1997
---- ----
Effect of change to straight-line depreciation on:
Net income $199,390 $241,188
Basic net income per share $ 0.20 $ 0.14
Diluted net income per share $ 0.20 $ 0.13
Pro forma basic net income per share $ 0.12 $ 0.08
Pro forma diluted net income per share $ 0.12 $ 0.08
Supplemental pro forma basic net income per share $ 0.08
Supplemental pro forma diluted net income per share $ 0.08
Effect of change in estimated useful life on:
Net income $417,048
Basic net income per share $ 0.24
Diluted net income per share $ 0.23
Pro forma basic net income per share $ 0.15
Pro forma diluted net income per share $ 0.14
Supplemental pro forma basic net income per share $ 0.14
Supplemental pro forma diluted net income per share $ 0.13
F-10
<PAGE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1997:
Rental equipment $10,300,828
Vehicles 711,095
Furniture and fixtures 165,226
Other equipment 463,144
Leasehold improvements 67,464
Work in process 348,954
----------
12,056,711
Accumulated depreciation and amortization (4,026,299)
----------
$ 8,030,412
===========
Depreciation and amortization expense for 1996 and 1997 was $1,027,652 and
$991,537, respectively, after giving effect to a change in depreciation
(see Note 4).
6. LONG-TERM DEBT
The following is a summary of long-term debt at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Notes payable to Charter Financial, Inc., payable in monthly
installments of $43,717, due January 2001 to December 2001 bearing
annual interest at approximately 9.5% to 11.0%, secured by rental
equipment $1,698,110
Notes payable to Caterpillar Financial Services Corp. payable in monthly
installments of $21,623 due March 2002 through December 2002, bearing
annual interest at approximately 9.2% to 9.3%, secured by rental
equipment 968,056
Notes payable, denominated in British pounds sterling, payable in
monthly installments of $6,484 including interest ranging from 5% to
24%, through November 2000, secured by vehicles and rental equipment 147,918
Notes payable, payable in monthly installments of $18,582 including
interest at 9.9%, due June 1998, secured by rental equipment 110,541
-------
Total notes payable 2,924,625
Less current portion 727,687
---------
Total long-term portion $2,196,938
==========
</TABLE>
F-11
<PAGE>
Maturities of the long-term debt are as follows:
Year Ending
December 31,
1998 $ 727,417
1999 647,379
2000 682,983
2001 676,834
2002 190,012
----------
Total $2,924,625
==========
Unused equipment financing availability totaled $3,489,890 at December 31,
1997. Available financing under one arrangement is $2,463,635 as of
December 31, 1997, bearing interest at 9% per annum with monthly principal
and interest payments over a 7-year term. Obligations may be repaid prior
to maturity without penalty. The available financing under the second
arrangement is $1,026,255 as of December 31, 1997, bearing interest at a
rate determined by the lender at the funding date, with monthly principal
and interest payments over a 4-year term, with 20% of the interest and
principal amount due at the end of the term. Prepayment prior to maturity
may be made at an amount equal to the sum of future principal and interest
payments, discounted at an annual rate of 6%.
7. COMMON STOCK
In May 1996, the Company issued 405,086 shares of common stock for
$1,221,754, net of $148,246 of expenses.
In March 1997, the Company issued 754,000 shares of common stock for
$2,500,000, including 137,913 shares issued to certain officers in
exchange for recourse promissory notes of $457,270. The notes, which bear
interest at 6.25% per annum, are due at maturity in September 2002. The
notes are recorded as a reduction in stockholders' equity.
In 1996, the Company adopted a stock option and incentive plan for senior
management and key employees. In March 1997, the Company granted officers
128,768 restricted shares, which vest at the end of three years.
Compensation expense based on the fair value of the shares ($3.32 per
share) is being recognized over the vesting period. No options are
outstanding or have been granted as of December 31, 1997.
F-12
<PAGE>
8. EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1996 1997
--------------------------------------- ----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic Net Income Per
Share
Net income available to
common stockholders $ 172,401 990,294 $ 0.17 $ 930,604 1,724,580 $ 0.54
========== ======== ======= ========== ======
Diluted Net Income
Per Share
Effect of restricted stock 76,563
Income available to
common stockholders
and effect of restricted
stock $ 172,401 990,294 $ 0.17 $ 930,604 1,801,143 $ 0.52
========== ======== ======= ========== ========== ======
</TABLE>
The dilutive effect of 128,768 shares of restricted stock (see Note 7) on
earnings per share is calculated using the treasury stock method. Assumed
proceeds equal to unearned compensation divided by the contemplated
initial public offering price per share is used to reduce the dilutive
effect of restricted stock by the resulting number of shares.
9. INCOME TAXES
Significant components of the provision for income taxes are as follows:
1996 1997
---- ----
Current $1,050 $ 87,581
Deferred 28,981
------ --------
Total $1,050 $116,562
====== ========
Templine, the Company's United Kingdom subsidiary, is subject to United
Kingdom corporation tax. United Kingdom deferred tax liabilities relate
only to the financial reporting basis of property, plant and equipment in
excess of tax basis. The income tax effect of the financial reporting
basis over tax basis results from the acquisition of Templine during 1997,
as well as subsequent capital expenditures in excess of depreciation for
financial reporting purposes, and totals $220,349 at December 31, 1997.
The basis of the Company's U.S. net assets for financial reporting
purposes is approximately $1,753,726 greater than the U.S. tax basis,
primarily resulting from the use of accelerated depreciation for tax
purposes. No financial statement effect has been given to differences
between financial reporting and tax basis of U.S. assets and liabilities,
as the Company has elected S corporation status.
F-13
<PAGE>
10. RETIREMENT PLAN
The Company has a 401(k) plan covering employees who have completed one
year of service and are age 21 or older. The Company contributes $.50 for
each $1.00 contributed by employees up to 6% of eligible compensation. The
Company incurred $24,981 and $53,157 in retirement plan expense for the
years ended December 31, 1996 and 1997, respectively.
11. LEASES
Operating Lease Obligations - The Company leases office and warehouse
facilities in California, New York, New Jersey, Texas and Bristol,
England, under operating leases expiring through 2008. The Company also
rents equipment under month-to-month rental agreements. Short-term rental
expense of generators and other operating equipment was $2,306,528 and
$2,810,241 for the years ended December 31, 1996 and 1997, respectively.
Other rental expense was $151,596 and $234,561 for the years ended
December 31, 1996 and 1997, respectively.
Capital Lease Obligations - The Company leases various equipment under
capital leases. Amortization is computed by the straight-line method and
has been included in depreciation and amortization expense.
The following is a summary of property held under capital leases at
December 31, 1997:
Rental equipment $424,773
Vehicles 66,899
Equipment, furniture and fixtures 34,237
--------
Total property at cost 525,909
Accumulated amortization (157,822)
--------
Total $368,087
========
F-14
<PAGE>
Future Minimum Lease Payments - The future minimum lease payments under
operating and capital leases are as follows:
Year Ending Operating Capital
December 31, Leases Leases
------------ ------ ------
1998 $166,940 $ 152,364
1999 84,381 46,235
2000 15,770 5,125
2001 15,770 1,129
2002 15,770
Thereafter 81,478
------ -------
Total minimum lease payments $380,109 204,853
=========
Amount representing interest (17,371)
--------
Present value of net minimum lease payments 187,482
Current portion of capital lease obligations (134,891)
--------
Long-term portion $ 52,591
========
12. RELATED PARTY TRANSACTIONS
Due from Employees - At December 31, 1997, the Company held a note
receivable from an employee, payable in 26 installments of $187, including
interest at 8.0% per annum, with the unpaid balance of $14,400 due July
16, 2001. The Company also had a loan receivable from an officer of
$30,000, at December 31, 1997, which was due upon demand and repaid in
January 1998.
Due to Affiliates - The Company purchases freight forwarding services and
travel agency services (primarily airline tickets) from entities with
common ownership. The Company also purchases freight forwarding and
maintenance services from a company owned by an employee of Templine. The
following is a summary of transactions and balances with the affiliates:
1996 1997
---- ----
Travel agency services $109,619 $117,607
Freight services $218,704 $217,098
Templine freight and maintenance services - $ 50,000
Due to affiliates - $ 42,834
Intellectual Property Rights - In 1996, the Company purchased intellectual
property rights for $66,945 from one of its officers and stockholders. The
intellectual property rights, which have an estimated useful life of three
years, include a data acquisition system, control system, engine interface
module and generator interface module. The related amortization expense
totaled $20,704 and $22,315 for the years ended December 31, 1996 and
1997, respectively.
F-15
<PAGE>
13. SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest and income taxes is as follows:
1996 1997
---- ----
Interest expense $264,790 $234,639
Income taxes $ 1,050 $ 53,373
Summary of noncash investing and financing activities:
1996 1997
---- ----
Acquisition of intangibles by assuming liabilities $60,000 $ -
Purchases of assets through capital lease and
note payable financing $74,630 $ 998,869
Repayment of stockholder notes through issuance of
long-term debt $ - $1,326,524
Assets acquired and (liabilities assumed) in connection with the
acquisition of Templine in 1997 were as follows:
Cash and cash equivalents $ 13,886
Accounts receivable 213,330
Property and equipment 1,269,470
Goodwill 1,192,779
Accounts payable (87,190)
Accrued expenses (90,584)
Customer deposits (47,644)
Notes payable (97,214)
Income taxes payable (56,218)
Deferred income taxes (191,368)
---------
Total acquisition cost $2,119,247
==========
In 1994, the Company entered into a cooperation agreement with Mitsuho
Electric, Ltd., Japan ("Mitsuho"). Under the terms of the agreement, the
companies were to share equally the gross revenues less certain costs. As
part of the agreement, Mitsuho advanced to the Company a
noninterest-bearing note payable of $400,000. The Company terminated the
agreement in 1997. The balance of the note at December 31, 1996 of
$213,000 was disputed by the Company and settled for $50,200 in 1997,
resulting in a gain of $162,800.
F-16
<PAGE>
14. SEGMENT INFORMATION
Information about the Company's operations in different geographic areas
for the year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Adjustments
United United and
States Kingdom Eliminations Consolidated
------ ------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 14,803,222 $ 2,905,276 $(414,462) $17,294,036
============ =========== ========== ===========
Operating profit $ 905,409 $ 312,592 $ 1,218,001
============ ===========
Interest expense (203,667)
Interest and other income 32,832
------
Income before income taxes $ 1,047,166
===========
Identifiable assets $ 8,724,743 $3,283,914 $(283,999) $11,724,658
============ ========== ========== ===========
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
The Company is a party to potential claims arising in the ordinary course
of its business. In the opinion of management, the Company has adequate
legal defenses with respect to these matters so that the ultimate
resolution will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
16. PRO FORMA AMOUNTS (Unaudited)
S Corporation Conversion - In connection with the Company's contemplated
initial public stock offering, the Company will terminate its S
Corporation status. As a result, the Company will pay income taxes at the
corporate level. The pro forma income tax provision in the consolidated
statements of operations is based upon an assumed 40% federal and state
income tax rate for the Company's U.S. operations.
Distributions - Subsequent to the termination of its S Corporation status,
the Company will determine the amount of undistributed 1998 S Corporation
earnings taxable to existing stockholders and a distribution will be made
to its stockholders of approximately $600,000 to pay income taxes on S
Corporation income.
Deferred Income Taxes - In connection with the conversion of the Company's
S Corporation status to C Corporation status, the Company is required by
FASB No. 109 to record deferred income tax liabilities and deferred income
tax assets. Such change will result in a net charge to earnings in the
fiscal quarter in which the conversion to C Corporation status takes
place. This one-time charge is a result of differences in the accounting
and tax treatment of certain of the Company's assets and liabilities and
is reflected through an increase in deferred income taxes. Deferred tax
liabilities of approximately $700,000 would have been recorded had the
conversion to a C Corporation taken place on December 31, 1997.
F-17
<PAGE>
Adjustments to Equity - The pro forma adjustments to accumulated deficit
are as follows:
Accumulated
Deficit
-------
December 31, 1997 - Actual $ (909,937)
Distribution payable to stockholders (600,000)
Deferred income taxes (700,000)
---------
December 31, 1997 - Pro Forma $(2,209,937)
===========
Supplemental Pro Forma Net Income Per Share - Supplemental pro forma net
income per share gives effect to the increase in number of shares, the net
proceeds of which would have been sufficient to pay the distributions to
stockholders from proceeds from the Company's contemplated initial public
stock offering.
17. SUBSEQUENT EVENTS
1998 Stock Option and Incentive Plan - Effective January 1, 1998, the
Board of Directors and the stockholders of the Company adopted the 1998
Stock Option and Incentive Plan (the "1998 Stock Option Plan"). Under the
1998 Stock Option Plan, the Company may award stock options and
performance shares to employees and directors of the Company. The
aggregate number of shares of common stock that may be awarded under the
1998 Stock Option Plan is 565,500, subject to adjustment in certain
events. No individual participant may receive awards for more than 141,375
shares in any calendar year.
Long-Term Debt - In January 1998, the Company issued long-term debt in the
aggregate amount of approximately $2,200,000 to Caterpillar Financial
Services Corp. and Charter Financial, Inc. under the equipment financing
arrangements described in Note 6.
Line of Credit Facilities - In March 1998, the Company obtained a
$2,000,000 line of credit facility and a $300,000 leasehold improvements
facility (the "Facilities") from a bank. Under the line of credit
facility, availability of funds in excess of $750,000 is subject to an
accounts receivable borrowing base formula and interest is payable monthly
at the lender's prime rate (8.5% at December 31, 1997) plus .25% or, at
the Company's option, the London Interbank Offered Rate (LIBOR), plus
2.75%. The line of credit term is through May 1, 1999. The leasehold
improvements facility bears interest at the lender's prime rate plus
.875%, interest only is payable through September 1998, and monthly
payments of interest and principal are payable for the remaining 24 months
thereafter.
The Facilities include customary negative covenants such as restrictions
on the Company's ability to incur debt, make acquisitions, pay dividends,
make investments or sell assets. Also, the Facilities include financial
covenants regarding the Company's tangible net worth, ratio of cash and
accounts receivable to current liabilities, ratio of liabilities to
tangible net worth and cash flow to fixed charges ratio.
F-18
<PAGE>
Reincorporation and Stock Split - In March 1998, the Company
reincorporated in Delaware. In connection with the reincorporation, the
Company is authorized to issue 6,500,000 shares of common stock, par value
$0.01 per share, and 1,000,000 shares of preferred stock, par value $0.01
per share. On April 6, 1998, the Company's Board of Directors declared a
754-for-one stock split of the outstanding common stock and effected the
split by paying a stock dividend. All share and per share amounts have
been restated to reflect the reincorporation and the stock split.
******
F-19
<PAGE>
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the Offering made hereby, and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any of the
securities offered hereby in any jurisdiction to any person to whom it is lawful
to make such an offer or solicitation in such jurisdiction. 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 dates as of which such information is
furnished.
---------------
TABLE OF CONTENTS
Page
----
Prospectus Summary............................ 3
Risk Factors.................................. 7
Use of Proceeds............................... 12
S Corporation Conversion...................... 12
Dividend Policy............................... 13
Dilution...................................... 13
Capitalization................................ 15
Selected Consolidated Financial Information... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 17
Business...................................... 24
Management.................................... 31
Certain Transactions.......................... 34
Principal Stockholders........................ 36
Description of Capital Stock.................. 37
Shares Eligible for Future Sale............... 39
Underwriting.................................. 40
Legal Matters................................. 41
Experts....................................... 42
Additional Information........................ 42
Index to Financial Statements................. F-1
---------------
Until ___________ _, 1998 (25 days after the date hereof), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriter and with respect to their unsold allotments or
subscriptions.
================================================================================
<PAGE>
================================================================================
1,200,000 Shares
SHOWPOWER, INC.
[Logo]
Common Stock
-------------------
PROSPECTUS
-------------------
PRIME CHARTER LTD.
_____________ _, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Reference is hereby made to Section 145 of the General Corporation Law of
the State of Delaware (the "DGCL"), which provides that a corporation will have
the power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "proceeding"), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, with respect to the payment of certain
amounts under certain circumstances.
Article IX (the "Article") of the Certificate of Incorporation of
Showpower, Inc. (the "Company"), provides that the Company will indemnify and
advance expenses to, to the fullest extent permitted by applicable law, any
person who was or is made or is threatened to be made a party or is otherwise
involved in any proceeding by reason of the fact that he, or a person for whom
he is the legal representative, is or was a director, officer, employee or agent
of the Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust, enterprise or non-profit entity, including service with respect
to employee benefit plans.
The Article provides that the rights to indemnification and advancement of
expenses conferred by the Article are presumed to have been relied upon by
directors and officers of the Company in serving or continuing to serve the
Company and are enforceable as contract rights. Said rights are not exclusive of
any other rights to which those seeking indemnification may otherwise be
entitled. The Article further provides that the Company may enter into contracts
to provide its directors and officers with specific rights to indemnification,
which contracts may confer rights and protections to the maximum extent
permitted by the DGCL. In addition, the Company may create trust funds, grant
security interests, obtain letters of credit or use other means to ensure
payment of such amounts as may be necessary to perform the obligations provided
for in the Article or in any such contract.
The Article states that any repeal or modification of the Article by the
stockholders of the Company will not adversely affect any right or protection of
a director of the Company existing at the time of such repeal or modification
with respect to acts or omissions occurring prior to such repeal or
modification.
The Article further provides that the personal liability of a director of
the Company is eliminated to the fullest extent permitted by Section 102(b)(7)
of the DGCL, as the same may be amended and supplemented. The Article states
that, without limiting the generality of the foregoing, no director will be
personally liable to the Company or any of its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the DGCL (relating to
unlawful distributions and redemptions of shares), or (iv) for any transaction
from which the director derived an improper personal benefit.
In addition, the Company has a directors' and officers' liability and
company reimbursement policy that insures the Company and its directors and
officers against certain liabilities, including liabilities under the Securities
Act of 1933, as amended, subject to applicable retentions.
II - 1
<PAGE>
Item 25. Other Expenses of Issuances and Distribution
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee and the NASD fee, all amounts are estimates.
SEC Registration Fee............................. $5,846
NASD............................................. 2,482
Listing Fee...................................... *
Printing and Engraving Expenses.................. *
Legal Fees and Expenses.......................... *
Accounting Fees and Expenses..................... *
Blue Sky Fees and Expenses....................... *
Transfer Agent Fees and Expenses................. *
Miscellaneous.................................... *
------
Total..................................... $ *
======
- ------------
* To be supplied by amendment
Item 26. Recent Sales of Unregistered Securities
In May 1996, the Company issued and sold 405,086 shares of Common Stock to
eight investors for an aggregate purchase price of $1,370,000.
In March 1997, the Company issued and sold 754,000 shares of Common Stock
to existing stockholders and seven additional investors for an aggregate
purchase price of $2,500,000, of which $457,270 was loaned by the Company to
three such existing stockholders.
No underwriters were involved in any of the foregoing transactions. The
sales of all such securities were deemed to be exempt from registration under
the Act, in reliance on Section 4(2) thereunder, as transactions by an issuer
not involving any public offering.
On March 18, 1997, the Company granted awards of Restricted Stock covering
128,768 shares of Common Stock to two employees under the Company's 1996 Stock
Option and Incentive Plan.
The foregoing awards were exempt from registration pursuant to Section 4(2)
of the Act, Rule 701 thereunder or other applicable exemptions.
Item 27. Exhibits
The list of exhibits is hereby incorporated by reference to the Index to
Exhibits appearing on page E-1 of this Registration Statement.
Item 28. Undertakings
The undersigned Registrant hereby undertakes that:
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy and is, therefore, unenforceable.
In the event
II - 2
<PAGE>
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer 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 small business issuer will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(2) For determining any liability under the Act, treat 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 small business issuer under Rule 424(b)(1), or (4),
or 497(h) under the Act as part of this registration statement as of the
time the Commission declared it effective.
(3) For determining any liability under the Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
(4) It will 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.
II - 3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Rancho
Dominguez, California, on April 15, 1998.
SHOWPOWER, INC.
By: /s/ John J. Campion
----------------------------------
John J. Campion,
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
John J. Campion, Jeffrey B. Stone and Stephen R. Bernstein, and each of them, as
his attorneys-in-fact and agents, with full power of substitution and
resubstitution for him in any and all capacities, to sign any or all amendments
or post-effective amendments to this Registration Statement, or any Registration
Statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with
exhibits thereto and other documents in connection therewith or in connection
with the registration of the common stock under the Securities Act of 1934, as
amended, with the Securities and Exchange Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters and
hereby ratifying and confirming all that each of such attorneys-in-fact and
agents or his substitutes may do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John J. Campion Chief Executive Officer and Director April 15, 1998
- -------------------------------------- (principal executive officer)
John J. Campion
/s/ Michael W. Crabbe Vice President/Chief Financial Officer April 15, 1998
- -------------------------------------- (principal financial and accounting officer)
Michael W. Crabbe
/s/ Jeffrey B. Stone Chairman of the Board April 10, 1998
- --------------------------------------
Jeffrey B. Stone
/s/ Joseph A. Ades Director April 10, 1998
- --------------------------------------
Joseph A. Ades
/s/ David C. Bernstein Director April 10, 1998
- --------------------------------------
David C. Bernstein
/s/ Robert E. Masterson Director April 10, 199
- --------------------------------------
Robert E. Masterson
</TABLE>
II - 4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Representatives Warrant Agreement
3.1 Certificate of Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
4.1* Form of Common Stock certificate.
5.1* Opinion of Baker & Daniels with respect to the legality of
the securities being registered.
10.1 1998 Stock Option and Incentive Plan
10.2 Employment Agreement dated May 23, 1996 between the Registrant,
John J. Campion and Modular Energy Systems (Ireland), Ltd.
10.3 Letter agreement dated May 9, 1996 between the Registrant and
Laurence Anderson
10.4 Employment Agreement dated July 1, 1996 between the Registrant
and Stephen R. Bernstein
10.5 Promissory Note and Security Agreement dated January 21, 1998
between the Registrant and Caterpillar Financial Services Corporation
10.6.1 Loan and Security Agreement dated December 30, 1996
between the Registrant and Charter Financial, Inc.
10.6.2 Amendment dated January 9, 1997 to Loan and Security
Agreement dated December 30, 1996 between the Registrant and
Charter Financial, Inc.
10.7* Bank line of credit facility
10.8* Bank leasehold improvements facility
11.1 Calculation of EPS
18.1 Letter on change in accounting principle
21.1 Subsidiaries
23.1 Consent of Deloitte & Touche LLP
23.2* Consent of Baker & Daniels (to be included in Exhibit 5.1).
27.1 Financial Data Schedule
99.1 Consent of Vincent A. Carrino
99.2 Consent of Eric C. Jackson
</TABLE>
- ------------
* To be filed by amendment
II - 5
Exhibit 1.1
1,200,000 Shares
SHOWPOWER, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
________ __, 1998
Prime Charter Ltd.,
As representative of the
several Underwriters named
in Schedule A hereto
810 Seventh Avenue
New York, New York 10019
Ladies and Gentlemen:
Showpower, Inc., a Delaware corporation (the "Company), proposes to
issue and sell 1,200,000 shares (the "Firm Shares") of its authorized but
unissued common stock, par value $.01 per share (the "Common Stock"), to Prime
Charter Ltd. (the "Representative") and the other underwriters listed on
Schedule A to this Agreement (the Representative and the other underwriters
being herein collectively called the "Underwriters"). The Company also proposes
to grant to the Underwriters an option to purchase up to 180,000 additional
shares (the "Overallotment Shares") of Common Stock on the terms and conditions
set forth in Section 3(c). The Firm Shares and the Overallotment Shares are
hereinafter collectively referred to as the "Shares."
The Company wishes to confirm as follows its agreements with the
Underwriters in connection with the several purchases by the Underwriters of the
Shares.
1. Registration Statement. The Company has prepared and filed with the
Securities and Exchange Commission (the "Commission") a registration statement
on Form S-B2 (File No. 333- ), including a prospectus relating to the Shares
1
<PAGE>
and each amendment thereto in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"). There have been delivered to you signed
copies of such registration statement and amendments, together with copies of
each exhibit filed therewith. Copies of such registration statement and
amendments and of the related preliminary prospectus have been delivered to you
in such reasonable quantities as you have requested for each of the
Underwriters. If such registration statement has not become effective, a further
amendment to such registration statement, including a form of final prospectus,
necessary to permit such registration statement to become effective will be
filed promptly by the Company with the Commission. If such registration
statement has become effective, a final prospectus containing all Rule 430A
Information (as hereinafter defined) will be filed by the Company with the
Commission in accordance with, and if required by, Rule 424(b) of the rules and
regulations of the Act (the "Rules and Regulations") on or before the second
business day after the date hereof (or such earlier time as may be required by
the Rules and Regulations).
The term "Registration Statement" as used in this Agreement shall mean
such registration statement (including all exhibits and financial statements) at
the time such registration statement becomes or became effective and, if any
post-effective amendment thereto becomes effective prior to the Closing Date (as
hereinafter defined), shall also mean such registration statement as so amended;
provided, however, that such term shall include all Rule 430A Information deemed
to be included in such registration statement at the time such registration
statement becomes effective as provided by Rule 430A of the Rules and
Regulations and shall also mean any registration statement filed pursuant to
Rule 462(b) of the Rules and Regulations with respect to the Shares. The term
"Preliminary Prospectus" shall mean any preliminary prospectus referred to in
the preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule 430A
Information. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares in the form in which it is first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no
filing pursuant to Rule 424(b) of the Rules and Regulations is required, shall
mean the form of final prospectus included in the Registration Statement at the
time such registration statement becomes effective. The term "Rule 430A
Information" means information with respect to the Shares and the offering
thereof permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the Rules and Regulations.
2
<PAGE>
2. Representations and Warranties of the Company. The Company hereby
represents and warrants as follows:
(a) The Company has not received, and has no notice of, any
order of the Commission preventing or suspending the use of any Preliminary
Prospectus, or the institution of proceedings for that purpose, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the Rules and Regulations. When the
Registration Statement became or becomes, as the case may be, effective (the
"Effective Date") and at all times subsequent thereto up to and at the Closing
Date (as hereinafter defined), any later date on which Overallotment Shares are
to be purchased (the "Overallotment Closing Date") and when any post-effective
amendment to the Registration Statement becomes effective or any amendment or
supplement to the Prospectus is filed with the Commission, (i) the Registration
Statement and Prospectus, and any amendments or supplements thereto, will
contain all statements which are required to be stated therein by, and will
comply with the requirements of, the Act and the Rules and Regulations and (ii)
neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, 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
the statements therein not misleading. The foregoing representations and
warranties in this Section 2(a) do not apply to any statements or omissions made
in reliance on and in conformity with the information contained in the section
of the Prospectus entitled "Underwriting" and the information in the last
paragraph on the front cover page of the Prospectus. The Company has not
distributed any offering material in connection with the offering or sale of the
Shares other than the Registration Statement, the Preliminary Prospectus, the
Prospectus or any other materials, if any, permitted by the Act.
(b) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Registration Statement.
The Company is duly qualified to do business as a foreign corporation in good
standing in each jurisdiction where the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where the
failure so to qualify would not have a material adverse effect on the business,
properties, prospects, financial condition or results of operations of the
Company and the Subsidiary (as hereinafter defined) taken as a whole (a
"Material Adverse Effect"). The Company has no subsidiaries (as defined in the
Rules and Regulations) other than
3
<PAGE>
Templine Limited, an English company (the "Subsidiary"). The Company does not
own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, association or other entity, other than
Transweg Ltda., the joint venture to be known as Showpower Brasil S.A. Complete
and correct copies of the certificates of incorporation and of the bylaws of the
Company and the Subsidiary and all amendments thereto have been delivered to the
Representative and no changes therein will be made subsequent to the date hereof
and prior to the Closing Date or, if later, the Overallotment Closing Date. The
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 corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement. All of the
outstanding shares of capital stock of the Subsidiary have been duly authorized
and validly issued, are fully paid and non-assessable and are owned by the
Company subject to no lien, security interest, other encumbrance or adverse
claims. No options, warrants or other rights to purchase, agreements or other
obligation to issue or other rights to convert any obligation into shares of
capital stock or ownership interests in the Subsidiary are outstanding.
(c) The Company has full power and authority (corporate and
other) to enter into this Agreement and the Representative's Warrant Agreement
(as hereinafter defined), which is being executed concurrently herewith, and to
perform the transactions contemplated hereby and thereby. Each of this Agreement
and the Representative's Warrant Agreement has been duly authorized, executed
and delivered by the Company and is a valid and binding agreement on the part of
the Company, enforceable against the Company in accordance with its terms,
except as rights to indemnity and contribution hereunder may be limited by
applicable laws or equitable principles and except as enforcement hereof or
thereof may be limited by applicable bankruptcy, insolvency, reorganization or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. The performance of this Agreement and the
Representative's Warrant Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby will not result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, (i) any indenture, mortgage, deed of trust, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness, or any lease,
contract or other agreement or instrument to which the Company or the Subsidiary
is a party or by which their respective properties are bound, (ii) the
4
<PAGE>
certificate of incorporation or bylaws of the Company or Subsidiary or (iii) any
law, order, rule, regulation, writ, injunction or decree of any court or
governmental agency or body to which the Company or the Subsidiary is subject.
The Company is not required to obtain or make (as the case may be) any consent,
approval, authorization, order, designation or filing by or with any court or
regulatory, administrative or other governmental agency or body as a requirement
for the consummation by the Company of the transactions contemplated by this
Agreement or the Representative's Warrant Agreement, except such as may be
required under the Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or under state securities or blue sky ("Blue Sky") laws or under
the rules and regulations of The American Stock Exchange, Inc.(the "AMEX").
(d) There is not pending or, to the Company's knowledge,
threatened, any action, suit, claim, proceeding or investigation against the
Company or the Subsidiary or any of their respective officers or any of their
respective properties, assets or rights before any court or governmental agency
or body or otherwise which might result in a Material Adverse Effect or prevent
consummation of the transactions contemplated hereby. There are no statutes,
rules, regulations, agreements, contracts, leases or documents that are required
to be described in the Prospectus, or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations that have not
been accurately described in all material respects in the Prospectus or filed as
exhibits to the Registration Statement.
(e) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws and were not issued in violation of any preemptive right, resale
right, right of first refusal or similar right. The authorized and outstanding
capital stock of the Company conforms in all material respects to the
description thereof contained in the Registration Statement and the Prospectus
(and such description correctly states the substance of the provisions of the
instruments defining the capital stock of the Company). The Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable. No preemptive right, co-sale right, right of
first refusal or other similar rights of security holders exists with respect to
any of the Shares or the issue and sale thereof other than those that have been
expressly waived prior to the date hereof. No holder of securities of the
Company has the
5
<PAGE>
right to cause the Company to include such holder's securities in the
Registration Statement. The Representative's Warrant Agreement and the
Representative's Warrants (as hereinafter defined) conform in all material
respects to the descriptions thereof contained in the Registration Statement and
the Prospectus. The shares of Common Stock issuable upon exercise of the
Representative's Warrants (the "Warrant Shares") have been duly authorized for
issuance and sale to the holders of the Representative's Warrants pursuant to
the Warrant Agreement and, when issued and delivered by the Company against
payment therefor in accordance with the terms of the Warrant Agreement, will be
duly and validly issued and fully paid and nonassessable. No further approval or
authorization of any security holder, the Board of Directors or any duly
appointed committee thereof or others is required for the issuance and sale or
transfer of the Shares or the Warrant Shares, except as may be required under
the Act, the Exchange Act or under state securities or Blue Sky laws. Except as
disclosed in or contemplated by the Prospectus and the financial statements of
the Company and the related notes thereto, included in the Prospectus, the
Company does not have outstanding any options or warrants to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option and other plans or arrangements, and the options or other rights granted
and exercised thereunder, set forth in the Prospectus accurately and fairly
presents, in all material respects, the information required to be shown with
respect to such plans, arrangements, options and rights.
(f) Deloitte & Touche LLP (the "Accountants") who have
examined the financial statements, together with the related schedules and
notes, of the Company filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent public
accountants within the meaning of the Act and the Rules and Regulations. The
financial statements of the Company, together with the related schedules and
notes, forming part of the Registration Statement, and the Prospectus, fairly
present the financial position and the results of operations of the Company at
the respective dates and for the respective periods to which they apply. All
financial statements, together with the related schedules and notes, filed with
the Commission as part of the Registration Statement have been prepared in
accordance with generally accepted accounting principles as in effect in the
United States consistently applied throughout the periods involved except as may
be otherwise stated in the Registration Statement. The selected and summary
financial
6
<PAGE>
and statistical data included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with the
financial statements presented therein. No other financial statements or
schedules are required by the Act or the Rules and Regulations to be included in
the Registration Statement.
(g) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, there has not been
(i) any material adverse change, or any development which, in the Company's
reasonable judgment, is likely to cause a material adverse change, in the
business, prospects, properties or assets described or referred to in the
Registration Statement, or the results of operations, condition (financial or
otherwise), business or operations of the Company and the Subsidiary taken as a
whole, (ii) any transaction which is material to the Company or the Subsidiary,
except transactions in the ordinary course of business, (iii) any obligation,
direct or contingent, which is material to the Company and the Subsidiary taken
as a whole, incurred by the Company or the Subsidiary, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or the Subsidiary or (v)
(except as specifically described in the Prospectus) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company. Neither the Company nor the Subsidiary has any material contingent
obligation which is not disclosed in the Registration Statement.
(h) Except as set forth in the Prospectus, (i) the Company and
the Subsidiary have good and marketable title to all material properties and
assets described in the Prospectus as owned by them, free and clear of any
pledge, lien, security interest, charge, encumbrance, claim, equitable interest
or restriction, (ii) the agreements to which the Company or the Subsidiary is a
party described in the Prospectus are valid agreements, enforceable against the
Company or the Subsidiary in accordance with their respective terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles, and, to the Company's knowledge,
the other contracting party or parties thereto are not in material breach or
default under any of such agreements and (iii) each of the Company and the
Subsidiary have valid and enforceable leases for the properties described in the
Prospectus as leased by it, and such leases conform in all material respects to
the description thereof, if any, set forth in the Registration Statement.
7
<PAGE>
(i) The Company and the Subsidiary now hold and at the Closing
Date and any later Overallotment Closing Date, as the case may be, will hold,
all licenses, certificates, approvals and permits from all state, United States,
foreign and other regulatory authorities that are material to the conduct of the
business of the Company (as such business is currently conducted), except for
such licenses, certificates, approvals and permits the failure of which to hold
would not have a Material Adverse Effect), all of which are valid and in full
force and effect (and there is no proceeding pending or, to the knowledge of the
Company, threatened which may cause any such license, certificate, approval or
permit to be withdrawn, canceled, suspended or not renewed). Neither the Company
nor the Subsidiary is in violation of its certificate of incorporation or
bylaws, or, except for defaults or violations which would not have a Material
Adverse Effect, in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, joint venture or other agreement or instrument to which it is a party
or by which it or any of its properties are bound, or in violation of any law,
order, rule, regulation, writ, injunction or decree of any court or governmental
agency or body.
(j) The Company and the Subsidiary have filed on a timely
basis all necessary federal, state and foreign income, franchise and other tax
returns and has paid all taxes shown thereon as due, and the Company has no
knowledge of any tax deficiency which has been or might be asserted against the
Company or the Subsidiary which might have a Material Adverse Effect. All
material tax liabilities are adequately provided for within the financial
statements of the Company.
(k) The Company and the Subsidiary maintain insurance of the
types and in the amounts adequate for their business and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, business interruption insurance and real and
personal property owned or leased against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(l) Neither the Company nor the Subsidiary is involved in any
labor dispute or disturbance nor, to the knowledge of the Company, is any such
dispute or disturbance threatened.
(m) The Company and the Subsidiary own or possess adequate
licenses or other rights to use all patents, trademarks, service marks,
tradenames, copyrights, trade secrets, know-how,
8
<PAGE>
franchises, and other material intangible property and assets (collectively,
"Intellectual Property") necessary to the conduct of their business as conducted
and as proposed to be conducted as described in the Prospectus. The Company has
no knowledge that it or the Subsidiary lacks or will be unable to obtain any
rights or licenses to use any of the Intellectual Property necessary to conduct
the business now conducted or proposed to be conducted by it as described in the
Prospectus. The Prospectus fairly and accurately describes the Company's rights
with respect to the Intellectual Property. The Company has not received any
notice of infringement or of conflict with rights or claims of others with
respect to any Intellectual Property.
(n) The Company and the Subsidiary are conducting their
businesses in compliance with all of the laws, rules and regulations of the
jurisdictions in which they are conducting business.
(o) The Company is not an "investment company," or a
"promoter" or "principal underwriter" for a registered investment company, as
such terms are defined in the Investment Company Act of 1940, as amended.
(p) Neither the Company nor the Subsidiary has incurred any
liability for a fee, commission, or other compensation on account of the
employment of a broker or finder in connection with the transactions
contemplated by this Agreement other than the underwriting discounts and
commissions contemplated hereby.
(q) The Company and the Subsidiary (i) are in compliance with
any and all applicable United States, foreign, state and local environmental
laws, rules, regulations, treaties, statutes and codes promulgated by any and
all governmental authorities relating to the protection of human health and
safety, the environment or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of it under applicable Environmental Laws to conduct
its business as currently conducted and (iii) are in compliance with all terms
and conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permit
licenses or other approvals would not, individually or in the aggregate, have a
Material Adverse Effect. No action, proceeding, revocation proceeding, writ,
injunction or claim is pending or threatened relating to the Environmental Laws
or to the Company's or the Subsidiary's activities involving Hazardous
Materials. "Hazardous Materials" means any material or substance (i) that is
prohibited or regulated by any
9
<PAGE>
environmental law, rule, regulation, order, treaty, statute or code promulgated
by any governmental authority, or any amendment or modification thereto, or (ii)
that has been designated or regulated by any governmental authority as
radioactive, toxic, hazardous or otherwise a danger to health, reproduction or
the environment.
(r) Neither the Company nor the Subsidiary has engaged in the
generation, use, manufacture, transportation or storage of any Hazardous
Materials on any of the Company's or the Subsidiary's' properties or former
properties, except where such use, manufacture, transportation or storage is in
compliance with Environmental Laws. No Hazardous Materials have been treated or
disposed of on any of the Company's or the Subsidiary's properties or on
properties formerly owned or leased by the Company or the Subsidiary during the
time of such ownership or lease, except in compliance with Environmental Laws.
No spills, discharges, releases, deposits, emplacements, leaks or disposal of
any Hazardous Materials have occurred on or under or have emanated from any of
the Company's or the Subsidiary's properties or former properties.
(s) Neither the Company nor the Subsidiary has at any time
during the last five years (i) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any foreign, United States or state
governmental officer or official, or other person charged with similar public of
quasi-public duties, other than payments required or permitted by the laws of
the United States.
(t) The Shares have been duly authorized for listing on the
AMEX upon notice of issuance. The Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act or delisting the Common Stock from the AMEX, nor has the
Company received any notification that the Commission or the AMEX is
contemplating terminating such registration or listing.
(u) Neither the Company nor, to its knowledge, any of its
officers, directors or affiliates has taken, and at the Closing Date and at any
later Overallotment Closing Date, neither the Company nor, to its knowledge, any
of its officers, directors or affiliates will have taken, directly or
indirectly, any action which has constituted, or might reasonably be expected to
constitute, the stabilization or manipulation of the price of sale or resale of
the Shares.
10
<PAGE>
(v) The Company has obtained and delivered to the
Representative agreements (the "Lock-Up Agreements") from each of the persons
and entities listed on Schedule B hereto, representing all of the Company's
executive officers and directors and the stockholders of the Company who
beneficially own 5% or more of the outstanding shares of Common Stock of the
Company (or securities convertible into or exchangeable or exercisable for
equity securities of the Company), providing that such person or entity will
not, commencing on the date of the Prospectus and continuing for a 12-month
period thereafter, without the Representative's prior written consent, directly
or indirectly, offer to sell, sell, pledge, solicit an offer to buy, contract to
sell, grant any option for the sale thereof, or otherwise encumber, or cause the
transfer or disposition of, any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for, Common Stock, or exercise
any registration rights with respect to any shares of common stock or any
securities convertible into or exchangeable or exercisable for any Shares of
Common Stock.
3. Purchase of the Shares by the Underwriters.
(a) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell the Firm Shares to the several Underwriters, and each of the
Underwriters agrees to purchase from the Company the respective aggregate number
of Firm Shares set forth opposite its name on Schedule A, plus such additional
number of Firm Shares which such Underwriter may become obligated to purchase
pursuant to Section 3(b) hereof. The price at which such Firm Shares shall be
sold by the Company and purchased by the several Underwriters shall be $_____
per share. In making this Agreement, each Underwriter is contracting severally
and not jointly; except as provided in Section 3(b) and Section 3(c), the
agreement of each Underwriter is to purchase only the respective number of Firm
Shares specified on Schedule A.
(b) If for any reason one or more of the Underwriters shall
fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 10 hereof) to
purchase and pay for the number of Shares agreed to be purchased by such
Underwriter or Underwriters, the non-defaulting Underwriters shall have the
right within 24 hours after such default to purchase, or procure one or more
other Underwriters to purchase, in such proportions as may be agreed upon
between you and such purchasing Underwriter or Underwriters and upon the terms
herein set forth, all or any part of the Shares which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make
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such arrangements with respect to all such Shares and portion, the number of
Shares which each non-defaulting Underwriter is otherwise obligated to purchase
under this Agreement shall be automatically increased on a pro rata basis (as
adjusted by you in such manner as you deem advisable to avoid fractional shares)
to absorb the remaining shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters shall not be obligated to purchase the Shares and portion which the
defaulting Underwriter or Underwriters agreed to purchase if the aggregate
number of such Shares exceeds 10% of the total number of Shares which all
Underwriters agreed to purchase hereunder. If the total number of Shares which
the defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
referred to above, to make arrangements with other underwriters or purchasers
reasonably satisfactory to you for purchase of such Shares and portion on the
terms herein set forth. In any such case, either you or the Company shall have
the right to postpone the Closing Date determined as provided in Section 5
hereof for not more than seven business days after the date originally fixed as
the Closing Date pursuant to said Section 5 in order that any necessary changes
in the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If the aggregate number of Shares which the defaulting
Underwriter or Underwriters agreed to purchase exceeds 10% of the total number
of Shares which all Underwriters agreed to purchase hereunder, and if neither
the non-defaulting Underwriters nor the Company shall make arrangements within
the 24-hour periods stated above for the purchase of all the Shares which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company to any non-defaulting Underwriter and
without any liability on the part of any non-defaulting Underwriter to the
Company. Nothing in this Section 3(b), and no action taken hereunder, shall
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase all or any portion of the Overallotment Shares from the Company at the
same price per share as the Underwriters shall pay for the Firm Shares. Such
option may be exercised only to cover overallotments in the sale of the Firm
Shares by the Underwriters and may be exercised in whole or
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in part at any time on or before the 30th day after the date of the Prospectus
upon written or telegraphic notice by you to the Company setting forth the
aggregate number of Overallotment Shares as to which the Underwriters are
exercising the option. Delivery of certificates for the Overallotment Shares,
and payment therefor, shall be made as provided in Section 5 hereof. Each
Underwriter shall purchase such percentage of the Overallotment shares as is
equal to the percentage of Firm shares that such Underwriter is purchasing, the
exact number of shares to be adjusted by the Representative in such manner as
you deem advisable to avoid fractional shares.
(d) On the Closing Date, the Company shall issue and deliver
to the Representative, or at the direction of the Representative, to its
designees as provided in the Representative's Warrant Agreement, for a purchase
price of $.01 per Representative's Warrant (an aggregate of $1,200), the
Representative's Warrants entitling the holder thereof to purchase 120,000
shares of Common Stock on the terms and conditions set forth in the
Representative's Warrant Agreement.
4. Offering by Underwriters.
The terms of the offering of the Shares by the Underwriters
shall be as set forth in the Prospectus.
5. Delivery of and Payment for the Shares and the Representative's
Warrants.
(a) Delivery of certificates for the Firm Shares, the
Overallotment Shares (if the option granted pursuant to Section 3(c) hereof
shall have been exercised not later than 1:00 p.m., New York time, on the date
at least two business days preceding the Closing Date) and the Representative's
Warrants, and payment therefor, shall be made at the office of Proskauer Rose
LLP, 1585 Broadway, New York, New York 10036-8299 at 9:00 a.m., New York City
time, on the fourth business day after the date of this Agreement, or at such
time on such other day, not later than seven full business days after such
fourth business day, as shall be agreed upon in writing by the Company and you
(the "Closing Date").
(b) If the option granted pursuant to Section 3(c) hereof
shall be exercised after 1:00 p.m., New York City time, on the date two business
days preceding the Closing Date, and on or before the 30th day after the date of
this Agreement, delivery of certificates for the Overallotment Shares, and
payment therefor, shall be made at the office of Proskauer Rose LLP, 1585
Broadway,
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<PAGE>
New York, New York 10036-8299 at 9:00 a.m., New York City time, on the third
business day after the exercise of such option.
(c) Payment for the Shares shall be made to the Company or its
order, by either a same day funds check or federal funds wire transfer. Such
payment shall be made upon delivery of certificates for the Shares to you for
the respective accounts of the several Underwriters against receipt therefor
signed by you. Certificates for the Shares to be delivered to you shall be
registered in such name or names and shall be in such denominations as you may
request at least three business days before the Closing Date, in the case of
Firm Shares, and at least two business days prior to the Overallotment Closing
Date, in the case of the Overallotment Shares. Such certificates will be made
available to the Underwriters for inspection, checking and packaging at a
location in New York, New York, designated by the Underwriters not less than one
full business day prior to the Closing Date or, in the case of the Overallotment
Shares, by 3:00 p.m., New York time, on the business day preceding the
Overallotment Closing Date.
It is understood that you, individually and not on behalf of
the Underwriters, may (but shall not be obligated to) make payment to the
Company for shares to be purchased by any Underwriter whose check shall not have
been received by you on the Closing Date or any later Overallotment Closing
Date. Any such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
(d) Payment for the Representative's Warrants shall be made to
the Company or its order, by either a same day funds check or federal funds wire
transfer. Such payment shall be made upon delivery of certificates for the
Representative's Warrants to you against receipt therefor signed by you.
Certificates for the Representative's Warrants to be delivered to you shall,
subject to the terms and provisions of the Representative's Warrant Agreement,
be registered in such name or names and shall be in such denominations as you
may request at least three business days before the Closing Date.
6. Further Agreements of the Company. The Company covenants and agrees
as follows:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; it will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement or any
14
<PAGE>
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed. If the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a), the Company will provide evidence satisfactory to
you that the Prospectus contains such information and has been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (1) or (4)
of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective which
is declared effective by the Commission. If for any reason the filing of the
final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed. The Company will notify you promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
the Prospectus or for additional information. Promptly upon your request, it
will prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the reasonable opinion of counsel
to the Representative, may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters. The Company will promptly
prepare and file with the Commission, and promptly notify you of the filing of,
any amendments or supplements to the Registration Statement or Prospectus which
may be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act, any
event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In case any Underwriter is required to deliver a
prospectus within the nine-month period referred to in Section 10(a)(3) of the
Act in connection with the sale of the Shares, the Company will prepare promptly
upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Act. The Company will file no amendment or supplement to the Registration
Statement or Prospectus that shall not previously have been submitted to you a
reasonable time prior to the proposed filing thereof or to which you shall
reasonably object in writing or which is not in compliance with the Act and
Rules and Regulations or the provisions of this Agreement.
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<PAGE>
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or the
use of the Prospectus or of the initiation or threat of any proceeding for that
purpose; and it will promptly use its best efforts to prevent the issuance of
any such stop order or to obtain its withdrawal at the earliest possible moment
if such stop order should be issued.
(c) The Company will cooperate with you in endeavoring to
qualify the Shares for offering and sale under the securities laws of such
jurisdictions as you may designate and to continue such qualifications in effect
for so long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation, or to execute a general
consent to service of process in any jurisdiction, or to make any undertaking
with respect to the conduct of its business. In each jurisdiction in which the
Shares shall have been qualified, the Company will make and file such
statements, reports and other documents in each year as are or may be reasonably
required by the laws of such jurisdictions so as to continue such qualifications
in effect for so long a period as you may reasonably request for distribution of
the Shares, or as otherwise may be required by law.
(d) The Company will furnish to you, as soon as available,
copies of the Registration Statement (three of which will be signed and which
will include all exhibits), each Preliminary Prospectus, the Prospectus, and any
amendments or supplements to such documents, including any prospectus prepared
to permit compliance with Section 10(a)(3) of the Act, all in such quantities as
you may from time to time reasonably request.
(e) The Company will make generally available to its
stockholders as soon as practicable, but in any event not later than the 45th
day following the end of the fiscal quarter first occurring after the first
anniversary of the Effective Date, an earnings statement (which will be in
reasonable detail but need not be audited) complying with the provisions of
Section 11(a) of the Act and Rule 158 of the Rules and Regulations and covering
a 12-month period beginning after the Effective Date, and will advise you in
writing when such statement has been made available.
(f) During a period of five years after the date hereof, the
Company, as soon as practicable after the end of each respective period, will
furnish to its stockholders annual reports (including financial statements
audited by independent
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<PAGE>
certified public accountants) and will furnish to its stockholders unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and will, upon request, furnish to you and the other several
Underwriters hereunder (i) concurrently with making such reports available to
its stockholders, statements of operations of the Company for each of the first
three quarters in the form made available to the Company's stockholders; (ii)
concurrently with the furnishing thereof to its stockholders, a balance sheet of
the Company as of the end of such fiscal year, together with statements of
operations, of stockholders' equity and of cash flow of the Company for such
fiscal year, accompanied by a copy of the certificate or report thereon of
nationally recognized independent certified public accountants; (iii)
concurrently with the furnishing of such reports to its stockholders, copies of
all reports (financial or other) mailed to stockholders; (iv) as soon as they
are available, copies of all reports and financial statements furnished to or
filed with the Commission, any securities exchange or automated quotation system
by the Company (except for documents for which confidential treatment is
requested); and (v) every material press release and every material news item or
article in respect of the Company or its affairs which was generally released to
stockholders or prepared for general release by the Company. During such
five-year period, if the Company shall have any active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company are consolidated with any subsidiaries, and
shall be accompanied by similar financial statements for any significant
subsidiary that is not so consolidated.
(g) The Company shall not, during the 12 months following the
Effective Date, except with the Representative's your prior written consent,
file, or announce an intent to file, a registration statement covering any of
its shares of capital stock, except that one or more registration statements on
Form S-8 may be filed at any time following the Effective Date covering the
565,500 shares of Common Stock reserved for issuance to employees or directors
of the Company pursuant to the 1998 Stock Option and Incentive Plan.
(h) The Company shall not, during the 12 months following the
Effective Date, except with the prior written consent of the Representative, in
its individual capacity and not in its capacity as representative of the
Underwriters, issue, sell, offer or agree to sell, grant, distribute or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
options, rights or warrants with respect to shares of Common Stock, or any
securities convertible into or exchangeable
17
<PAGE>
for Common Stock, other than the issuance of (a) the Overallotment Shares, (b)
the Representative's Warrants and (c) 565,500 shares of Common Stock reserved
for issuance to employees or directors of the Company pursuant to the 1998 Stock
Option and Incentive Plan.
(i) The Company will apply the net proceeds from the sale of
the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(j) The Company will maintain a transfer agent and a registrar
(which may be the same entity as the transfer agent) for the Common Stock.
(k) The Company will use its best efforts to maintain listing
of its shares of Common Stock on the AMEX.
(l) The Company is familiar with the Investment Company Act of
1940, as amended, and the rules and regulations thereunder, and has in the past
conducted its affairs, and will in the future conduct its affairs, in such a
manner so as to ensure that the Company was not and will not be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(m) During a period of five years from the Effective Date, the
Company will permit an agent of the Representative to attend all meetings of the
Board of Directors of the Company as a non-voting observer, will give such agent
notice of all meetings of the Board of Directors at the same time and in the
same manner that directors are notified and will reimburse such agent for all
expenses incurred in attending such meetings, including, but not limited to
food, transportation and lodging.
7. Expenses.
The Company agrees with each Underwriter that:
(a) The Company will pay and bear all costs, fees and expenses
in connection with the preparation, printing and filing of the Registration
Statement (including all amendments, supplements, financial statements,
schedules and exhibits), as many Preliminary Prospectuses and final Prospectuses
and any amendments or supplements thereto that the Representative reasonably
deems necessary; the reproduction of this Agreement; the issuance and delivery
of the Shares and the Representative's Warrants, including stock transfer taxes,
if any; the cost of all stock certificates representing the Shares and transfer
agents' and registrars' fees; the fees and disbursements of counsel for
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<PAGE>
the Company; all fees and other charges of the Company's independent public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary
Prospectuses and the Prospectus; NASD filing fees and expenses incident to
securing any required review; all fees and expenses relating to the listing of
the Shares and the Warrant Shares on the AMEX; all fees, expenses and
disbursements relating to the registration or qualification of the Shares under
the securities laws of such states and other jurisdictions as the Representative
may reasonably designate (including, without limitation, all filing and
registration fees and fees and disbursements of the Representative's counsel in
connection with Blue Sky matters, such as the Preliminary Blue Sky Memoranda and
any supplemental Blue Sky Memoranda and any instruments relating to any of the
foregoing, such counsel fees not to exceed $25,000); the fees and disbursements
of counsel to the Underwriters (not to exceed $225,000) in connection with the
offering, this Agreement and the transactions contemplated hereby; the costs of
all mailing and printing of the underwriting documents (including, but not
limited to, the Underwriting Agreement, any Blue Sky surveys and memoranda and,
if appropriate, any Agreement Among Underwriters, Selected Dealers Agreement,
Underwriter's Questionnaire and Power of Attorney); the costs of preparing,
printing and delivering certificates representing the Shares and the
Representative's Warrants; and all other expenses directly incurred by the
Company in connection with the performance of its obligations hereunder.
(b) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, the Company
will, in addition to paying the expenses described in Section 7(a), reimburse
the several Underwriters for all out-of-pocket expenses (including fees and
disbursements of Underwriters' counsel without the limitations therein set forth
in Section 7(a)) incurred by the Underwriters in reviewing the Registration
Statement and the Prospectus and in otherwise investigating, preparing to market
or marketing the Shares.
(c) The Representative, in its individual capacity and not as
representative of the Underwriters, shall also be entitled to a non-accountable
expense allowance equal to 3% of the aggregate offering price of the Shares. The
Company has previously paid the Representative an aggregate of $100,000 in
partial payment of such non-accountable expense allowance, which amount shall be
non-refundable (notwithstanding the termination
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<PAGE>
of this Agreement for any reason) and will be applied against the
non-accountable expense allowance.
8. Conditions of Underwriters' Obligations.
The obligations of the several Underwriters to purchase and pay for the
Shares, as provided herein, shall be subject to the accuracy, as of the date
hereof and the Closing Date and any later Overallotment Closing Date, as the
case may be, of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not
later than 9:00 a.m., New York City time, on the day immediately following the
date of this Agreement, or such later time or date as shall be consented to in
writing by you. If the filing of the Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b) and Rule 430A of the Rules and Regulations, the
Prospectus shall have been filed in the manner and within the time period
required by Rule 424(b) and Rule 430A of the Rules and Regulations. No stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the reasonable satisfaction of counsel to the Underwriters.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement, and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares shall have been reasonably satisfactory to counsel to the Underwriters,
and such counsel shall have been furnished with such papers and information as
they may reasonably have requested to enable them to pass upon the matters
referred to herein.
(c) You shall have received, at no cost to you, on the Closing
Date and on any later Overallotment Closing Date, as the case may be, the
opinion of Baker & Daniels, counsel to the Company, dated the Closing Date or
such later Overallotment Closing Date, in the form attached hereto on Appendix
A, addressed to the Underwriters and with reproduced copies of signed
counterparts thereof for the Representative.
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(d) You shall have received from Proskauer Rose LLP,
Underwriters' Counsel, an opinion or opinions, dated the Closing Date or on any
later Overallotment Closing Date, as the case may be, in form and substance
reasonably satisfactory to you, with respect to certain legal matters as you may
reasonably require, and the Company shall have furnished to such counsel such
documents as it may have reasonably requested for the purpose of enabling it to
pass upon such matters.
(e) You shall have received on the Closing Date and on any
later Overallotment Closing Date, as the case may be, a letter from the
Accountants addressed to the Company and the Underwriters, dated the Closing
Date or such later Overallotment Closing Date, as the case may be, confirming
that it is an independent certified public accountant with respect to the
Company within the meaning of the Act and the Rules and Regulations thereunder
and based upon the procedures described in its letter delivered to you
concurrently with the execution of this Agreement (herein called the "Original
Letter"), but carried out to a date not more than three days prior to the
Closing Date or any such later Overallotment Closing Date, as the case may be,
(i) confirming that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later Overallotment Closing
Date, as the case may be; and (ii) setting forth any revisions and additions to
the statements and conclusions set forth in the Original Letter that are
necessary to reflect any changes in the facts described in the Original Letter
since the date of such letter, or to reflect the availability of more recent
financial statements, data or information. The letter shall not disclose any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company which, in your reasonable judgment, makes
it impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. In addition, you shall have received
from the Accountants a letter addressed to the Company and made available to you
for the use of the Underwriters stating that its review of the Company's system
of internal accounting controls, to the extent it deemed necessary in
establishing the scope of its latest examination of the Company's financial
statements, did not disclose any weaknesses in internal controls that it
considered to be material weaknesses. All such letters shall be in a form
reasonably satisfactory to the Representative and its counsel.
(f) You shall have received on the Closing Date and on any
later Overallotment Closing Date, as the case may be, a certificate of the
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President and the Chief Financial Officer of the Company, dated the Closing Date
or such later date, to the effect that as of such date (and you shall be
satisfied that as of such date):
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on
and as of the Closing Date or any later Overallotment Closing
Date, as the case may be; and the Company has complied with
all of the agreements and satisfied all of the conditions on
its part to be performed or satisfied at or prior to the
Closing Date or any later Overallotment Closing Date, as the
case may be;
(ii) The Registration Statement has become
effective under the Act and no stop order suspending the
effectiveness of the Registration Statement or preventing or
suspending the use of the Prospectus has been issued, and no
proceedings for that purpose have been instituted or are
pending or, to the best of their knowledge, threatened under
the Act;
(iii) They have carefully reviewed the
Registration Statement, and the Prospectus; and, when the
Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus and any amendments
or supplements thereto contained all statements and
information required to be included therein or necessary to
make the statements therein not misleading; and when the
Registration Statement became effective, and at all times
subsequent thereto up to the delivery of such certificate,
none of the Registration Statement, the Prospectus or any
amendment or supplement thereto included 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 not misleading; and, since the Effective
Date, there has occurred no event required to be set forth in
an amended or supplemented Prospectus that has not been so set
forth; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration Statement, and
the Prospectus, there has not been (A) any material adverse
change in the properties or assets described or referred to in
the Registration Statement and the Prospectus or in the
condition (financial or otherwise), operations, business or
22
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prospects of the Company and the Subsidiary, (B) any
transaction which is material to the Company and the
Subsidiary, except transactions entered into in the ordinary
course of business, (C) any obligation, direct or contingent,
incurred by the Company or the Subsidiary, which is material
to the Company and the Subsidiary taken as a whole, (D) any
change in the capital stock or outstanding indebtedness of the
Company or the Subsidiary which is material to the Company and
the Subsidiary taken as a whole or (E) any dividend or
distribution of any kind declared, paid or made on the capital
stock of the Company, except as specifically described in the
Prospectus.
(g) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request as to the accuracy of
the representations and warranties of the Company herein, as to the performance
by the Company of its obligations hereunder and as to the other conditions
precedent to the obligations of the Underwriters hereunder.
(h) The Firm Shares and the Overallotment Shares, if any,
shall have been approved for listing upon notice of issuance on the AMEX.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to counsel to the Underwriters. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
9. Indemnification and Contribution.
(a) Subject to the provisions of Section 9(f), the Company
agrees to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Act from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, the
common law or otherwise, and the Company agrees to reimburse each such
Underwriter and controlling person for any legal or other out-of-pocket expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or
23
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inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any 462(b)
registration statement) or any post-effective amendment thereto (including any
462(b) registration statement), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the omission
or alleged omission to state therein a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that (1) the indemnity agreements of
the Company contained in this Section 9(a) shall not apply to any such losses,
claims, damages, liabilities or expenses if such statement or omission is
contained in the section of the Prospectus entitled "Underwriting" or the last
paragraph of text on the cover page of the Prospectus, and (2) the indemnity
agreement contained in this paragraph (a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages, liabilities or expenses
purchased the Shares which is the subject thereof (or to the benefit of any
person controlling such Underwriter) if at or prior to the written confirmation
of the sale of such Shares a copy of the Prospectus (or the Prospectus as
amended or supplemented was not sent or delivered to such person (excluding any
documents incorporated therein by reference) and the untrue statement or
omission of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented unless
the failure is the result of noncompliance by the Company with Section 6(a)
hereof. The indemnity agreements of the Company contained in this Section 9(a)
and the representations and warranties of the Company contained in Section 2
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of any payment for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its executive officers, each of its directors,
each other Underwriter and each person (including each partner or officer
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Act, from and against any and all losses,
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claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, the
common law or otherwise and to reimburse each of them for any legal or other
expenses including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that in the cases of clauses (i) and (ii) above,
such statement or omission is contained in the Section of the Prospectus
entitled "Underwriting" or the last paragraph on the cover page of the
Prospectus. The indemnity agreement of each Underwriter contained in this
Section 9 (b) shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any indemnified party and shall
survive the delivery of and payment for the Shares.
(c) Each party indemnified under the provision of Sections
9(a) and (b) agrees that, upon the service of a summons or other initial legal
process upon it in any action or suit instituted against it or upon its receipt
of written notification of the commencement of any investigation or inquiry of,
or proceeding against it, in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (a "Notice") of such service or notification to the party or
parties from whom indemnification may be sought hereunder. No indemnification
provided for in such Section 9(a) or (b) shall be available to any party who
shall fail so to give the Notice if the party to whom such Notice was not given
was unaware of the action, suit, investigation, inquiry or proceeding to which
the Notice would have related and was prejudiced by the failure to give the
25
<PAGE>
Notice, but the omission so to notify such indemnifying party or parties of any
such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (the "Notice of Defense") to the indemnified party, to assume (alone or
in conjunction with any other indemnifying party or parties) the entire defense
of such action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or parties,
by counsel chosen by such indemnifying party or parties and reasonably
satisfactory to the indemnified party or parties; provided, however, that (i) if
the indemnified party or parties reasonably determine that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled, at its or their own expense to
have counsel chosen by such indemnified party or parties participate in, but not
conduct, the defense. It is understood that the indemnifying parties shall not,
in respect of the legal defenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all of the Underwriters and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act, and (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
Section 9(a), (b) or (c) for any legal or other expenses subsequently incurred
by the indemnified party
26
<PAGE>
or parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding, except that (A) the indemnifying party or parties shall
bear the legal and other expenses incurred in connection with the conduct of the
defense as referred to in clause (i) of the proviso to the preceding sentence
and (B) the indemnifying party or parties shall bear such other expenses as it
or they have authorized to be incurred by the indemnified party or parties. If,
within a reasonable time after receipt of the Notice, no Notice of Defense has
been given, the indemnifying party or parties shall be responsible for any legal
or other expenses incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding. The
indemnifying party or parties shall not be liable for any settlement of any
proceeding effected without its or their written consent, provided such consent
has not been unreasonably withheld.
(d) If the indemnification provided for in this Section 9 is
unavailable or insufficient to hold harmless an indemnified party under Section
9(a) or (b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of the losses, claims, damages or liabilities referred to in
Section 9(a) or (b),(i) in such proportion as is appropriate to reflect the
relative benefits received by each indemnifying party from the offering of the
Shares or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
each indemnifying party in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, or actions in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other, shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Shares received by the Company and the total
underwriting discount received by the Underwriters, as set forth in the table on
the cover page of the Prospectus, bear to the aggregate public offering price of
the Shares. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
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<PAGE>
The parties agree that it would not be just and equitable if
contributions pursuant to Section 9(d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this Section
9(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities or actions in respect thereof, referred to in the first
sentence of this Section 9(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparation to defend or defense against any action or claim
which is the subject of this Section 9(d). Notwithstanding the provisions of
this Section 9(d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this Section 9(d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the
service of a summons or other initial legal process upon it in any action
instituted against it in respect of which contribution may be sought, it will
promptly give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
of any such service shall not relieve the party from whom contribution may be
sought from any obligation it may have hereunder or otherwise (except as
specifically provided in Section 9(c)).
(e) The Company will not, without the prior written consent of
each Underwriter, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not such Underwriter
or any person who controls such Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act is a party to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
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<PAGE>
(f) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including without limitation the
provisions of this Section 9 and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 9 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
10. Termination. This Agreement may be terminated by you at any time on
or prior to the Closing Date or on or prior to any later Overallotment Closing
Date, as the case may be, (i) if the Company shall have failed, refused or been
unable, at or prior to the Closing Date, or on or prior to any later
Overallotment Closing Date, as the case may be, to perform any agreement on its
part to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by the Company is not fulfilled,
or (ii) if trading on the New York Stock Exchange, the AMEX or the Nasdaq
National Market shall have been suspended, or minimum or maximum prices for
trading shall have been fixed, or maximum ranges for prices for securities shall
have been required on the New York Stock Exchange, the AMEX or the Nasdaq
National Market, by such trading exchanges or by order of the Commission or any
other governmental authority having jurisdiction, or if a banking moratorium
shall have been declared by federal or New York authorities, or (iii) if the
Company shall have sustained a loss by strike, fire, flood, accident or other
calamity of such character as to have a Material Adverse Effect regardless of
whether or not such loss shall have been insured, or (iv) if there shall have
been a material adverse change in the general political or economic conditions
or financial markets in the United States as in the judgment of the
Representative makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have occurred
an outbreak or escalation of hostilities between the United States and any
foreign power or of any other insurrection or armed conflict involving the
United States or other national or international calamity, hostilities or crisis
or the declaration by the United States of a national emergency which, in the
judgment of the Representative, adversely affects the marketability of the
Shares, or (vi) if since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there shall have occurred any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company or the business, affairs, management, or prospects of
29
<PAGE>
the Company, whether or not arising in the ordinary course of business, or (vii)
if any foreign, federal or state statute, regulation, rule or order of any court
or other governmental authority shall have been enacted, published, decreed or
otherwise promulgated which in the judgment of the Representative materially and
adversely affects or will materially and adversely affect the business or
operations of the Company, or trading in the Common Stock shall have been
suspended, or (viii) there shall have occurred a material adverse decline in the
value of securities generally on the New York Stock Exchange, the AMEX or the
Nasdaq National Market or (ix) action shall be taken by any foreign, federal,
state or local government or agency in respect of its monetary or fiscal affairs
which, in the judgment of the Representative, has a material adverse effect on
the securities markets in the United States. If this Agreement shall be
terminated in accordance with this Section 10, there shall be no liability of
the Company to the Underwriters and no liability of the Underwriters to the
Company; provided, however, that in the event of any such termination the
Company agrees to indemnify and hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company under
this Agreement, including all costs and expenses referred to in Section 7.
If you elect to terminate this Agreement as provided in this Section
10, the Company shall be notified promptly by you by telephone, telecopy or
telegram, confirmed by letter.
11. Reimbursement of Certain Expenses.
(a) In addition to its other obligations under Section 9 of
this Agreement, the Company hereby agrees to reimburse on a monthly basis the
Underwriters for all reasonable legal and other expenses incurred in connection
with investigating or defending any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in Section 9(a), notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the obligations under this Section 11 and the possibility that such payments
might later be held to be improper; provided, however, that (i) to the extent
any such payment is ultimately held to be improper, the persons receiving such
payments shall promptly refund them and (ii) such persons shall provide to the
Company, upon request, reasonable assurances of their ability to effect any
refund, when and if due.
(b) In addition to their other obligations under Section 9 of
this Agreement, the Underwriters hereby agree to
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<PAGE>
reimburse on a monthly basis the Company for all reasonable legal and other
expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
Section 9(b) of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 11 and the possibility that such payments might later be held to be
improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the Company shall promptly refund it and (ii)
the Company shall provide to the Underwriter, upon request, reasonable
assurances of its ability to effect any refund, when and if due.
12. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of the Company and the several Underwriters and, with
respect to the provisions of Section 9 hereof, the several parties (in addition
to the Company and the several Underwriters) indemnified under the provisions of
said Section 9, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Shares from any of the several Underwriters.
(a) Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Prime Charter Ltd., 810 Seventh Avenue,
9th Floor, New York, New York 10019, Attention: Mr. Philip M. Getter; and if to
the Company, shall be mailed, telegraphed or delivered to it at its office,
Showpower, Inc., 18128 South Santa Fe Avenue, Rancho Dominguez, California
90121, Attention: Mr. John J. Campion.
(b) Applicable Law. The Company (a) agrees that any legal suit, action
or proceeding arising out of or relating to this letter shall be instituted
exclusively in New York State Supreme Court, County of New York or in the United
States District Court for the Southern District of New York, (b) waives any
objection to the venue of any such suit, action or proceeding, and (c)
irrevocably consents to the jurisdiction of the New York State Supreme Court,
County of New York, and the United States District Court for the Southern
District of New York, in any such suit, action or proceeding. The Company
further agrees to accept and
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<PAGE>
acknowledge service of any and all process which may be served in any such suit,
action or proceeding in the New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York. The
Company further agrees that service of process upon it mailed by certified mail
to its address shall be deemed in every respect effective service of process
upon it in any such suit, action or proceeding.
(c) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(i) any investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or its respective directors of
officers and (ii) delivery of and payment for the Shares under this Agreement.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO RULES GOVERNING THE
CONFLICT OF LAWS.
Please sign and return to the Company the enclosed duplicate of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
SHOWPOWER, INC.
By ______________________________
Jeffrey Stone
Chairman of the Board
The foregoing Agreement
is hereby confirmed and
accepted as of the date
first above written.
PRIME CHARTER LTD.
By ______________________________
Philip M. Getter
Managing Director
Acting on behalf of the several
Underwriters, including themselves,
named on Schedule A hereto.
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<PAGE>
SCHEDULE A
UNDERWRITERS
Number of
Shares
to be
Underwriters Purchased
- ------------ ---------
Prime Charter Ltd.................................
Total ............................................ [ ]
==========
Exhibit 1.2
WARRANT AGREEMENT
BETWEEN
SHOWPOWER, INC.
AND
PRIME CHARTER LTD.
DATED AS OF ____________, 1998
<PAGE>
WARRANT AGREEMENT, dated as of __________, 1998 (the "Effective Date"),
between SHOWPOWER, INC., a Delaware corporation (the "Company"), and PRIME
CHARTER LTD., a Delaware corporation ("Prime Charter").
The Company proposes to sell to Prime Charter and/or its designee(s)
warrants (the "Warrants") to purchase an aggregate of 120,000 shares (the
"Warrant Shares") of the Company's common stock, par value $.01 per share (the
"Common Stock"), in connection with a public offering by the Company of
1,200,000 shares of Common Stock (the "Offering") pursuant to a registration
statement (the "Registration Statement") on Form SB-2 (File No. 333-_____) filed
by the Company with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act").
THEREFORE, in consideration of the mutual undertakings contained
herein, the Company and Prime Charter hereby agree as follows:
1. Issuance of Warrants. Concurrently with the initial closing (the
"Closing") under the Underwriting Agreement of even date herewith between the
Company and Prime Charter, as representative of the several underwriters named
therein (the "Underwriting Agreement"), related to the Offering, the Company
shall issue, sell and deliver the Warrants to Prime Charter and/or, at Prime
Charter's direction, to one or more underwriters or other members of the
National Association of Securities Dealers, Inc. that participate in the
Offering and/or the bona fide officers or partners of Prime Charter or such
other participants (each a "Permitted Designee") for a purchase price of $.01
per Warrant. Each certificate for Warrants (a "Warrant Certificate") shall be
substantially in the form of Annex A attached hereto.
2. Registration. The Company shall maintain a register for the Warrants
at its principal executive offices for the registration of the issuance and
transfer of Warrants. The Company shall be entitled to treat the registered
holder of any Warrant (the "Holder") as the owner in fact thereof for all
purposes and shall not be bound to recognize any equitable or other claim to or
interest in such Warrant on the part of any other person. The Warrants shall be
registered initially in the name of Prime Charter and/or one or more Permitted
Designees in such denominations as Prime Charter may request not less than two
business days prior to the scheduled date of the Closing as set forth in the
Underwriting Agreement.
3. Transfer and Exchange of Warrants. Any Warrant shall be transferable
only upon surrender thereof at the Company's principal executive offices duly
endorsed by its Holder or by such Holder's duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
deliver a new Warrant or Warrants to the persons entitled thereto. In addition,
a Warrant Certificate may be exchanged, at the option of the Holder thereof, for
another Warrant Certificate or Warrant Certificates of different denominations,
of like tenor and representing in the aggregate the right to purchase a like
number of Warrant Shares upon surrender at the Company's principal executive
offices. Notwithstanding the foregoing, the Warrants may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of until after the
first anniversary of the Effective Date, except to a Permitted Designee, by
operation of law or by reason of a reorganization of the Company. Thereafter,
the Warrants and any Warrant Shares shall be freely transferable, subject only
to compliance with applicable securities laws.
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<PAGE>
4. Exercise of Warrants.
4.1 Exercise Price and Term. Each Warrant shall entitle the Holder
thereof to purchase from the Company one Warrant Share at a purchase price per
share of $_____ (the "Exercise Price"), as such purchase price and number of
Warrant Shares may be adjusted from time to time pursuant to the provisions of
Section 8 hereof, payable in full at the time of exercise of such Warrant. The
Warrants may be exercised, in whole or in part, at any time or from time to time
during the four-year period commencing on the first anniversary of the Effective
Date and ending at 5:00 p.m., New York City time, on the fifth anniversary of
the Effective Date (the "Expiration Date"). After the Expiration Date, any
unexercised Warrants shall be void and all rights of the Holders with respect
thereto shall cease.
4.2 Payment of Exercise Price. At the election of any Holder, the
aggregate Exercise Price for any Warrants being exercised may be paid: (a) in
cash in the amount of the aggregate Exercise Price then in effect for the number
of Warrants being exercised, (b) by surrender to the Company of shares of Common
Stock having an aggregate Fair Market Value (as defined below) on the date of
exercise equal to the aggregate Exercise Price then in effect for the number of
Warrants being exercised, (c) by a surrender of Warrants covering a number of
Warrant Shares having an aggregate Fair Market Value, net of the applicable
aggregate Exercise Price therefor, equal to the aggregate Exercise Price then in
effect for the number of Warrants being exercised, or (d) by a combination of
the aforementioned methods of payment. For purposes of this Agreement, the "Fair
Market Value" per share of Common Stock on a given date shall be: (i) if the
Common Stock is listed on a national securities exchange or included on the
Nasdaq National Market, the closing price per share of Common Stock on such date
(or, if there was no trading on such date, on the next preceding day on which
there was trading); (ii) if the Common Stock is not listed on a national
securities exchange or included on the Nasdaq National Market, the average of
the closing bid and asked quotations per share of Common Stock as reported by
Nasdaq (or the National Quotation Bureau Incorporated or any similar
organization) on such date (or, if there were no quotations for the Common Stock
on such date, on the next preceding day on which there were quotations) as
provided by such organization; and (iii) if the Common Stock is not traded on a
national securities exchange or included on the Nasdaq National Market and bid
and asked quotations are not provided by Nasdaq (or the National Quotation
Bureau Incorporated or any similar organization), as determined by the agreement
of the parties in good faith or, in the absence of such agreement, as determined
pursuant to arbitration under the auspices of the American Arbitration
Association.
4.3 Exercise Procedure. Warrants may be exercised by their surrender at
the Company's principal executive offices, with the Election to Purchase form
attached thereto duly completed and executed, accompanied by payment of the
aggregate Exercise Price for the Warrant Shares to be purchased upon such
exercise. Payment for the Warrant Shares shall be made (a) if payment is to be
made in cash, by a certified or bank cashier's check payable to the order of the
Company or by wire transfer to an account designated by the Company, (b) if
payment is to be made through a surrender of shares of Common Stock, by
surrender of certificates duly endorsed for transfer (with all transfer taxes
paid or provided for), and (c) if payment is to be made by a surrender of
Warrants, by surrender of certificates representing such Warrants. Promptly
after the exercise of any Warrants, upon compliance with Section 5 hereof, the
Company shall issue a certificate or certificates, for the number of full
Warrant Shares to which the Holder thereof is entitled, registered in accordance
with the instructions set forth in the Election to Purchase, together with cash
as provided in Section 10 of this Warrant Agreement payable in respect of
fractional shares and (if applicable) a new Warrant Certificate or
2
<PAGE>
Certificates representing all remaining unexercised Warrants. All Warrant Shares
shall be duly authorized, validly issued, fully paid, non-assessable and free of
preemptive rights, and free from all liens and charges other than those created
by the Holder. Upon compliance with Section 5 hereof, certificates representing
such Warrant Shares and remaining unexercised Warrants shall be issued by the
Company in such names and denominations, and shall be delivered to such persons,
as are specified by written instructions of the Holder.
4.4 Record Holder. Each person in whose name any such certificate for
Warrant Shares is issued shall for all purposes be deemed to have become the
holder of record of the Warrant Shares represented thereby on the date upon
which such Warrants were surrendered for exercise, accompanied by payment of the
aggregate Exercise Price as aforesaid, irrespective of the date of issuance or
delivery of such certificate for Warrant Shares; provided, however, that if, at
the date of the surrender of such Warrants and payment of the aggregate Exercise
Price, the transfer books for the Common Stock or any other class of stock
purchasable upon the exercise of such Warrants shall be closed, the certificates
for the Warrant Shares or for shares of such other class of stock in respect of
which such Warrants are then exercisable shall be issuable as of the date on
which such books shall next be opened (whether before or after the Expiration
Date) and, until such date, the Company shall be under no duty to deliver any
certificate for such Warrant Shares or for shares of such other class of stock;
and, provided, further, that the transfer books of record, unless otherwise
required by law, shall not be closed at any one time for a period longer than 20
days.
5. Payment of Taxes. The Company shall promptly pay all documentary
stamp taxes attributable to the issuance of Warrants or the issuance of Warrant
Shares upon the exercise of any Warrants, except that any transfer taxes payable
in connection with the issuance of Warrants or Warrant Shares in any name other
than that of the Holder of the Warrants surrendered shall be paid by such Holder
and, if any such tax would otherwise be payable by the Company, no such issuance
or delivery shall be made unless and until the person requesting such issuance
has paid to the Company the amount of any such tax or it is established to the
reasonable satisfaction of the Company that any such tax has been paid.
6. Replacement Warrants. In case any Warrant Certificate shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate or in lieu of and substitution for the lost, stolen or destroyed
Warrant Certificate, a new Warrant Certificate of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction of such Warrant
Certificate, together with an appropriate agreement regarding indemnification of
the Company relating to the issuance of a replacement Warrant Certificate.
7. Reservation of Warrant Shares. The Company shall at all times
reserve and keep available for issuance the number of its authorized but
unissued shares of Common Stock or other stock sufficient to permit the exercise
in full of the Warrants and any transfer agent for the Common Stock or other
stock issuable upon the exercise of Warrants shall be directed at all times to
reserve such number as shall be sufficient for such purpose. The Company will
keep a copy of this Warrant Agreement on file with each such transfer agent and
will supply such transfer agent with duly executed stock certificates for such
purpose and will provide or otherwise make available any cash that may be
payable as provided in Section 10 hereof. All Warrants surrendered upon the
exercise thereof shall be canceled. After the Expiration Date, no shares shall
be subject to reservation in respect of any unexercised Warrants.
3
<PAGE>
8. Adjustments.
8.1 Adjustment of Exercise Price.
8.1.1 Initial Exercise Price. The Exercise Price, which
initially will be as provided in Section 4.1, shall be adjusted and readjusted
from time to time as provided in this Section 8.1 and, as so adjusted or
readjusted, shall remain in effect until a further adjustment or readjustment
thereof is required by this Section 8.1.
8.1.2 Issuance of Additional Shares of Common Stock. In case
the Company, at any time after the date of the Closing, shall issue additional
shares of Common Stock for no consideration in connection with a dividend, stock
split or other distribution on the Common Stock (including, without limitation,
any distribution of Common Stock by way of spin-off, reclassification or
corporate rearrangement), then, and in each such case, the Exercise Price shall
be reduced concurrently with such issuance to a price (calculated to the nearest
cent) determined by multiplying such Exercise Price by a fraction of which:
(a) the numerator shall be the number of shares of Common
Stock outstanding immediately prior to such issuance, and
(b) the denominator shall be the number of shares of Common
Stock outstanding immediately after such issuance.
8.1.3 Dividends and Distributions. In case the Company, at any
time after the Effective Date, shall pay or make a dividend or other
distribution on the Common Stock (including, without limitation, any
distribution of stock (other than Common Stock) or other securities, including
securities that are convertible into or exchangeable or exercisable for Common
Stock, property or options by way of dividend, spin-off, reclassification or
corporate rearrangement) then, and in each such case, the Exercise Price in
effect immediately prior to the close of business on the record date fixed for
the determination of the holders of the Common Stock entitled to receive such
dividend or other distribution shall be reduced, effective as of the close of
business on such record date, to a price (calculated to the nearest cent)
determined by multiplying such Exercise Price by a fraction of which:
(a) the numerator shall be the Exercise Price in effect
immediately prior to the close of business on such record date minus the value
of such dividend or other distribution (as determined in good faith by the Board
of Directors of the Company) applicable to one share of Common Stock, and
(b) the denominator shall be such Exercise Price in effect
immediately prior to the close of business on such record date;
provided, however, that no such reduction shall be made pursuant to this Section
8.1.3 for a dividend payable in shares of Common Stock (which is subject to
Section 8.1.2) or payable in cash or other property and declared out of the
earned surplus (i.e., retained earnings) of the Company (excluding any portion
thereof resulting from a revaluation of property) or which is declared but is
then not paid or made. For purposes of the foregoing, a dividend or distribution
payable other than in cash shall be considered payable out of earned surplus
only to the extent that such earned surplus is charged an
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amount equal to the fair value of such dividend or distribution at the time of
payment as determined in good faith by the Board of Directors of the Company. If
a dividend or distribution covered under this Section 8.1.3 is declared prior to
the Expiration Date but not paid by such date, the Expiration Date shall be
extended until the payment thereof
8.1.4 Adjustments for Combinations, etc. In case the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Exercise Price in effect immediately prior to such combination or
consolidation shall be proportionately increased concurrently with the
effectiveness of such combination or consolidation.
8.1.5 Minimum Adjustment of Exercise Price. If the amount of
any adjustment of the Exercise Price required pursuant to this Section 8.1 would
be less than $.01, such amount shall be carried forward, and an adjustment with
respect thereto shall be made at the time of and together with any subsequent
adjustment that, together with such amount an any other amount or amounts so
carried forward, shall aggregate at least $.01.
8.1.6 Minimum Exercise Price. Notwithstanding anything to the
contrary set forth herein, no adjustment provided for in this Section 8.1 shall
reduce the Exercise Price below the par or stated value of the Common Stock and
the Company shall have no obligation to change such value to permit a further
reduction of the Exercise Price; provided, however, that, except in the event of
any transactions of the type contemplated under Section 8.1.4 hereof, the
Company agrees not to change the par or stated value of the Common Stock.
8.2 Adjustment of Number of Warrant Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of Section 8.1, the number of Warrant
Shares that the Holder of a Warrant shall be entitled to receive upon exercise
thereof shall be adjusted to equal that number of Warrant Shares determined by
multiplying the number of Warrant Shares issuable upon exercise of such Warrant
immediately prior to such adjustment of the Exercise Price by a fraction of
which:
(a) the numerator shall be the Exercise Price in effect
immediately prior to such adjustment of the Exercise Price, and
(b) the denominator shall be the Exercise Price in effect
immediately following such adjustment of the Exercise Price.
8.3 Notice, Evidence of Adjustments. Whenever the Exercise Price is
adjusted as herein provided, the Company shall promptly cause a notice setting
forth the adjusted Exercise Price and adjusted number of Warrant Shares,
issuable upon exercise of each Warrant to be mailed to the Holders, at their
last addresses appearing in the Warrant register, and shall cause a copy thereof
to be mailed to each transfer agent for the Common Stock. The Company shall
retain a firm of independent public accountants of recognized standing selected
by the Board of Directors (who may be the regular accountants employed by the
Company) to make any computation required by this Section 8, and a certificate
signed by such firm shall accompany said notice and shall be conclusive evidence
of the correctness of such adjustments.
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9. Consolidation, Merger, Sale of Assets, Reorganization, etc.
9.1 General Provisions. In case the Company at any time after the
Effective Date (a) shall consolidate with or merge into any other person and not
be the continuing or surviving person of such consolidation or merger, or (b)
shall permit any other person to consolidate with or merge into the Company and
the Company shall be the continuing or surviving person but, in connection with
such consolidation or merger, the Common Stock or other securities then issuable
upon exercise of the Warrants shall be changed into or exchanged for cash, stock
or other securities or property, or (c) shall transfer, directly or indirectly,
all or substantially all its properties and assets to any other person, or (d)
shall effect a capital reorganization or reclassification of the Common Stock or
other securities then issuable upon exercise of the Warrants (other than a
capital reorganization or reclassification resulting in an adjustment of the
Exercise Price as provided in Section 8.1), then, and in the case of each such
transaction, the Company shall make proper provision such that, upon the terms
and in the manner provided in this Warrant Agreement, the Holder of each
Warrant, upon the exercise thereof at any time after the consummation of such
transaction, shall be entitled to receive, at the Exercise Price then in effect,
in lieu of the Common Stock or other securities issuable upon such exercise
immediately prior to such transaction, the amount of cash, stock or other
securities or property to which such Holder would have been entitled if such
Warrant had been exercised in full immediately prior to such transaction,
subject to adjustments subsequent to such transaction as nearly equivalent as
possible to the adjustments provided for in Section 8 and this Section 9.
9.2 Assumption of Obligation. Notwithstanding anything contained in
this Warrant Agreement to the contrary, the Company shall not effect any of the
transactions described in Section 9.1(a), (b), (c) or (d) unless, prior to the
consummation thereof, the person (other than the Company) that may be required
to deliver any cash, stock or other securities or property upon exercise of any
Warrant as provided herein shall assume, by written instrument delivered to the
Holders of the Warrants, (a) the obligations of the Company under this Warrant
Agreement and the Warrants (and if the Company shall survive the consummation of
any such transaction, such assumption shall not release the Company from any
continuing obligations of the Company under this Warrant Agreement and the
Warrants) and (b) the obligation to deliver to such Holder such cash, stock or
other securities or other property as such Holder may be entitled to receive in
accordance with the provisions of this Section 9; provided, however, that this
Section 9.2 shall not be applicable to any transaction described in Section 9.1
if all such cash, stock, property or other consideration receivable upon
consummation of such transaction is delivered to the Company at such time. Such
person shall similarly deliver to the Company an opinion of counsel to the
effect that this Warrant Agreement and the Warrants shall continue in full force
and effect after any such transaction and that the terms hereof (including,
without limitation all of the provisions of Section 8 and this Section 9.2) and
thereof shall be applicable to the cash, stock or other securities or property
that such person may be required to deliver upon any exercise of the Warrants.
9.3 No Dilution or Impairment. The Company shall not, by amendment of
its certificate of incorporation or by-laws or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue, sale, grant or
assumption of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant Agreement or
the Warrants, but will at all times, whether or not requested to do so, in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holders against dilution or other impairment. Without limiting the generality of
the foregoing, the Company agrees that it shall take all such reasonable action
as may be necessary
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or appropriate in order that the Company may validly and legally issue fully
paid and non-assessable shares of stock upon the exercise of all Warrants from
time to time outstanding.
10. Fractional Interests. The Company shall not be required to issue
fractions of shares of Common Stock upon the exercise of any Warrants. If more
than one Warrant shall be presented for exercise at the same time by the same
Holder, the number of Warrant Shares that shall be issuable upon the exercise
thereof shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of the Warrants so presented. If any fraction of a share
of Common Stock would, except for the provisions of this Section 10, be issuable
on the exercise of any Warrant, the Company shall purchase such fraction for an
amount in cash equal to the same fraction of the Fair Market Value of one share
of Common Stock on the date of exercise.
11. Restrictions on Dispositions. The Warrants and the Warrant Shares
have been registered under the Act pursuant to the Registration Statement;
however, Prime Charter acknowledges that the Warrants and the Warrant Shares may
not be transferred except pursuant to (i) a post-effective amendment to the
Registration Statement, (ii) an effective registration statement under the Act
or (iii) any available exemption from registration under the Act permitting such
disposition of securities and upon delivery to the Company of an opinion of
counsel, reasonably satisfactory to counsel for the Company, that such exemption
from registration is available. Prime Charter agrees that the certificates
representing the Warrants and Warrant Shares shall bear an appropriate
restrictive legend to such effect.
12. Registration Rights.
12.1 Demand Registration. Upon written request of the Holder(s) of at
least a majority of the then outstanding Warrants and Warrant Shares made at any
time within the period commencing one year and ending six years after the
Effective Date, the Company shall file within a reasonable period of time and,
in any event within the time period provided in Section 12.3(a) after receipt of
such written request, at its sole expense, on no more than two occasions, a
registration statement under the Act registering the Warrant Shares. Within 15
days after receiving any such notice, the Company shall give notice to the other
Holders of the Warrants and the Warrant Shares advising that the Company is
proceeding with such registration statement, and offering to include therein the
Warrant Shares of such other Holders. The Company shall not be obligated to
include the Warrant Shares of any such other Holder in such registration unless
such other Holder shall accept such offer by notice in writing to the Company
within 15 days after receipt of such notice from the Company. The Company shall
use its reasonable best efforts to file and cause such registration statement to
become effective as promptly as practicable and to remain effective for the
period of time provided in Section 12.3, to reflect in the registration
statement financial statements that are prepared in accordance with Section
10(a)(3) of the Act, and to amend or supplement such registration statement to
reflect any facts or events arising that, individually or in the aggregate,
represent a material change in the information set forth in the registration
statement to enable any Holders of Warrants to exercise warrants and/or sell the
underlying Warrant Shares during such time period provided in Section 12.3. If
any registration pursuant to this Section 12.1 is an underwritten offering, the
Holders of a majority of the Warrant Shares to be included in such registration
will select an underwriter (or managing underwriter if such offering should be
syndicated) approved by the Company, such approval not to be unreasonably
withheld. Notwithstanding anything in this Warrant Agreement to the contrary,
the Company shall be entitled to postpone for a reasonable period of time (not
exceeding 60 days in any 12-month period) the filing or effectiveness of any
registration statement otherwise required to be prepared and filed by it
pursuant to
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this Section 12.1 if the Company's Board of Directors determines, in its
reasonable discretion, that such registration and offering would adversely
affect any financing, acquisition, corporate reorganization or other material
transaction involving the Company and the Company promptly gives the Holders
written notice of such determination specifying the grounds therefor and an
estimate of the anticipated delay. If the Company shall so postpone the filing
of a registration statement, a majority-in-interest of the requesting Holders
shall have the right to withdraw the request for demand registration by giving
written notice to the Company within 30 days after receipt of the notice of
postponement. No registration shall be counted as the demand registration to
which the Holders are entitled pursuant to this Section 12.1 unless the Holders
are able to register and sell at least 90% of the Warrant Shares requested to be
included therein.
12.2 Piggyback Registration. If, at any time within the period
commencing one year and ending seven years after the Effective Date, the Company
proposes to register any voting equity securities under the Act in a primary
registration on behalf of the Company and/or in a secondary registration on
behalf of holders of such securities, and the registration form to be used may
be used for registration of the Warrant Shares, the Company shall give prompt
written notice (which, in the case of a registration pursuant to the exercise of
demand registration rights other than those provided in Section 12.1, shall be
within 10 business days after the Company's receipt of notice of such exercise
and, in any event, shall be at least 30 days prior to the date of such filing)
to the Holders of Warrants and/or Warrant Shares (regardless of whether some of
the Holders shall have theretofore availed themselves of the demand rights
provided in Section 12.1) of its intention to effect registration and shall
offer to include in such registration such number of Warrant Shares with respect
to which the Company has received written requests for inclusion therein within
10 business days after receipt of such, notice from, the Company upon generally
the same terms and conditions as the person or persons for whom such
registration is being effected has agreed to. This Section 12.2 is not
applicable to any registration statement to be filed by the Company on Forms S-4
or S-8 or any successor forms. The Company shall not be obligated to cause to be
effective any registration statement as to which it has given notice to the
Holders of Warrants and/or Warrant Shares and shall have discretion to withdraw
any such registration without liability to Holders of Warrants and/or Warrant
Shares.
Notwithstanding the foregoing, if the managing underwriter of the
offering shall determine in good faith and advise the Company in writing that
the inclusion of the Warrant Shares and other securities being offered in such
registration would materially and adversely affect the marketability of the
offering, then the Company and the managing underwriter may reduce the number of
Warrant Shares to be registered on a pro rata basis proportionate to the
reduction of all other holders of securities participating in such registration
pursuant to the exercise of piggyback registration rights. In such event, the
Company may reduce the number of Warrant Shares to be registered to zero as long
as no other securities are registered in such registration statement pursuant to
an exercise of piggyback registration rights.
12.3 Registration Procedures. If and whenever the Company is required
by the provisions of this Section 12 to use its reasonable best efforts to
effect the registration of any Warrant Shares under the Act, the Company will,
as expeditiously as possible:
(a) in connection with any registration pursuant to Section
12.1, prepare and file with the Commission a registration statement (which shall
be filed as soon as practical after receipt of requisite requests from Holders
of Warrant Shares for registration, but not more than 90 days in the case of a
registration statement on Form S-1, or 45 days in the case of any other form)
with respect to
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the Warrant Shares and use its reasonable best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in Section 12.3(a) and comply with the provisions of the
Act with respect to the disposition of all Warrant Shares covered by such
registration statement in accordance with the Holders' intended method of
disposition set forth in such registration statement for such period (so long as
such registration statement was filed pursuant to Section 12.1).
(c) furnish to each seller of Warrant Shares and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Warrant Shares covered by such registration statement;
(d) use its reasonable best efforts to register or qualify the
Warrant Shares covered by such registration statement under such securities or
blue sky laws of such jurisdictions as each seller shall request, and do any and
all other acts and things which may be necessary under such securities or blue
sky laws to enable such seller to consummate the public sale or other
disposition in such jurisdictions of the securities to be sold by such seller,
except that the Company shall not for any such purpose be required to qualify to
do business as a foreign corporation in any jurisdiction wherein it is not
qualified or to file any general consent to service of process;
(e) use its reasonable best efforts to list the Warrant Shares
covered by such registration statement with any securities exchange or automated
quotation system on which the Common Stock of the Company is then listed;
(f) immediately notify each seller of Warrant Shares and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Act, of the happening of
any event of which the Company has knowledge as result of which the prospectus
contained in such registration statement, as then in effect, included an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(g) enter into such agreements (including an underwriting
agreement, if applicable) and take all such other actions reasonably necessary
in connection therewith in order to expedite and facilitate the disposition of
the Warrant Shares to be registered;
(h) whether or not the offering is underwritten and at the
request of any seller of Warrant Shares, furnish: (i) such representations and
warranties to such seller and the underwriters, if any, as are customary in
primary underwritten offerings, (ii) an opinion of counsel representing the
Company for the purposes of such registration, addressed to the underwriters, if
any, and to such seller of Warrant Shares in form and substance as is
customarily given to underwriters in an underwritten public offering and to such
other effect as reasonably may be requested by counsel for the underwriters or
by such seller of Warrant Shares or its counsel and (iii) a letter dated such
date from the independent public accountants retained by the Company, addressed
to the underwriters, if any, and to
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such seller of Warrant Shares, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, and such letter shall additionally cover such other financial
matters (including information as to the period ending no more than five
business days prior to the date of such letter) with respect to such
registration as such underwriters reasonably may request;
(i) make available upon reasonable notice for inspection by
each seller of Warrant Shares, any underwriter participating in any distribution
pursuant to such registration statement, and any attorney, accountant or other
agent retained by such seller of Warrant Shares or underwriter, all financial
and other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement; and
(j) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its securityholders, as soon as reasonably practicable, but not later than 18
months after the effective date of the registration statement, an earnings
statement covering the period of at least 12 months beginning with the first
full month after the effective date of such registration statement, which
earnings statements shall satisfy the provisions of Section 11(a) of the Act.
For purposes of Section 12.3(a) and (b), the period of
distribution of Warrant Shares in a firm commitment underwritten public offering
shall be deemed to extend until each underwriter has completed the distribution
of all securities purchased by it, and the period of distribution of Warrant
Shares in any other registration shall be deemed to extend until the earlier of
the sale of all Warrant Shares covered thereby and 120 days after the effective
date thereof.
In connection with each registration hereunder the sellers of
Warrant Shares will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as reasonably shall
be necessary and shall be requested by the Company in order to comply with
federal and applicable state securities laws.
In connection with each registration pursuant to this Section
12 covering an underwritten public offering, the Company and each seller of
Warrant Shares agree to enter into a written agreement with the managing
underwriter (unless the Holder is the managing underwriter) in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature.
12.4 Expenses. All expenses incurred by the Company in complying with
Sections 12.1, 12.2 and 12.3, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, costs of insurance and
reasonable fees and disbursements of one counsel for the sellers of Warrant
Shares, but excluding any Selling Expenses, are herein referred to as
"Registration Expenses." "Selling Expenses," as used herein, mean all
underwriting discounts and selling commissions applicable to the sale of Warrant
Shares.
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The Company will pay or cause to be paid all Registration
Expenses of the Holders in connection with each registration statement under
Sections 12.1 and 12.2. All Selling Expenses in connection with each
registration statement under Sections 12.1 and 12.2 shall be borne by the
participating sellers of Warrant Shares in proportion to the number of Warrant
Shares sold by each, or by such participating sellers of Warrant Shares other
than the Company (except to the extent the Company shall be a seller of Common
Stock) as they may agree.
12.5 No Conflicts. The Company will not enter into any agreement
granting registration rights to any person or entity on terms which conflict
with the provisions of this Section 12.
12.6 Indemnification and Contribution. (a) In the event of a
registration of any Warrant Shares under the Act pursuant to this Section 12,
the Company will indemnify and hold harmless, to the fullest extent permitted by
law, each Holder selling Warrant Shares thereunder, each underwriter thereunder,
and each other person, if any, who controls such selling Holder of Warrant
Shares or underwriter within the meaning of the Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), against any losses, claims,
damages, liabilities and expenses, joint for several, to which such selling
Holder, underwriter 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 an untrue statement or alleged
untrue statement of a material fact contained in any registration statement
under which such Warrant Shares were registered under the Act pursuant to
Section 12, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will pay or reimburse each such selling Holder, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company (i) will not be liable
in any such case if and to the extent that (A) any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by any such selling Holder, any such underwriter or any such
controlling person, as the case may be, in writing specifically for use in such
registration statement, prospectus, amendment or supplement or (B) in respect to
such statement, alleged statement omission or alleged omission with respect to
which such loss, claim, damage or liability directly relates, the final
prospectus for such registration statement corrected in all material respects
such statement alleged statement, omission or alleged omission and a copy of
such final prospectus was not sent or given by or on behalf of such Holder (or
otherwise delivered in accordance with applicable law or regulation) at or prior
to the confirmation of the sale of Warrant Shares of such Holder and (ii) will
not be liable for amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, such consent not to be unreasonably withheld or delayed.
(b) In the event of a registration of any Warrant Shares under
the Act pursuant to this Section 12, each Holder selling Warrant Shares
thereunder, severally and not jointly, will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of the
Act, each officer of the Company who signs the registration statement, each
director of the Company, each underwriter and each person who controls any
underwriter within the meaning of the Act, against all losses, claims, damages
or liabilities, joint or several, to which the Company or such officer,
director, underwriter or controlling person may become subject under the Act or
otherwise, but only to the extent that such losses, claims, damages or
liabilities (or actions in respect
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thereof) arise out of or are based upon (i) an untrue statement or alleged
untrue statement or omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, made in reliance upon and in conformity with information
pertaining to such selling Holder, as such, furnished in writing to the Company
by such selling Holder specifically for use in such registration statement under
which such Warrant Shares was registered under the Act pursuant to this Section
12, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, and will pay or reimburse the Company and each
such officer, director, underwriter and controlling person for any legal or
other expenses reasonably by them in connection with investigating or defending
any such loss, claim, damage liability or action or (ii) any statement, alleged
statement, omission or alleged omission made by the Company with respect to
which such loss, claim, damage or liability directly relates, if the final
prospectus for such registration statement corrected in all material respects
such statement, alleged statement, omission or alleged omission and a copy of
such final prospectus was not sent or given by or on behalf of such Holder (or
otherwise delivered in accordance with applicable law or regulation) at or prior
to the confirmation of the sale of Warrant Shares of such Holder, provided,
however, that (A) the liability of each selling Holder hereunder shall be
limited to the proportion of any such loss, claim, damage, liability or expense
which is equal to the proportion that the public offering price of the Warrant
Shares sold by such selling Holder under such registration statement bears to
the total public offering price of all securities sold thereunder, but not in
any event to exceed the net proceeds received by such selling Holder from the
sale of Warrant Shares covered by such registration statement and (B) no selling
Holder shall be liable for amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of such selling Holder, such consent not to be unreasonably withheld or delayed.
(c) Promptly after receipt by an indemnified party hereunder
of written notice of any claim or the commencement of any action or proceeding,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party,
except to the extent the indemnifying party is materially prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and the indemnified party shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
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 and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 12.6(c) for any legal or
other professional expenses subsequently incurred by such indemnified party in
connection with the defense thereof. No indemnifying party, in the defense of
any such claim or litigation against an indemnified party, shall consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation, unless such indemnified party shall otherwise consent in writing. An
indemnifying party who elects to assume the defense of a claim shall not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim (in addition
to any local counsel), unless any indemnified party reasonably concludes that
there may be legal defenses available to such indemnified party with respect to
such claim which are different from or additional to those available to any
other of such indemnified parties or that a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the reasonable fees and expenses of such additional counsel or counsels.
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(d) In order to provide for just and equitable contribution in
any case in which either (i) any Holder exercising registration rights under
this Section 12, or any controlling person of any such Holder, makes a claim for
indemnification pursuant to this Section 12.6, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and following 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 this Section 12.6 provides for indemnification in
such case or (ii) contribution under the Act may be required on the part of any
such Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 12.6, then, and in each such
case, the Company and such Holder shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion as is appropriate to reflect both the relative
benefit received by such Holder and the relative fault of the Company and such
Holder; provided, however, that, in any such case, (A) no Holder will be
required to contribute any amount in excess of the public offering price of all
such Warrant Shares offered by it pursuant to such registration statement and
(B) no person or entity guilty of fraudulent misrepresentation (within, the
meaning of Section 11(f) of the Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation. For
purposes of the preceding sentence, the relative benefit received by the Holder
of Warrant Shares shall be deemed to be in the same proportion as the public
offering price of its Warrant Shares offered by the registration statement bears
to the public offering price of all securities offered by such registration
statement; and the relative fault of the Company and such Holder shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission of a material fact relates to
information supplied by the Company or by the Holder and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
12.7 Securities Law Compliance. The Company covenants that it will
timely file all reports required to be filed by it under the Act and the
Exchange Act. So long as the Company is subject to the periodic reporting
requirements of the Exchange Act, the Company covenants to make publicly
available such information as may be necessary to permit the sale of Warrant
Shares without registration under the Act pursuant to the exemption provided by
Rule 144 under the Act, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission. Upon the request
of any Holder of Warrants or Warrant Shares at any time, if applicable the
Company will deliver to such Holder or such Holder's prospective transferee such
information as may be necessary to permit the sale of Warrants or Warrant Shares
pursuant to Rule 144A under the Act, as such rule may be amended from time to
time. Upon request of any Holder of Warrants or Warrant Shares, the Company will
deliver to such Holder a written statement as to whether it has complied with
such information requirements.
13. Notices to Holders.
13.1 Nothing contained in this Warrant Agreement or in any of the
Warrants shall be construed as conferring upon the Holders thereof as such the
right to vote or to receive dividends or to consent or to receive notice as
stockholders in respect of the meetings of stockholders or the election of
directors of the Company or any other matter or any other rights whatsoever as
stockholders of the Company.
13
<PAGE>
13.2 In the event the Company intends to:
(a) make any distribution on or with respect to its Common
Stock (or other securities that may then be issuable in lieu thereof upon the
exercise of Warrants), including without limitation any dividend or distribution
from earned surplus, any dividend or distribution of stock, assets or evidences
of indebtedness, or any similar distribution,
(b) issue subscription rights or warrants to holders of
its Common Stock,
(c) consolidate or merge with or into another entity,
(d) liquidate, dissolve or sell or otherwise dispose of
substantially all its assets, or
(e) take any other action that would result in an adjustment
to the Exercise Price or an adjustment to the number of Warrant Shares that the
Holder of a Warrant shall be entitled to receive upon exercise thereof, then the
Company shall cause a notice of its intention to take such action to be sent by
first-class mail, postage prepaid, at least 20 days prior to the date fixed as a
record date or the date of closing the transfer books for the determination of
the stockholders entitled to such distribution or issuance or to vote upon such
proposed consolidation, merger, liquidation, sale or conveyance to each Holder
at its address appearing on the Warrant register, but failure to mail or to
receive such notice or any defect therein or in the mailing thereof shall not
affect the validity of any action taken in connection with such distribution,
issuance, consolidation, merger, liquidation, sale or conveyance.
14. Notices. Any notice or demand required by this Warrant Agreement to
be given or made by any Holder to or on the Company shall be sufficiently given
or made if sent by registered or certified mail, postage prepaid, or by
facsimile transmission address as follows:
Showpower, Inc
18128 South Santa Fe Avenue
Rancho Dominguez, California 90221
Telephone: (310) 604-9676
Facsimile: (310) 604-1671
Attention: Chief Executive Officer
Any notice or demand required by this Warrant Agreement to be given or made by
the Company to or on the Holder of any Warrant shall be sufficiently given or
made, whether or not such Holder receives the notice, if sent by first-class
mail, postage prepaid, addressed to such Holder at his last address as shown on
the books of the Company.
15. Governing Law. The validity, interpretation and performance of this
Warrant Agreement, of each Warrant issued hereunder and of the respective terms
and provisions thereof shall be governed by the laws of the State of New York
without giving effect to principles of conflicts of law.
16. Counterparts. This Warrant Agreement may be executed in two
counterparts, each of which when so executed shall be deemed to be an original;
but such counterparts shall together constitute but one and the same instrument.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Warrant
Agreement as of the date first set forth above.
SHOWPOWER, INC
By
-------------------------
Name:
Title:
PRIME CHARTER LTD.
By
-------------------------
Name:
Title:
15
<PAGE>
ANNEX A
THE WARRANTS REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE
THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"); HOWEVER, NONE OF SUCH SECURITIES MAY BE OFFERED OR SOLD EXCEPT PURSUANT
TO (i) A POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT UNDER WHICH SUCH
SECURITIES WERE REGISTERED UNDER THE ACT; (ii) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, OR (iii) AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND UPON DELIVERY TO THE
COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, THAT SUCH EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE. IN
ADDITION, THE WARRANTS REPRESENTED HEREBY MAY NOT BE TRANSFERRED OR EXERCISED
EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THE WARRANT AGREEMENT DATED AS OF
___________, 1998 BETWEEN SHOWPOWER, INC. AND PRIME CHARTER LTD.
No. _____ 120,000 Warrants
Void After 5:00 p.m. New York City Time
On _________, 2003
SHOWPOWER, INC.
Warrant Certificate
THIS CERTIFIES THAT, for value received, Prime Charter Ltd., or
registered assigns, is the Holder of the number of Warrants set forth above,
each Warrant entitling the owner thereof to purchase at any time after
_________, 1999 and prior to 5:00 p.m., New York City time, on ________, 2003
(the "Expiration Date"), one fully paid and non-assessable share of common
stock, par value $.01 per share ("Common Stock"), of Showpower, Inc., a Delaware
corporation (the "Company"), at a purchase price per share (the "Exercise
Price") initially equal to $_____, upon presentation and surrender of this
Warrant Certificate with the Form of Election to Purchase (attached hereto) duly
executed. The number of Warrants evidenced by this Warrant Certificate (and the
number of shares that may be purchased upon exercise hereof (the "Warrant
Shares") set forth above and the Exercise Price set forth above are the number
and Exercise Price as of the date of original issuance of this Warrant
Certificate, based on the Common Stock as constituted at such date. As provided
in the Warrant Agreement referred to below, the Exercise Price and the number or
kind of shares that may be purchased upon the exercise of the Warrants evidenced
by this Warrant Certificate are subject to modification and adjustment upon the
happening of certain events.
This Warrant Certificate is subject to, and entitled to the benefits
of, all of the terms, provisions and conditions of the Warrant Agreement dated
as of __________, 1998 between the Company and Prime Charter Ltd., which Warrant
Agreement is hereby incorporated herein reference and made a part hereof and to
which reference is hereby made for a full description of the rights, limitations
of rights, duties and immunities hereunder of the Company and the Holders of the
Warrant Certificates. A copy of the Warrant Agreement is on file at the
principal office of the Company.
<PAGE>
This Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor, evidencing
Warrants entitling the Holder to purchase a like aggregate number of shares of
Common Stock as the Warrants evidenced by the Warrant Certificate or Warrant
Certificates surrendered entitled such Holder to purchase. If this Warrant
Certificate shall be exercised in part, the Holder hereof shall be entitled to
receive upon surrender hereof another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
The Exercise Price may be paid in cash or by surrender of the
appropriate number of Warrants or shares of Common Stock in a cashless exercise
or in a combination thereof as provided in Section 4.2 of the Warrant Agreement.
No fractional shares of Common Stock will be issued upon the exercise
of any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made as provided in the Warrant Agreement.
No Holder of this Warrant Certificate, as such, shall be entitled to
vote or to receive dividends or to consent or to receive notice as a stockholder
of the meetings of stockholders for the election of directors of the Company or
any other matter or to any rights whatsoever as stockholder of the Company,
until the Warrant or Warrant evidenced by this Warrant Certificate shall have
been exercised and the Warrant Shares shall have been delivered as provided in
the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Common Stock or other class
of stock issuable upon exercise of this Warrant Certificate are closed for any
purpose, the Company shall not be required to make delivery of certificates for
shares issuable upon such exercise until the date of the reopening of said
transfer books as provided in the Warrant Agreement.
IN WITNESS WHEREOF, Showpower, Inc. has caused the signature (or
facsimile signature) of its Chairman and Secretary to be printed hereon.
SHOWPOWER, INC.
By
--------------------------
Name:
Title
Attest:
- -----------------------------
Secretary
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the Holder if such Holder desires to transfer this Warrant
Certificate).
TO SHOWPOWER, INC.
FOR VALUE RECEIVED, __________________________________________ hereby
sells assigns and transfers unto ________________________ this Warrant
Certificate, together with all rights, title and interest therein, and does
hereby irrevocably constitute and appoint ______________________, to transfer
the within Warrant Certificate on the books of the within-named Company, with
full power of substitution.
DATED:
--------------------------
Signature
--------------------
Signature Guaranteed:
NOTICE:
The signature on the foregoing assignment must correspond to the name
as written upon the face of this Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if Holder desires to exercise the Warrants evidenced by this
Warrant Certificate).
TO SHOWPOWER, INC.
The undersigned hereby (1) irrevocably elects to exercise
___________________________________ Warrants represented by this Warrant
Certificate to purchase __________ shares of Common Stock issuable upon the
exercise of such Warrants, (2) makes payment in full of the aggregate Exercise
Price for such Warrants by enclosure of a bank cashier's check or money order
therefor or by surrendering Warrants or shares of Common Stock for application
to the aggregate Exercise Price, upon condition that new Warrants be issued for
the balance o tie Warrants remaining, and (3) requests that certificates for
shares and Warrants be issued in the name of.
(Please insert social security or other
identifying number)
-----------------------
- --------------------------------------
(Please print name and address)
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of such
Warrants shall be registered in the name of and delivered to:
(Please insert social security or other
identifying number)
-----------------------
- --------------------------------------
(Please print name and address)
DATED: , 19/20
---------------------------- ----
Signature
-------------------------------
Signature Guaranteed:
NOTICE:
The signature on the foregoing election to purchase must correspond to the name
as written upon the face of this Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever.
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
SHOWPOWER, INC.
ARTICLE I
The name of the corporation (the "Corporation") is Showpower, Inc.
ARTICLE II
The address of its registered office in the State of Delaware
is 1209 Orange Street, Wilmington, Delaware 19801, and the name of its
registered agent at such address is The Corporation Trust Company. Said address
is located in New Castle County, Delaware.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted are:
(a) To engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware; and
(b) In general, to possess and exercise all the powers and
privileges granted by the General Corporation Law of the State of Delaware or by
any other law of Delaware or by this certificate of incorporation, together with
any powers incidental thereto, so far as such powers and privileges are
necessary or convenient to the conduct, promotion or attainment of the business
or purposes of the Corporation.
ARTICLE IV
Section 1. Capital Stock. The total number of shares of all
classes of capital stock which the Corporation shall have authority to issue is
7,500,000 shares, consisting of 6,500,000 shares of Common Stock, par value
$0.01 per share ("Common Stock"), and 1,000,000 shares of Preferred Stock, par
value $0.01 per share ("Preferred Stock").
Section 2. Common Stock.
(a) Subject to any voting rights that may be conferred upon
the holders of any series of the Preferred Stock established by the Board of
Directors pursuant to authority herein provided, and except as otherwise
provided by law, the shares of Common Stock shall entitle the holders thereof to
one vote for each share upon all matters upon which stockholders have the right
to vote.
(b) Subject to any limitations prescribed in this Article IV
and any further limitations prescribed in accordance therewith, and subject to
any prior rights that may be
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<PAGE>
conferred upon the holders of any series of the Preferred Stock established by
the Board of Directors pursuant to authority herein provided, and except as
otherwise provided by law, the holders of shares of Common Stock shall be
entitled to receive when and as declared by the Board of Directors, out of the
assets of the Corporation which are by law available therefor, pro rata
dividends payable either in cash, in property or securities of the Corporation.
(c) Subject to any prior rights that may be conferred upon the
holders of any series of the Preferred Stock established by the Board of
Directors pursuant to authority herein provided, holders of shares of Common
Stock will be entitled to receive pro rata all of the remaining assets of the
Corporation available for distribution to its stockholders in the event of any
liquidation, dissolution or winding up of the Corporation.
Section 3. Preferred Stock. The Board of Directors is hereby
expressly authorized, by resolution or resolutions, to provide, out of the
unissued shares of Preferred Stock, for one or more series of Preferred Stock.
Except as may be required by law, the shares in any series of Preferred Stock or
any shares of stock of any other class need not be identical. Before any shares
of any such series are issued, the Board of Directors shall fix, and hereby is
expressly empowered to fix, by resolution or resolutions, the following
provisions of the shares thereof:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof if different from
the par value thereof;
(b) whether the shares of such series shall have voting
rights, in addition to any voting rights provided by law, and, if so,
the terms of such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends shall bear to the dividends
payable on any shares of stock of any other class or any other series
of Preferred Stock;
(d) whether the shares of such series shall be subject to
redemption by the Corporation and, if so, the times, prices and other
conditions of such redemption;
(e) the amount or amounts payable upon shares of such series
upon, and the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Corporation;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to
the purchase or redemption of
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<PAGE>
the shares of such series for retirement or other corporate purposes
and the terms and provisions relative to the operation thereof;
(g) whether the shares of such series shall be convertible
into, or exchangeable for, shares of stock of any other class or any
other series of Preferred Stock or any other securities (whether or not
issued by the Corporation) and, if so, the price or prices or the rate
or rates of conversion or exchange and the method, if any, of adjusting
the same, and any other terms and conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the Corporation of, the
Common Stock or shares of stock of any other class or any other series
of Preferred Stock;
(i) the conditions or restrictions, if any, upon the creation
of indebtedness of the Corporation or upon the issue of any additional
stock, including additional shares of such series or of any other
series of Preferred Stock or of any other class of stock; and
(j) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations
and restrictions thereof.
Except to the extent otherwise expressly required by law (i) no share of
Preferred Stock shall have any voting rights other than those which shall be
fixed by the Board of Directors by resolution pursuant to this Section and (ii)
no share of Common Stock shall have any voting rights with respect to any
amendment to the terms of any series of Preferred Stock; provided however, that
in the case of this clause (ii) the terms of such series of Preferred Stock, as
so amended, could have been established without any vote of any shares of Common
Stock.
ARTICLE V
The Board of Directors is expressly authorized to exercise all
powers granted to the directors by law except insofar as such powers are limited
or denied herein or in the By-Laws of the Corporation. In furtherance of such
powers, the Board of Directors is expressly authorized to make, alter or repeal
the By-Laws of the Corporation.
ARTICLE VI
Section 1. Number of Directors. The initial Board of Directors
of the Corporation shall be composed of (5) members, which number may be changed
from time to time in the manner provided in the By-Laws of the Corporation.
Whenever the number of
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<PAGE>
Directors shall be six (6) or more, the By-Laws may also provide for staggering
the terms of the members of the Board of Directors by dividing the total number
of Directors into three (3) classes (with each class containing one-third (1/3)
of the total, as near as may be) whose terms of office expire in accordance with
Section 141(d) of the General Corporation Law of Delaware. In the event the
Board of Directors is divided into three (3) classes, and except as otherwise
required by law, whenever the holders of any one or more series of Preferred
Stock shall have the right, voting separately as a class, to elect one or more
directors of the Corporation, the terms of the director or directors elected by
such holders shall expire at the next succeeding annual meeting of stockholders.
Section 2. Vacancies. Any vacancies in the Board of Directors
for any reason, and any directorships resulting from any increase in the number
of directors, may be filled by the Board of Directors, acting by a majority of
the directors then in office, although less than a quorum, and any directors so
chosen shall hold office until their successors shall be elected and qualified
(or in the event the By-Laws of the Corporation provide that the Board of
Directors be divided into three (3) classes, shall hold office until the next
election of the class for which such directors shall have been chosen and until
their successors shall be elected and qualified).
Section 3. Removal of Directors. Notwithstanding any other
provisions of this certificate of incorporation or the By-Laws of the
Corporation (and notwithstanding the fact that some lesser percentage may be
specified by law, this certificate of incorporation or the By-Laws of the
Corporation), any director or the entire Board of Directors of the Corporation
may be removed at any time, with or without cause, by the affirmative vote of
the holders of a majority or more of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) cast at a meeting of the stockholders
called for that purpose, or by written consent. Notwithstanding the foregoing,
and except as otherwise required by law, whenever the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a class, to
elect one or more directors of the Corporation, the provisions of this Section
shall not apply with respect to the director or directors elected by such
holders of Preferred Stock.
ARTICLE VII
Meetings of stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the By-Laws of the Corporation. Elections of
directors need not be by written ballot unless the By-Laws of the Corporation
shall so provide.
-4-
<PAGE>
ARTICLE VIII
Any action required or permitted to be taken at any annual or
special meeting of the stockholders of the Corporation may be taken without a
meeting, without prior notice and without a vote, if the consent or consents in
writing, setting forth the action so taken, are signed by the holders of the
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and must be delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded.
Every written consent must bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required in this Section to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded.
Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent must be given to those
stockholders who have not consented in writing and who, if the action had been
taken at a meeting, would have been entitled to notice of the meeting if the
record date for such meeting had been the date that written consents signed by a
sufficient number of holders to take the action were delivered to the
Corporation as provided in this Section.
ARTICLE IX
The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by the General Corporation Law
of the State of Delaware, as the same may be amended and supplemented. Without
limiting the generality of the foregoing, no director shall have any personal
liability to the Corporation or its stockholders for any monetary damages for
breach of fiduciary duty as a director, except that this Article shall not
eliminate or limit the liability of each director (i) for any breach of such
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation law
of the State of Delaware, or (iv) for any transaction from which such director
derived an improper personal benefit.
The Corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
-5-
<PAGE>
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, other enterprise or
nonprofit entity, including service with respect to employee benefit plans,
against all liability and loss suffered and expenses reasonably incurred by such
person. The Corporation shall be required to indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation. The rights to indemnification and
advancement of expenses conferred by this Article shall be presumed to have been
relied upon by the directors and officers of the Corporation in serving or
continuing to serve the Corporation and shall be enforceable as contract rights.
Said rights shall not be exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. The Corporation may enter into
contracts to provide such persons with specific rights to indemnification, which
contracts may confer rights and protections to the maximum extent permitted by
the Delaware General Corporation Law. The Corporation may create trust funds,
grant security interests, obtain letters of credit, or use other means to ensure
payment of such amounts as may be necessary to perform the obligations provided
for in this Article or in any such contract.
Neither the amendment nor the repeal of this Article IX, nor
the adoption of any provision of the certificate of incorporation inconsistent
with this Article IX, shall eliminate or reduce the effect of this Article IX in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this Article IX, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
ARTICLE X
The name and address of the members of the first Board of
Directors of the Corporation are as follows:
<TABLE>
<CAPTION>
Number and Street City, State
Name or Building Zip Code
---- ------------------ ------------
<S> <C> <C>
Joseph A. Ades 18128 South Santa Fe Avenue Rancho Dominguez, CA 90221
David C. Bernstein 18128 South Santa Fe Avenue Rancho Dominguez, CA 90221
John J. Campion 18128 South Santa Fe Avenue Rancho Dominguez, CA 90221
Robert E. Masterson 18128 South Santa Fe Avenue Rancho Dominguez, CA 90221
Jeffrey B. Stone 18128 South Santa Fe Avenue Rancho Dominguez, CA 90221
</TABLE>
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<PAGE>
ARTICLE XI
The name and address of the incorporator of the Corporation
are as follows:
<TABLE>
<CAPTION>
Number and Street City, State
Name or Building Zip Code
---- ------------------- ------------
<S> <C> <C>
David C. Worrell 300 North Meridian Street Indianapolis, IN 46204-1782
Suite 2700
</TABLE>
ARTICLE XII
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation in the
manner now or hereafter prescribed by statute.
IN WITNESS WHEREOF, the undersigned, being the incorporator
designated in Article XI, executes this Certificate of Incorporation this 5th
day of March, 1998.
-----------------------------------
David C. Worrell
-7-
Exhibit 3.2
BY-LAWS
OF
SHOWPOWER, INC.
(a Delaware corporation)
April 2, 1998
<PAGE>
TABLE OF CONTENTS
Article I Identification......................................... 1
Section 1. Name........................................... 1
Section 2. Registered Office.............................. 1
Section 3. Principal Office............................... 1
Section 4. Other Offices.................................. 1
Article II Meetings of Stockholders............................... 1
Section 1. Place of Meeting............................... 1
Section 2. Annual Meetings................................ 1
Section 3. Special Meetings............................... 1
Section 4. Notice of Meetings............................. 1
Section 5. Quorum......................................... 2
Section 6. Adjournments................................... 2
Section 7. Order of Business.............................. 2
Section 8. List of Stockholders........................... 3
Section 9. Voting......................................... 3
Section 10. Written Consent of Stockholders................ 4
Section 11. Inspectors..................................... 4
Article III Board of Directors..................................... 5
Section 1. General Powers................................. 5
Section 2. Number, Qualification and Election............. 5
Section 3. Notification of Nominations.................... 5
Section 4. Quorum and Manner of Acting.................... 6
Section 5. Place of Meeting............................... 6
Section 6. Regular Meetings............................... 6
Section 7. Special Meetings............................... 7
Section 8. Notice of Meetings............................. 7
Section 9. Rules and Regulations.......................... 7
Section 10. Participation in Meeting by Means of
Communications Equipment............... 7
Section 11. Action Without Meeting......................... 7
Section 12. Resignations................................... 7
Section 13. Removal of Directors........................... 7
Section 14. Vacancies...................................... 8
Section 15. Compensation................................... 8
Section 16. Committees..................................... 8
Article IV Officers................................................ 9
Section 1. Number; Term of Office.......................... 9
Section 2. Removal......................................... 9
Section 3. Resignation..................................... 9
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<PAGE>
Section 4. Vacancies......................................... 9
Section 5. Chairman of the Board............................. 9
Section 6. Chief Executive Officer...........................10
Section 7. President........................................ 10
Section 8. Chief Financial Officer ......................... 10
Section 9. Vice Presidents.................................. 10
Section 10. Treasurer........................................ 10
Section 11. Secretary ........................................10
Section 12. Assistant Treasurers or Secretaries ..............11
Article V Indemnification of Directors, Officers,
Employees and Agents............................. 11
Section 1. Indemnification.................................. 11
Section 2. Advance of Expenses.............................. 11
Section 3. Insurance........................................ 11
Section 4. Applicability.................................... 12
Section 5. Certain Definitions.............................. 12
Article VI Capital Stock............................................ 12
Section 1. Certificates for Shares.......................... 12
Section 2. Transfer of Shares............................... 13
Section 3. Addresses of Stockholders........................ 13
Section 4. Lost, Destroyed and Mutilated Certificates....... 13
Section 5. Regulations...................................... 14
Section 6. Fixing Date for Determination of
Stockholders of Record................... 14
Article VII Seal..................................................... 14
Article VIII Fiscal Year.............................................. 15
Article IX Waiver of Notice......................................... 15
Article X Amendments............................................... 15
Article XI Miscellaneous
Section 1. Execution of Documents........................... 15
Section 2. Deposits......................................... 16
Section 3. Checks........................................... 16
Section 4. Proxies in Respect of Stock or Other
Securities of Other Corporations......... 16
Section 5. By-laws Subject to Law and Certificate
of Incorporation of the
Corporation.............................. 16
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Section 6. Definition of Certificate of
Incorporation............................ 16
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Article I
Identification
Section 1. Name. The name of the Corporation is Showpower,
Inc.
Section 2. Registered Office. The registered office of the
Corporation in the State of Delaware shall be 30 The Green, Dover, Delaware
19903.
Section 3. Principal Office. The principal office of the
Corporation shall be 18128 South Santa Fe Avenue, Rancho Dominguez, California
90221.
Section 4. Other Offices. The Corporation may also have an
office or offices, and keep the books and records of the Corporation, except as
may otherwise be required by law, at such other place or places, either within
or without the State of Delaware, as the Board of Directors may from time to
time determine or the business of the Corporation require.
Article II
Meetings of Stockholders
Section 1. Place of Meeting. All meetings of the stockholders
of the Corporation shall be held at the principal office of the Corporation or
at such other places, within or without the State of Delaware, as may from time
to time be fixed by the Board of Directors.
Section 2. Annual Meetings. The annual meeting of the
stockholders of the Corporation for the election of directors and for the
transaction of such other business as may properly come before the meeting shall
be held on the second Tuesday of May in each year, if not a legal holiday under
the laws of the place where the meeting is to be held, and, if a legal holiday,
then on the next succeeding day not a legal holiday under the laws of such
place, or on such other date and at such hour as may from time to time be fixed
by the Board of Directors.
Section 3. Special Meetings. Subject to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, special meetings of the stockholders
for any purpose or purposes may be called only by the Chairman of the Board or a
majority of the entire Board of Directors. Only such business as is specified in
the notice of any special meeting of the stockholders shall come before such
meeting.
Section 4. Notice of Meetings. Written notice of each meeting
of the stockholders, whether annual or special, shall be given, either by
personal delivery or by mail, not less than 10 nor more than 60 days before the
date of the meeting to each stockholder of record entitled to notice of such
meeting. If mailed, such notice shall be deemed given when deposited in the
United States mail, postage prepaid, directed to the stockholder at such
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stockholder's address as it appears on the records of the Corporation. Each such
notice shall state the place, date and hour of the meeting, and the purpose or
purposes for which the meeting is called. Notice of any meeting of stockholders
shall not be required to be given to any stockholder who shall attend such
meeting in person or by proxy without protesting, prior to or at the
commencement of the meeting, the lack of proper notice to such stockholder, or
who shall waive notice thereof as provided in Article IX of these By-laws.
Notice of adjournment of a meeting of stockholders need not be given if the time
and place to which it is adjourned are announced at such meeting, unless the
adjournment is for more than 30 days or, after adjournment, a new record date is
fixed for the adjourned meeting.
Section 5. Quorum. The holders of a majority of the votes
entitled to be cast by the stockholders entitled to vote, which if any vote is
to be taken by classes shall mean the holders of a majority of the votes
entitled to be cast by the stockholders of each such class, present in person or
by proxy, shall constitute a quorum for the transaction of business at any
meeting of the stockholders.
Section 6. Adjournments. In the absence of a quorum, the
holders of a majority of the votes entitled to be cast by the stockholders,
present in person or by proxy, may adjourn the meeting from time to time. At any
such adjourned meeting at which a quorum may be present, any business may be
transacted which might have been transacted at the meeting as originally called.
Section 7. Order of Business. At each meeting of the
stockholders, the Chairman of the Board, or, in the absence of the Chairman of
the Board, the Chief Executive Officer or such other person designated by the
Board of Directors, shall act as chairman. At each annual meeting only such
business shall be conducted as shall have been brought before the annual meeting
(i) by or at the direction of the Board of Directors or (ii) by any stockholder
who complies with the procedures set forth in this Section 7.
For business properly to be brought by a stockholder before an
annual meeting, the stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal office of
the Corporation not less than 30 days nor more than 60 days prior to the annual
meeting; provided, however, that in the event that less than 40 days' notice or
prior public disclosure of the date of the annual meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the tenth day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. To be in proper written form, a stockholder's notice to the Secretary
shall set forth in writing as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting; (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business; (iii) the class
and number of shares of stock of the Corporation which are beneficially owned by
the stockholder; and (iv) any material interest of the stockholder in such
business. Notwithstanding
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anything in these By-laws to the contrary, no business shall be conducted at an
annual meeting except in accordance with the procedures set forth in this
Section 7. The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the annual meeting that business was not properly
brought before the annual meeting in accordance with the provisions of this
Section 7 and, if he should so determine, he shall so declare to the annual
meeting and any such business not properly brought before the annual meeting
shall not be transacted.
Section 8. List of Stockholders. It shall be the duty of the
Secretary or other officer of the Corporation who has charge of the stock ledger
to prepare and make, at least 10 days before each meeting of the stockholders, a
complete list of the stockholders entitled to vote thereat, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in such stockholder's name. Such list shall be produced and
kept available at the times and places required by law.
Section 9. Voting. Each stockholder of record of any class or
series of stock having a preference over the Common Stock of the Corporation as
to dividends or upon liquidation shall be entitled at each meeting of
stockholders to such number of votes for each share of such stock as may be
fixed in the Certificate of Incorporation or in the resolution or resolutions
adopted by the Board of Directors providing for the issuance of such stock, and
each stockholder of record of Common Stock shall be entitled at each meeting of
stockholders to one (1) vote for each share of stock registered in such
stockholder's name on the books of the Corporation:
(1) on the date fixed pursuant to Section 6 of Article VI of
these By-laws as the record date for the determination of stockholders
entitled to notice of and to vote at such meeting; or
(2) if no such record date shall have been so fixed, then at
the close of business on the day next preceding the day on which notice
of such meeting is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is
held, or if no record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting shall
have been fixed, the day on which the first written consent is
expressed.
Each stockholder entitled to vote at any meeting of
stockholders may authorize not in excess of three persons to act for such
stockholder by a proxy signed by such stockholder or such stockholder's
attorney-in-fact. Any such proxy shall be delivered to the secretary of such
meeting at or prior to the time designated for holding such meeting, but in any
event not later than the time designated in the order of business for so
delivering such proxies. No such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period.
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Unless a greater vote is required by the Certificate of
Incorporation, by-law or by these By-Laws, at each meeting of the stockholders,
all corporate actions to be taken by vote of the stockholders shall be
authorized by a majority of the votes cast by the stockholders entitled to vote
thereon, present in person or represented by proxy, and where a separate vote by
class is required, a majority of the votes cast by the stockholders of such
class, present in person or represented by proxy, shall be the act of such
class.
Unless required by law or determined by the chairman of the
meeting to be advisable, the vote on any matter, including the election of
directors, need not be by written ballot. In the case of a vote by written
ballot, each ballot shall be signed by the stockholder voting, or by such
stockholder's proxy, and shall state the number of shares voted.
Section 10. Written Consent of Stockholders. Any action
required or permitted to be taken at any annual or special meeting of the
stockholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if the consent or consents in writing, setting forth
the action so taken, are signed by the holders of the outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted and must be delivered to the Corporation by delivery to
its registered office in the State of Delaware, its principal place of business,
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded.
Every written consent must bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required in this Section to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded.
Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent must be given to those
stockholders who have not consented in writing and who, if the action had been
taken at a meeting, would have been entitled to notice of the meeting if the
record date for such meeting had been the date that written consents signed by a
sufficient number of holders to take the action were delivered to the
Corporation as provided in this Section.
Section 11. Inspectors. Either the Board of Directors or, in
the absence of designation of inspectors by the Board, the chairman of any
meeting of stockholders shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at any meeting of stockholders and make a
written report thereof. Such inspectors shall perform such duties as shall be
specified by the Board or the chairman of the meeting and as required by the
General Corporation Law of Delaware. Inspectors need not be stockholders. No
director or nominee for the office of director shall be appointed such
inspector.
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Article III
Board of Directors
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, which may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by law or by the Certificate of Incorporation
of the Corporation directed or required to be exercised or done by the
stockholders.
Section 2. Number, Qualification and Election. Except as
otherwise fixed by or pursuant to the provisions of the Certificate of
Incorporation of the Corporation relating to the rights of the holders of any
class or series of stock having preference over the Common Stock as to dividends
or upon liquidation, the number of directors of the Corporation shall be
determined from time to time by vote of a majority of the entire Board of
Directors, provided that the number thereof may not be less than three nor more
than twelve.
In the event the number of directors of the Corporation
exceeds five (5) members and upon the affirmative vote by a majority of the
entire Board of Directors, the directors, other than those who may be elected by
the holders of shares of any class or series of stock having a preference over
the Common Stock of the Corporation as to dividends or upon liquidation pursuant
to the terms of the Certificate of Incorporation or any resolution or
resolutions providing for the issuance of such stock adopted by the Board, shall
be classified, with respect to the time for which they severally hold office,
into three classes as nearly equal in number as possible: one class whose term
expires at the next annual meeting of stockholders immediately following such
classification, another class whose term expires one year thereafter and another
class whose term expires two years thereafter, with each class to hold office
until its successors are elected and qualified. If the number of directors is
thereafter changed by the Board of Directors, any newly created directorships or
any decrease in directorships shall be so apportioned among the classes as to
make all classes as nearly equal as possible; provided, however, that no
decrease in the number of directors shall shorten the term of any incumbent
director. At each annual meeting of the stockholders of the Corporation, subject
to the rights of the holders of any class or series of stock having a preference
over the Common Stock of the Corporation as to dividends or upon liquidation,
the successors of the class of directors whose term expires at that meeting
shall be elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
Directors need not be stockholders of the Corporation.
In any election of directors, the persons receiving a
plurality of the votes cast, up to the number of directors to be elected in such
election, shall be deemed elected.
Section 3. Notification of Nominations. Subject to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon
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liquidation, nominations for the election of directors may be made by the Board
of Directors or by any stockholder entitled to vote for the election of
directors, but in the case of a nomination by a stockholder, only if such
stockholder gives timely notice thereof in proper written form to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 30 days nor more than 60 days prior to the meeting; provided, however,
that in the event that less than 40 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. To be in proper
written form, such stockholder's notice shall set forth in writing (i) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required under the Securities Exchange Act of 1934, as amended, including,
without limitation, such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected; and (ii) as to
the stockholder giving the notice (x) the name and address, as they appear on
the Corporation's books, of such stockholder and (y) the class and number of
shares of stock of the Corporation which are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the Corporation the information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. In the event that a
stockholder seeks to nominate one or more directors, the Secretary shall appoint
two inspectors, who shall not be affiliated with the Corporation, to determine
whether a stockholder has complied with this Section 3. If the inspectors shall
determine that a stockholder has not complied with this Section 3, the
inspectors shall direct the chairman of the meeting to declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the By-laws of the Corporation, and the chairman shall so declare to the meeting
and the defective nomination shall be disregarded.
Section 4. Quorum and Manner of Acting. Except as otherwise
provided by these By-laws, a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business at any meeting of the Board,
and, except as so provided, the vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum, a majority of the directors present may adjourn the meeting
to another time and place. At any adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally called.
Section 5. Place of Meeting. The Board of Directors may hold
its meetings at such place or places within or without the State of Delaware as
the Board may from time to time determine or as shall be specified or fixed in
the respective notices or waivers of notice thereof.
Section 6. Regular Meetings. Regular meetings of the Board
of Directors shall be held at such times and places as the Board shall from time
to time by resolution determine. If any day fixed for a regular meeting shall
be a legal holiday under the laws of the place where the
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meeting is to be held, the meeting which would otherwise be held on that day
shall be held at the same hour on the next succeeding business day.
Section 7. Special Meetings. Special meetings of the Board
of Directors shall be held whenever called by the Chairman of the Board or by a
majority of the directors.
Section 8. Notice of Meetings. Notice of regular meetings of
the Board of Directors or of any adjourned meeting thereof need not be given.
Notice of each special meeting of the Board shall be mailed to each director,
addressed to such director at such director's residence or usual place of
business, at least two days before the day on which the meeting is to be held or
shall be sent to such director at such place by telegraph or be given personally
or by telephone, not later than the day before the meeting is to be held, but
notice need not be given to any director who shall, either before or after the
meeting, submit a signed waiver of such notice or who shall attend such meeting
without protesting, prior to or at its commencement, the lack of notice to such
director. Every such notice shall state the time and place but need not state
the purpose of the meeting.
Section 9. Rules and Regulations. The Board of Directors may
adopt such rules and regulations not inconsistent with the provisions of these
By-laws for the conduct of its meetings and management of the affairs of the
Corporation as the Board may deem necessary or proper. In the absence of the
Chairman of the Board, such person designated by the Board of Directors shall
preside at meetings of the Board.
Section 10. Participation in Meeting by Means of
Communications Equipment. Any one or more members of the Board of Directors or
any committee thereof may participate in any meeting of the Board or of any such
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 such participation in a meeting shall constitute presence in person at such
meeting.
Section 11. Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting if all of the members of the Board or of
any such committee consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the Board or of such committee.
Section 12. Resignations. Any director of the Corporation may
at any time resign by giving written notice to the Board of Directors, the
Chairman of the Board, the President or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein or, if the time be
not specified, upon receipt thereof; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Section 13. Removal of Directors. Directors may be removed
only as provided in the Certificate of Incorporation of the Corporation.
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Section 14. Vacancies. Subject to the rights of the holders of
any class or series of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation, any vacancies on the Board of
Directors resulting from death, resignation, removal or other cause shall only
be filled by the affirmative vote of a majority of the remaining directors then
in office, even though less than a quorum of the Board of Directors, or by a
sole remaining director, and newly created directorships resulting from any
increase in the number of directors shall be filled by the Board, or if not so
filled, by the stockholders at the next annual meeting thereof or at a special
meeting called for that purpose in accordance with Section 3 of Article II of
these By-laws. Any director elected in accordance with the preceding sentence of
this Section 14 shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been elected and
qualified.
Section 15. Compensation. Each director who shall not at the
time also be an officer or employee of the Corporation or any of its
subsidiaries (hereinafter referred to as an "outside director"), in
consideration of such person serving as a director, shall be entitled to receive
from the Corporation such amount per annum and such fees for attendance at
meetings of the Board of Directors or of committees of the Board, or both, as
the Board shall from time to time determine. In addition, each director, whether
or not an outside director, shall be entitled to receive from the Corporation
reimbursement for the reasonable expenses incurred by such person in connection
with the performance of such person's duties as a director. Nothing contained in
this Section shall preclude any director from serving the Corporation or any of
its subsidiaries in any other capacity and receiving proper compensation
therefor.
Section 16. Committees. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall the power or authority in reference to the following matter: (i)
approving or adopting, or recommending to the stockholders, any action or matter
expressly required by the General Corporation Law of Delaware to be submitted to
stockholders for approval or (ii) adopting, amending or repealing any bylaw of
the Corporation.
A majority of all the members of such committee may determine
its action and fix the time and place of its meetings, unless the Board shall
otherwise provide. The Board shall have power at any time to change the
membership of, to fill all vacancies in and to discharge any such committee,
either with or without cause.
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Article IV
Officers
Section 1. Number; Term of Office. The officers of the
Corporation shall be a Chairman of the Board, a Chief Executive Officer, a
President, a Chief Financial Officer, a Secretary, a Treasurer, and such other
officers or agents with such titles and such duties as the Board of Directors
may from time to time determine, each to have such authority, functions or
duties as in these By-laws provided or as the Board may from time to time
determine, and each to hold office for such term as may be prescribed by the
Board and until such person's successor shall have been chosen and shall
qualify, or until such person's death or resignation, or until such person's
removal in the manner hereinafter provided. The Chairman of the Board shall be
elected from among the directors. One person may hold the offices and perform
the duties of any two or more of said officers; provided, however, that no
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law, the Certificate of Incorporation
of the Corporation or these By-laws to be executed, acknowledged or verified by
two or more officers. The Board may from time to time authorize any officer to
appoint and remove any such other officers and agents and to prescribe their
powers and duties. The Board may require any officer or agent to give security
for the faithful performance of such person's duties.
Section 2. Removal. Any officer may be removed, either with or
without cause, by the Board of Directors at any meeting thereof called for the
purpose, or, except in the case of any officer elected by the Board, by any
committee or superior officer upon whom such power may be conferred by the
Board.
Section 3. Resignation. Any officer may resign at any time by
giving notice to the Board of Directors, the Chairman of the Board, the
President or the Secretary of the Corporation. Any such resignation shall take
effect at the date of receipt of such notice or at any later date specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 4. Vacancies. A vacancy in any office because of
death, resignation, removal or any other cause may be filled for the unexpired
portion of the term in the manner prescribed in these By-laws for election to
such office.
Section 5. Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the Board of Directors and, if present, preside
at meetings of the stockholders. The Chairman of the Board shall, subject to the
control of the Board of Directors, have such supervision, direction and control
of the business and other officers of the Corporation as the Board of Directors
may delegate to such officer from time to time. Absent such specific delegation,
and unless provided otherwise by resolution of the Board of Directors, the
Chairman
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of the Board shall not be an officer of the Corporation with the power to bind
the Corporation in dealings with third parties.
Section 6. Chief Executive Officer. The Chief Executive
Officer shall, subject to the control of the Board of Directors, have such
supervision, direction and control of the business and officers of the
Corporation as the Board of Directors may delegate to such officer from time to
time. In the absence of the Chairman of the Board, the Chief Executive Officer
shall preside at all meetings of the shareholders. The Chief Executive Officer
shall also have such duties and authority as may be granted to such officer by
the Board of Directors or as may be delegated to such officer by the Chairman of
the Board.
Section 7. President. The President shall, subject to the
supervision and direction of the Chief Executive Officer, have the duties and
authority of a chief operating officer, and shall supervise and direct the
day-to-day operations of the Corporation. The President shall also have such
duties and authority as may be granted to such officer by the Board of Directors
or as may be delegated to such officer by the Chief Executive Officer.
Section 8. Chief Financial Officer. The Chief Financial
Officer shall keep and maintain, or cause to be kept and maintained, adequate
and correct accounts of the properties and business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, surplus and shares. The Chief Financial
Officer shall render to the Chief Executive Officer or the Board of Directors,
whenever such officer or Board so requests, an account of the financial
condition of the Corporation.
Section 9. Vice-Presidents. Each Vice-President shall have
such powers and duties as shall be prescribed by the Chief Executive Officer,
the President or the Board of Directors.
Section 10. Treasurer. The Treasurer shall perform all duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to the Treasurer by the Chief Executive Officer or the Board of
Directors.
Section 11. Secretary. The Secretary shall see that all
notices required to be given by the Corporation are duly given and served; the
Secretary shall be custodian of the seal of the Corporation and shall affix the
seal or cause it to be affixed to all certificates of stock of the Corporation
(unless the seal of the Corporation on such certificates shall be a facsimile,
as hereinafter provided) and to all documents, the execution of which on behalf
of the Corporation under its seal is duly authorized in accordance with the
provisions of these By-laws. The Secretary shall have charge of the stock ledger
and also of the other books, records and papers of the Corporation and shall see
that the reports, statements and other documents required by law are properly
kept and filed; and shall in general perform all the duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to such person by the Chief Executive Officer or the Board of Directors.
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Section 12. Assistant Treasurers or Secretaries. The Assistant
Treasurers and the Assistant Secretaries, if any, shall perform such duties as
shall be assigned to them by the Treasurer or Secretary, or by the Chief
Executive Officer or the Board of Directors.
Article V
Indemnification of Directors, Officers,
Employees and Agents
Section 1. Indemnification. To the fullest extent permitted by
the laws of the State of Delaware, the Corporation shall indemnify any person
who is or was a party, or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, including appeals.
To the fullest extent permitted by the laws of the State of
Delaware, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by the person in connection with the
defense or settlement of such action, suit or proceeding, including appeals.
Section 2. Advance of Expenses. To the fullest extent
permitted by the laws of the State of Delaware, the Corporation shall pay
expenses incurred in defending a civil or criminal action, suit or proceeding
described in Section 1 of this Article V in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation.
Section 3. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of
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such person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the provisions of
this Article V.
Section 4. Applicability. The provisions of this Article V
shall be applicable to all actions, claims, suits or proceedings made or
commenced after the adoption hereof, whether arising from acts or omissions to
act occurring before or after its adoption. The provisions of this Article V
shall be deemed to be a contract between the Corporation and each director,
officer, employee or agent who serves in such capacity at any time while this
Article V and the relevant provisions of the laws of the State of Delaware and
other applicable law, if any, are in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts or any action, suit or proceeding then or theretofore
existing, or any action, suit or proceeding thereafter brought or threatened
based in whole or in part on any such state of facts. If any provision of this
Article V shall be found to be invalid or limited in application by reason of
any law or regulation, it shall not affect the validity of the remaining
provisions hereof. The rights of indemnification provided in this Article V
shall neither be exclusive of, nor be deemed in limitation of, any rights to
which any such officer, director, employee or agent may otherwise be entitled or
permitted by contract, the Certificate of Incorporation, vote of stockholders or
directors or otherwise, or as a matter of law, both as to actions in his
official capacity and actions in any other capacity while holding such office,
it being the policy of the Corporation that indemnification of the specified
individuals shall be made to the fullest extent permitted by law.
Section 5. Certain Definitions. For purposes of this Article
V, references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; references to "serving at the request of
the Corporation" shall include any service as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries.
Article VI
Capital Stock
Section 1. Certificates for Shares. Certificates representing
shares of stock of each class of the Corporation, whenever authorized by the
Board of Directors, shall be in such form as shall be approved by the Board. The
certificates representing shares of stock of each class shall be signed by, or
in the name of, the Corporation by the Chairman of the Board, the Chief
Executive Officer, the President or a Vice-President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation, and sealed with the seal of the Corporation, which may be a
facsimile thereof. Any or all such signatures may be facsimiles if countersigned
by a transfer agent or registrar. Although any officer, transfer agent or
registrar whose manual or facsimile signature is affixed to such a certificate
ceases to be such officer, transfer agent or registrar before such certificate
has been issued, it may nevertheless be
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issued by the Corporation with the same effect as if such officer, transfer
agent or registrar were still such at the date of its issue.
If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations, or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preference and/or rights.
The Stock ledger and blank share certificates shall be kept by
the Secretary or by a transfer agent or by a registrar or by any other officer
or agent designated by the Board.
Section 2. Transfer of Shares. Transfers of shares of stock of
each class of the Corporation shall be made only on the books of the Corporation
by the holder thereof, or by such holder's attorney thereunto authorized by a
power of attorney duly executed and filed with the Secretary of the Corporation
or a transfer agent for such stock, if any, and on surrender of the certificate
or certificates for such shares properly endorsed or accompanied by a duly
executed stock transfer power and the payment of all taxes thereon. The person
in whose name shares stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation; provided, however,
that whenever any transfer of shares shall be made for collateral security and
not absolutely, and written notice thereof shall be given to the Secretary or to
such transfer agent, such fact shall be stated in the entry of the transfer. No
transfer of shares shall be valid as against the Corporation, its stockholders
and creditors for any purpose, except to render the transferee liable for the
debts of the Corporation to the extent provided by law, until it shall have been
entered in the stock records of the Corporation by an entry showing from and to
whom transferred.
Section 3. Addresses of Stockholders. Each stockholder shall
designate to the Secretary or transfer agent of the Corporation an address at
which notices of meetings and all other corporate notices may be served or
mailed to such person, and, if any stockholder shall fail to designate such
address, corporate notices may be served upon such person by mail directed to
such person at such person's post office address, if any, as the same appears on
the share record books of the Corporation or at such person's last known post
office address.
Section 4. Lost, Destroyed and Mutilated Certificates. The
holder of any share of stock of the Corporation shall immediately notify the
Corporation of any loss, theft, destruction or mutilation of the certificate
therefor; the Corporation may issue to such holder a new
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certificate or certificates for shares, upon the surrender of the mutilated
certificate or, in the case of loss, theft or destruction of the certificate,
upon satisfactory proof of such loss, theft or destruction; the Board of
Directors, or a committee designated thereby, or the transfer agents and
registrars for the stock, may, in their discretion, require the owner of the
lost, stolen or destroyed certificate, or such person's legal representative, to
give the Corporation a bond in such sum and with such surety or sureties as they
may direct to indemnify the Corporation and said transfer agents and registrars
against any claim that may be made on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 5. Regulations. The Board of Directors may make such
additional rules and regulations as it may deem expedient concerning the issue
and transfer of certificates representing shares of stock of each class of the
Corporation and may make such rules and take such action as it may deem
expedient concerning the issue of certificates in lieu of certificates claimed
to have been lost, destroyed, stolen or mutilated.
Section 6. Fixing Date for Determination of Stockholders of
Record. In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment or any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. A determination of stockholders
entitled to notice of or to vote at a meeting of the stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
Article VII
Seal
The Board of Directors shall provide a corporate seal, which
shall be in the form of a circle and shall bear the full name of the
Corporation, the state and year of incorporation, the words "Corporate Seal" and
such other words or figures as the Board of Directors may approve and adopt. The
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.
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Article VIII
Fiscal Year
The fiscal year of the Corporation shall be determined by
resolution of the Board of Directors. In the absence of such a resolution, the
fiscal year of the Corporation shall end on December 31st of each year.
Article IX
Waiver of Notice
Whenever any notice whatsoever is required to be given by
these By-laws, by the Certificate of Incorporation of the Corporation or by law,
the person entitled thereto may, either before or after the meeting or other
matter in respect of which such notice is to be given, waive such notice in
writing, which writing shall be filed with or entered upon the records of the
meeting or the records kept with respect to such other matter, as the case may
be, and in such event such notice need not be given to such person and such
waiver shall be deemed equivalent to such notice.
Article X
Amendments
Pursuant to Article V of the Certificate of Incorporation of
the Corporation, any By-law (other than this Article X) may be adopted,
repealed, altered or amended by a majority of the entire Board of Directors at
any meeting thereof, provided that such proposed action in respect thereof shall
be stated in the notice of such meeting. The stockholders of the Corporation
shall have the power to amend, alter or repeal any provision of these By-laws to
the extent and in the manner as provided by the Certificate of Incorporation of
the Corporation.
Article XI
Miscellaneous
Section 1. Execution of Documents. The Board of Directors or
any committee thereof shall designate the officers, employees and agents of the
Corporation who shall have power to execute and deliver deeds, contracts,
mortgages, bonds, debentures, notes, checks, drafts and other orders for the
payment of money and other documents for and in the name of the Corporation and
may authorize such officers, employees and agents to delegate such power
(including authority to redelegate) by written instrument to other officers,
employees or agents of
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the Corporation. Such delegation may be by resolution or otherwise and the
authority granted shall be general or confined to specific matters, all as the
Board of Directors or any such committee may determine. In the absence of such
designation referred to in the first sentence of this Section, the officers of
the Corporation shall have such power so referred to, to the extent incident to
the normal performance of their duties.
Section 2. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation or otherwise as the Board of Directors or any committee thereof or
any officer of the Corporation to whom power in that respect shall have been
delegated by the Board of Directors or any such committee shall select.
Section 3. Checks. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation, and all notes or other
evidences of indebtedness of the Corporation, shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by
resolution of the Board of Directors or of any committee thereof.
Section 4. Proxies in Respect of Stock or Other Securities of
Other Corporations. The Board of Directors or any committee thereof shall
designate the officers of the Corporation who shall have authority from time to
time to appoint an agent or agents of the Corporation to exercise in the name
and on behalf of the Corporation the powers and rights which the Corporation may
have as the holder of stock or other securities in any other corporation, and to
vote or consent in respect of such stock or securities; such designated officers
may instruct the person or persons so appointed as to the manner of exercising
such powers and rights; and such designated officers may execute or cause to be
executed in the name and on behalf of the Corporation and under its corporate
seal, or otherwise, such written proxies, powers of attorney or other
instruments as they may deem necessary or proper in order that the Corporation
may exercise its said powers and rights.
Section 5. By-laws Subject to Law and Certificate of
Incorporation of the Corporation. Each provision of these By-laws is subject to
any contrary provision of the Certificate of Incorporation of the Corporation or
of any applicable law as from time to time in effect, and to the extent any such
provision is inconsistent therewith, such provision shall be superseded thereby
for as long as it is inconsistent, but for all other purposes of these By-laws
shall continue in full force and effect.
Section 6. Definition of Certificate of Incorporation. The
term "Certificate of Incorporation" as used in these By-laws means the
Certificate of Incorporation of the Corporation as from time to time in effect.
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Exhibit 10.1
SHOWPOWER, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose. The purpose of the Plan is to promote the
long-term interests of the Company and its stockholders by providing a means for
attracting and retaining Employees and Directors who provide services to the
Company and its Affiliates.
2. Definitions. The following definitions are applicable to
the Plan:
"Affiliate" means any "parent corporation" or "subsidiary
corporation" of the Company as such terms are defined in Code Sections 424(e)
and (f), respectively.
"Award" means the grant by the Committee of Incentive Stock
Options, Nonqualified Stock Options, Performance Shares or any combination of
the foregoing, pursuant to the terms of the Plan.
"Award Agreement" means the written agreement setting forth
the terms and provisions applicable to an Award granted under the Plan.
"Board" means the Board of Directors of the Company.
"Cause" means, in connection with a Participant's Termination
of Service, theft or embezzlement from the Company or any Affiliate, violation
of a material term or condition of employment, disclosure of confidential
information of the Company or any Affiliate, conviction of the Participant of a
crime of moral turpitude, stealing of trade secrets or intellectual property
owned by the Company or any Affiliate, any act by the Participant in competition
with the Company or any Affiliate, or any other act, activity or conduct of a
Participant which in the opinion of the Board is adverse to the best interests
of the Company or any Affiliate.
"Change in Control" means any one of the following events:
(a) any third person, including a "group" as defined in Section 13(d)(3) of the
Exchange Act after the date of the adoption of the Plan by the Board, first
becomes the beneficial owner of shares of capital stock of the Company with
respect to which 25% or more of the total number of votes for the election of
the Board of Directors of the Company may be cast, (b) as a result of, or in
connection with, any cash tender offer, exchange offer, merger or other business
combination, sale of assets or contested election, or combination of the
foregoing, the persons who were Directors of the Company shall cease to
constitute a majority of the Board of the Company or (c) the stockholders of the
Company shall approve an agreement providing either for a transaction in which
the Company will cease to be an independent publicly owned entity or for a sale
or other disposition of all or substantially all the assets of the Company;
provided, however, that the occurrence of any of the foregoing events shall not
be deemed a Change in Control if, prior to
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occurrence, a resolution specifically approving the occurrence shall have been
adopted by at least a majority of the Board.
"Change in Domicile" means a Reorganization of the Company
which is primarily for the purpose of changing the state of organization of the
Company from California to another jurisdiction of the United States of America.
"Code" means the Internal Revenue Code of 1986, as amended,
and interpretive rules and regulations thereunder.
"Committee" means the Committee appointed by the Board to
administer the Plan.
"Company" means Showpower, Inc., a California corporation.
"Date of Grant" means the date on which an Award is granted,
as determined by the Committee; provided, however, that in the absence of a
Committee determination, the date on which the Committee adopts a resolution
granting the Award.
"Director" means any individual who is a member of the Board
regardless of whether the Director is an Employee of the Company or any
Affiliate.
"Disability" means total and permanent disability as
determined by the Committee pursuant to Code Section 22(e)(3).
"Employee" means any person employed by the Company or an
Affiliate, or expected to be employed by the Company or Affiliate, provided the
individual becomes actually so employed.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exercise Price" means the price per Share at which the
Shares subject to an Option may be purchased upon exercise of the Option.
"Incentive Stock Option" means an Option to purchase Shares
which is intended to qualify under Code Section 422.
"Market Value" means the last reported sale price on the date
in question (or, if there is no reported sale on such date, the last preceding
date on which any reported sale occurred) of one Share on the principal exchange
or the Nasdaq National Market on which the Shares are then listed for trading,
as the case may be, or if the Shares are not listed for trading on any exchange
or on the Nasdaq National Market or any similar system then in use, the mean
between the closing high bid and low asked quotations of one Share on the date
in question as
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reported by Nasdaq or any similar quotation system then in use, or, if no such
quotations are available, the fair market value on such date of one Share as the
Committee shall determine.
"Nonqualified Stock Option" means an Option to purchase
Shares which is not intended to qualify under Code Section 422.
"Option" means an Incentive Stock Option or a Nonqualified
Stock Option.
"Participant" means an individual selected by the Committee
to receive an Award.
"Performance Cycle" means the period of time, designated by
the Committee, over which Performance Shares may be earned.
"Performance Shares" means Shares awarded to a Participant
pursuant to Section 11 of the Plan.
"Plan" means the Showpower, Inc., 1998 Stock Option and
Incentive Plan.
"Reorganization" means the liquidation or dissolution of the
Company or any merger, consolidation or combination of the Company (other than a
merger, consolidation or combination in which the Company is the continuing
entity and which does not result in the outstanding Shares being converted into
or exchanged for different securities, cash or other property or any combination
thereof).
"Retirement" means, with respect to an Employee, Termination
of Service with the Company or any Affiliate in accordance with the Company's
retirement policy as then in effect.
"Securities Act" means the Securities Act of 1933, as
amended.
"Shares" means the shares of common stock, without par value,
of the Company.
"Termination of Service" means, in the case of an Employee,
the termination of the employment relationship between the Employee and the
Company and all Affiliates; and in the case of an individual that is not an
Employee, the termination of the service relationship between the individual and
the Company and all Affiliates.
3. Administration. The Plan shall be administered by a
Committee, which shall consist of two or more members of the Board. The members
of the Committee shall be appointed by the Board. A majority of the Committee
shall constitute a quorum, and the acts of a majority of the members present at
any meeting at which a quorum is present, or acts approved in writing by all
members of the Committee without a meeting, shall be acts of the Committee.
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Except as expressly limited by the Plan, the Committee shall
have all powers and discretion necessary or appropriate to administer the Plan
and control its operation, including, but not limited to, the power to (a)
select Participants, grant Awards and provide the terms and conditions of all
Awards (which need not be identical among Participants); (b) interpret the Plan
and Awards; and, (c) adopt rules and procedures for the administration,
interpretation and operation of the Plan. All determinations and decisions made
by the Committee pursuant to the provisions of the Plan shall be final,
conclusive, and binding on all persons, and shall be given the maximum deference
permitted by law.
4. Participants. The Committee, in its sole discretion, may
select from time to time Participants in the Plan from those Employees and
Directors who, in the opinion of the Committee, have the capacity for
contributing in a substantial measure to the successful performance of the
Company or its Affiliates; provided, however, Incentive Stock Options may be
granted only to Employees of the Company or its Affiliates.
5. Substitute Options. In the event the Company or an
Affiliate consummates a transaction described in Code Section 424(a), persons
who become Employees or Directors on account of such transaction may be granted
Options in substitution for Options granted by the former employer. The
Committee, in its sole discretion and consistent with Code Section 424(a) shall
determine the Exercise Price of the substitute Options.
6. Award Agreement. Each Award shall be evidenced by an Award
Agreement containing the terms and the conditions of the Award, as determined by
the Committee, in its sole discretion. With respect to Awards of Options, in
addition to any other terms and conditions the Committee establishes, the Award
Agreement shall specify the Exercise Price, the time or times at which an Option
will vest or become exercisable, the term of the Option, the number of Shares to
which the Option pertains, any conditions to exercise of the Option, and whether
the Option is intended to be an Incentive Stock Option or a Nonqualified Stock
Option.
7. Shares Subject to Plan, Limitations on Grants and Exercise
Price. Subject to adjustment by the operation of Section 12 of the Plan:
(a) The maximum number of Shares which may be issued
under Awards under the Plan shall not exceed 750 Shares. The
Shares may be either authorized and unissued Shares or Shares
acquired by the Company and held as treasury Shares. Shares
that are withheld to satisfy payment of the Exercise Price or
any tax withholding obligation and any Shares subject to an
Award which expires, terminates or is surrendered for
cancellation may be subject to new Awards under the Plan.
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(b) The number of Shares which may be issued
hereunder to any Employee during any calendar year under all
forms of Awards shall not exceed 187.5 Shares.
(c) The Exercise Price for Shares awarded under
Incentive Stock Options may not be less than the Market Value
of the Shares on the Date of Grant; provided, however, the
Exercise Price may not be less than 110% of Market Value with
respect to Incentive Stock Options granted to any Employee
who, together with persons whose stock ownership is
attributed to the Employee pursuant to Code Section 424(d),
owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of
its Affiliates. The Exercise Price for Shares awarded under
Nonqualified Stock Options may not be less than 85% of the
Market Value of the Shares on the Date of Grant.
8. Termination of Options. Unless otherwise provided in the
Award Agreement, Options shall expire on, and may not be exercised after, the
earliest to occur of the following events:
(a) the tenth anniversary of the Date of Grant;
(b) three (3) months after a Participant's
Termination of Service by reason of Retirement;
(c) one (1) year after a Participant's Termination
of Service by reason of Disability or a Participant's death;
(d) three (3) months after Termination of Service
for reason other than Cause; and
(e) the date of involuntary Termination of Service
for Cause.
9. Method of Exercise of Options. To exercise an Option under
the Plan, the Participant must give written notice to the Company (which shall
specify the number of Shares with respect to which the Participant elects to
exercise the Option) together with full payment of the Exercise Price. The date
of exercise shall be the date on which the notice and payment are received by
the Company. Payment of the Exercise Price shall be made in cash (including
check, bank draft or money order), except that the Committee, in its sole
discretion, may permit a Participant to pay the Exercise Price as follows:
(a) by delivering previously-owned Shares acceptable to
the Committee and having a Market Value on the date
of exercise equal to the Exercise Price;
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(b) by requesting that the Company withhold Shares
issuable upon exercise of the Option having a Market
Value equal to the Exercise Price; or
(c) by any other means which the Committee, in its sole
discretion, determines to be consistent with the
purposes of the Plan.
10. Incentive Stock Options - Additional Provisions. Any
provisions of the Plan to the contrary notwithstanding, Incentive Stock Options
shall be subject to the following:
(a) The aggregate Market Value (determined on the
Date of Grant) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by any
Employee during any calendar year (under all plans of the
Company and its Affiliates) shall not exceed $100,000.
(b) No Incentive Stock Option may be exercised more
than three (3) months after the Participant's Termination of
Service for any reason other than Disability or death, unless
(a) the Participant dies during such three-month period, and
(b) the Award Agreement or the Committee permits later
exercise.
(c) No Incentive Stock Option may be exercised after
the expiration of ten (10) years from the Date of Grant;
provided, however, that if the Option is granted to an
Employee who, together with persons whose stock ownership is
attributed to the Employee pursuant to Code section 424(d),
owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of
its Affiliates, the Option may not be exercised after the
expiration of five (5) years from the Date of Grant.
Unless otherwise provided by the Committee in the Award Agreement, to the extent
that an Option does not qualify as an Incentive Stock Option, because of its
provisions, the time and manner of its exercise or otherwise, the Option or
portion thereof which does not so qualify, shall constitute a separate
Nonqualified Stock Option.
11. Performance Shares. The Committee, in its sole
discretion, may from time to time authorize the grant of Performance Shares upon
the achievement of performance goals (which may be cumulative and/or
alternative) as may be established, in writing, by the Committee based on any
one or any combination of the following business criteria: (a) earnings per
Share; (b) return on equity; (c) return on assets; (d) operating income; or (e)
Market Value per Share. At the time as it is certified, in writing, by the
Committee that the performance goals established by the Committee have been
attained or otherwise satisfied within the Performance Cycle, the Committee
shall authorize the payment of cash in lieu of Performance Shares or the
issuance of Performance Shares registered in the name of the Participant, or a
combination of cash and Shares. The grant of an Award of Performance Shares
shall be evidenced by an Award Agreement containing the terms and conditions of
the Award as determined by the Committee. To the extent required under Code
Section 162(m), the business criteria under which
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performance goals are determined by the Committee shall be resubmitted to
stockholders for reapproval no later than the first stockholder meeting that
occurs in the fifth year following the year in which stockholders previously
approved the Plan.
In the case of a Participant's Termination of Service before
the end of a Performance Cycle for any reason other than Retirement, Disability,
or death, the Participant shall forfeit all rights with respect to any
Performance Shares that were being earned during the Performance Cycle. The
Committee, in its sole discretion, may establish guidelines providing that if a
Participant incurs a Termination of Service before the end of a Performance
Cycle by reason of Retirement, Disability, or death, the Participant shall be
entitled to a prorated payment with respect to any Performance Shares that were
being earned during the Performance Cycle.
12. Adjustments Upon Changes in Capitalization. In the event
of any change in the outstanding Shares subsequent to the effective date of the
Plan by reason of any reorganization, recapitalization, stock split, stock
dividend, combination or exchange of shares, merger, consolidation or any change
in the corporate structure or Shares of the Company, the maximum aggregate
number and class of shares as to which Awards may be granted under the Plan and
the number and class of shares and Exercise Price of Options with respect to
Awards previously granted under the Plan may be adjusted by the Committee, in
its sole discretion, and the Committee's determination shall be conclusive.
13. Effect of Reorganization. Except as otherwise
specifically provided in the Award Agreement, Awards will be affected by a
Reorganization as follows:
(a) If the Reorganization is a dissolution or
liquidation of the Company, then each outstanding Option
shall terminate, but each Participant to whom the Option was
granted shall have the right, immediately prior to such
dissolution or liquidation to exercise his Option in full,
notwithstanding the provisions of Section 10, and the Company
shall notify each Participant of the Participant's right
within a reasonable period of time prior to any dissolution
or liquidation.
(b) If the Reorganization is a merger or
consolidation, other than a Change in Domicile or a Change in
Control subject to Section 14 of this Plan, upon the
effective date of the Reorganization, each Optionee shall be
entitled, upon exercise of his Option in accordance with all
of the terms and conditions of the Plan, to receive in lieu
of Shares, shares of stock or other securities or
consideration as the holders of Shares shall be entitled to
receive pursuant to the terms of the Reorganization.
(c) If the Reorganization is a Change of Domicile,
then this Plan and each outstanding option shall be assumed
by and
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become the liabilities of the entity succeeding to the
Company in such Change of Domicile. Any stock split or
recapitalization effected as part of or in connection with
such Change of Domicile shall be treated as a change in
capitalization of the Company under Section 12.
The adjustments contained in this Section and the manner of
application of its provisions shall be determined solely by the Committee.
14. Effect of Change of Control. If a Participant incurs an
involuntary Termination of Service for any reason other than Cause at any time
within twelve months after a Change in Control, unless the Committee shall have
otherwise provided in the Award Agreement, the Participant shall be entitled to
receive a prorata payment with respect to Performance Shares to the same extent
as the Participant's Termination of Service for reason of Retirement under
Section 11 of the Plan. If a tender offer or exchange offer for Shares (other
than such an offer by the Company) is commenced, or if the event specified in
clause (c) of the definition of a Change in Control contained in Section 2 shall
occur, unless the Committee shall have otherwise provided in the Award
Agreement, all Options theretofore granted and not fully exercisable shall
become exercisable in full upon the happening of the event and shall remain
exercisable in accordance with their terms; provided, however, that no Option
shall be exercisable by a Director or officer of the Company within six months
of the Date of Grant of such Option and no Option which has previously been
terminated shall become exercisable.
15. Assignments and Transfers. Except as expressly authorized
by the Committee in the Award Agreement, Awards may not be assigned, encumbered
or transferred otherwise than by will or the laws of descent and distribution,
and during the Participant's lifetime, may be exercisable only by the
Participant.
16. Participant Rights Limited. No Employee, Director or
other person shall have a right to be selected as a Participant nor, having been
so selected, to be selected again as a Participant, and no Employee, Director or
other person shall have any claim or right to be granted an Award under the Plan
or under any other incentive or similar plan of the Company or any Affiliate.
Neither the Plan nor any action taken pursuant to the Plan shall be construed as
giving any person any right to be retained in the employ or service of the
Company or any Affiliate.
17. Stockholder Rights. No Participant or other person shall
have any of the rights or privileges of a stockholder of the Company with
respect to any Shares issuable pursuant to an Award unless and until
certificates representing the Shares shall have been issued, recorded on the
records of the Company or its transfer agents or registrars, and delivered to
the Participant or other person entitled to the Shares.
18. Withholding Tax. Prior to the delivery of any Shares or
cash pursuant to an Award, the Company shall have the right and power to deduct
or withhold, or require the Participant to remit to the Company, an amount
sufficient to satisfy all applicable tax
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<PAGE>
withholding requirements. The Committee, in its sole discretion and pursuant to
such procedures as it may establish from time to time, may permit or require a
Participant to satisfy all or part of the tax withholding obligations in
connection with an Award by (a) having the Company withhold otherwise
deliverable Shares, or (b) delivering to the Company Shares already owned having
a Market Value equal to the amount required to be withheld. The amount of the
withholding requirement shall be deemed to include any amount which the
Committee determines, not to exceed the amount determined by using the maximum
federal, state or local marginal income tax rates applicable to the Participant
with respect to the Award on the date that the amount of tax to be withheld is
to be determined for these purposes. For these purposes, the value of the Shares
to be withheld or delivered shall be equal to the Market Value as of the date
that the taxes are required to be withheld.
19. Settlement of Awards. The Company's obligation to deliver
Shares with respect to an Award shall be subject to such conditions,
restrictions and contingencies as the Company may establish, including but not
limited to, the receipt of a representation as to the investment intention of
the person to whom Shares are to be delivered, in such form as the Company shall
determine to be necessary or advisable to comply with the provisions of the
Securities Act or any other applicable federal or state securities legislation.
It may be provided that any representation requirement shall become inoperative
upon a registration of the Shares or other action eliminating the necessity of a
representation under the Securities Act or other securities legislation. The
Company shall not be required to deliver any Shares under the Plan prior to (a)
the admission of the Shares to listing on any stock exchange or system on which
the Shares may then be listed, and (b) the completion of any registration or
other qualification of the Shares under any state or federal law, rule or
regulation, as the Company shall determine to be necessary or advisable.
20. Loans.
(a) The Company may make loans to a Participant in
connection with the exercise of Options subject to the
following terms and conditions and such other terms and
conditions not inconsistent with the Plan, including the rate
of interest, if any, as the Company shall impose from time to
time.
(b) No loan made under the Plan shall exceed (i)
with respect to Options, the sum of (A) the aggregate
Exercise Price option price payable upon exercise of the
Option in relation to which the loan is made, plus (B) the
amount of the reasonably estimated income taxes payable by
the Participant. In no event may any loan exceed the Market
Value of the related Shares at the time of the loan.
(c) No loan shall have an initial term exceeding
three years; provided, that loans under the Plan shall be
renewable at the discretion of the Company; provided,
further, that the indebtedness under each loan shall become
due and payable on a date no later than (i) one year after a
Participant's Termination of
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<PAGE>
Service by reason of death, Retirement or Disability; or (ii)
the day of the Participant's Termination of Service for any
reason other than death, Retirement or Disability.
(d) Loans under the Plan may be satisfied by the
Participant, as determined by the Company, in cash or, with
the consent of the Company, in whole or in part in Shares at
Market Value on the date of such payment.
(e) When a loan shall have been made, Shares having
an aggregate Market Value equal to the amount of the loan
may, in the discretion of the Company, be required to be
pledged by the Participant to the Company as security for
payment of the unpaid balance of the loan. Portions of such
Shares may, in the discretion of the Company, be released
from time to time as it deems not to be needed as security.
(f) Every loan shall meet all applicable laws,
regulations and rules of the Federal Reserve Board and any
other governmental agency having jurisdiction.
21. Termination, Amendment and Modification of Plan. The
Board may at any time terminate, and may at any time and from time to time and
in any respect amend or modify, the Plan; provided however, that to the extent
necessary and desirable to comply with Rule 16b-3 under the Exchange Act or Code
Section 422 (or any other applicable law or regulation, including requirements
of any stock exchange or quotation system on which the Shares are listed or
quoted) shareholder approval of any Plan amendment shall be obtained in such a
manner and to such a degree as is required by the applicable law or regulation;
and provided further, that no termination, amendment or modification of the Plan
shall in any manner affect any Award theretofore granted pursuant to the Plan
without the consent of the Participant to whom the Award was granted or
transferee of the Award.
22. Effective Date and Term of Plan. The Plan shall become
effective upon its adoption by the Board, subject to approval and ratification
by the stockholders of the Company. After approval by the Company's
stockholders, the Plan shall continue in effect for a term of ten (10) years
from the date of adoption by the Board of Directors unless sooner terminated
pursuant to Section 21 of the Plan.
23. Governing Law. The Plan and Award Agreements shall be
construed in accordance with and governed by the laws of the state of the
Company's organization.
Adopted by the Board of Directors of
Showpower, Inc.
as of January 1, 1998
Adopted by the Stockholders of
Showpower, Inc.
as of January 1, 1998
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Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of the
23rd day of May, 1996, by and between SHOWPOWER, INC., a California corporation
(hereinafter the "Employer" or "Company"), John J. Campion (hereinafter the
"Executive") and Modular Energy Systems (Ireland), Ltd. an Irish corporation
("MESL") controlled by Executive.
1. Employment. The Employer hereby employs the Executive and
the Executive hereby accepts employment upon the terms and conditions
hereinafter set forth.
2. Term. Subject to the provisions for termination as
hereinafter provided, the term of this Agreement shall begin on the date of
execution hereof and continue for a term of five (5) consecutive years.
3. Duties. Executive shall perform such duties and
responsibilities as may be assigned from time to time by the Board of Directors,
as President of the Employer. Executive shall also be responsible for and
perform any duties described on Exhibit "A," attached hereto.
4. Compensation and Benefits. For services rendered by the
Executive under this Agreement, the Executive shall receive a base salary and an
incentive salary, if any, as set forth on Exhibit "B," attached hereto.
Executive shall also receive all benefits including pension, group insurance and
participation plans which the Employer's Board of Directors may adopt from time
to time and make available to Employer's employees generally, and any other
benefits listed on Exhibit "B." Such salaries and benefits will be reviewed
annually, and an increase or bonus may be granted in the sole discretion of the
Employer's Board of Directors.
5. Equity interest.
a. Grant of Equity Interest. For so long as he shall remain
an employee of Employer, Executive is hereby granted an option to
purchase shares equal to seven and sixty-four hundredths percent
(7.64%) of Employer, if such option is exercised prior to the sale of
equity in the Company to J. Stone, or five and three hundredths
percent (5.03%) if exercised after the sale of such equity for $100.00
at any time. Executive agrees to execute the Shareholders' Agreement
of all the Shareholders of Employer. Such interest shall be purchased
equally from all shareholders, and shall be personal to Executive and
may not be assigned or transferred, except that Executive may assign
and/or transfer his interest to his spouse, provided that such spouse
executes the Shareholders' Agreement, and agrees to all the terms and
conditions of this Agreement, including Employer's right of repurchase
of such interest. If at any time Executive becomes eligible to hold
shares in a Sub-S corporation, the shares shall be automatically
transferred to Executive. In addition, Executive's spouse agrees to
execute a restrictive transfer
<PAGE>
agreement acceptable to Employer. If at the time Executive exercises
his option to acquire such shares, Executive does not qualify as a
shareholder of an S corporation, Executive shall either take such
steps as may be necessary to so qualify, or cooperate in the formation
of a new entity which has substantially the same tax treatment as an S
corporation.
b. Employer's Right of Repurchase. Upon the termination of
Executive's employment hereunder for any reason, Employer shall have
the right, upon sixty days written notice to Executive, to purchase
the equity interest of Executive, for a price equal to its fair market
value, as determined by an independent M.A.I. certified appraiser,
provided however, that in the event the Executive voluntarily resigns
from his position in the Employer, the Employer shall be obligated
solely to pay to Executive the amount that Executive has paid for such
stock. If Employer and Executive are unable to jointly designate such
appraiser within sixty days following Employer's notice, then each of
Employer and Consultant shall designate an independent M.A.I.
certified appraiser, and the two appraisers so designated shall
jointly select a third independent M.A.I. certified appraiser, whose
valuation shall be binding on the parties. If the two appraisers so
designated shall be unable to agree on the designation of the third
appraiser, within sixty days following the appointment of the later of
the two, or if such third appraiser shall not submit his or her
valuation within ninety days following his or her appointment, then
the valuation shall be determined in a binding arbitration conducted
by the American Arbitration Association in Los Angeles, California,
according to the expedited rules of such Association. The closing of
the purchase shall take place within thirty days following the
determination of value, and the purchase price shall be payable 25% at
closing, and the balance by a promissory note (bearing interest at 10%
per annum), payable in three equal annual installments. The costs for
such appraisal shall be borne equally by the Employer and the
Executive.
6. Accounting terms. For each of the following terms, the
figures used shall be that utilized by the Employer financial in the normal
course of business consistently applied from year to year, and, if applicable,
in accordance with the audit procedures utilized by Employer's certified public
accounting firm.
7. Indemnification of Employer. Executive indemnifies
Employer against any liability relating to U.S. immigration and tax laws, and he
represents and warrants that he is authorized to enter into and perform this
Agreement under all applicable laws and regulations. Executive covenants to file
all necessary returns, and pay all taxes, that may become due under state or
federal law, arising out of this Agreement and their relationship with Employer.
8. Business Expenses. Executive will be entitled to prompt
reimbursement of ordinary and necessary business expenses incurred by the
Executive in performing the services hereunder, including all reasonable travel
and living expenses while away from home on business
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<PAGE>
or at the request of and in the service of Employer, provided that such expenses
are incurred and accounted for in accordance with the policies and procedures
for Employer, as may be modified from time to time by the Board of Directors.
9. Inventions. In consideration of the sum of $65,995.48,
receipt of which is hereby acknowledged, MESL and Executive hereby assign to
Employer all discoveries, inventions, improvements and developments made or
conceived by them, alone or in collaboration with others, during and prior to
his employment, whether or not during regular working hours, and relating to any
methods, apparatus, products or components thereof, which, prior to the
termination of this Agreement are manufactured, sold, leased, used, or under
development by or pertain to the business of Employer, including those
inventions described on Exhibit "A" attached hereto and incorporated hereby. All
such items are works for hire and shall upon execution hereof become and remain
the property of Employer, its successors and assigns. MESL and Executive will
disclose promptly in writing to Employer all such discoveries, inventions,
improvements and developments and, at the request of Employers and without
expense to Employer, MESL and Executive will make, execute, and deliver all
application papers, assignments or instruments, and perform or cause to be
performed such other lawful acts, as Employer may deem necessary or desirable in
making or prosecuting applications, domestic or foreign, for patents, re-issues,
and extensions thereof, and, assist and cooperate with Employer or its
representative in any controversy or legal proceedings relating to such
discoveries, inventions, improvements and developments, or to the patents which
may be procured thereon. Executive and MESL hereby forever assign to Employer
all the right, title and interest to all inventions previously invented by
Executive, MESL or MES, including those included on Exhibit "A" attached hereto.
Modular Energy Systems, Inc., a California corporation, is executing this
Agreement to evidence its intention to be bound by each of the provisions of
this Agreement relating to inventions and Employer's rights with respect
thereto. As additional consideration to Employer, Executive shall cause MESL
shall conduct research and development services that may be requested by
Employer from time to time during the term of this Agreement. The obligations of
Executive and MESL shall survive any termination of this Agreement.
10. Termination. This Agreement may be terminated prior to
the scheduled expiration of its term as follows:
a. The Employer may terminate this Employment Agreement at
any time with good cause, whereupon all compensation to Executive
shall cease upon the effective date of termination. As used in this
Paragraph 5, the term "good cause" shall include, without limitation,
incompetency, neglect of duty, dishonesty, breach of any provision of
this Agreement, any other conduct which is contrary to the faithful
and diligent performance of Executive's duties, or Executive's failure
to adequately perform any duties reasonably assigned to Executive, and
specifically shall include (i) dishonesty by Executive detrimental to
the best interests of Employer or any of its affiliates, (ii)
continuing inattention to or neglect of the duties to be performed by
Executive, (iii) willful disloyalty of
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Executive to Employer, (iv) the death of Executive, (v) participation
by Executive in any fraud, (vi) the imparting of any material
confidential information by Executive in violation of this Agreement,
or (vii) any other material violation of this Agreement by Executive,
provided however, that no finding of good cause shall result from the
Executive's prudent exercise of his business judgement in the
performance of his duties hereunder.
b. The Employer may terminate this Employment Agreement at
any time without cause, provided however, if Employer wishes to
continue to enforce the covenant not to compete contained in the
Non-Solicitation and Non-Competition Agreement attached hereto as
Exhibit "C", Employer shall be required to continue to pay the
Executive his base compensation as provided herein commencing with the
date of termination and continuing for the term of the
Non-Solicitation and Non-Competition Agreement.
c. Upon the express written agreement of the parties.
11. Disclosure of information and Restrictive Covenants. It
is noted by the parties hereto that in the regular performance of the duties
encompassed by this Agreement, Executive will become familiar with and have
access to Employer's business methods and operation, its clients, customer lists
and accounts and its trade secrets and other confidential information
(collectively the "Information"). Therefore, as part of the consideration to
Employer for entering into this Agreement, the Executive hereby covenants and
agrees:
a. That Executive shall hold the Information in strictest
confidence and shall not disclose to any person, firm or company, the
Information, or any part thereof, except where authorized by the
Employer, and shall not use the Information, or any part thereof, in
any way which shall be detrimental to the Employer, it being
understood that the Executive shall not use any such information for
Executive's own benefit or the benefit of any other party, firm or
company.
b. That the relationship between the Executive and the
accounts, customers and clients of Employer results in a unique and
special situation whereby the Executive is placed in a position to
either further the business of the Employer or to deleteriously affect
such business and, accordingly, during the term of this Agreement and
for a period of thirty-six (36) months after the expiration or
termination of this Agreement, (i) the Executive shall not, in any way
or for any reason, encourage any customer, client or account of
Employer to sever or alter the relationship of such customer, client
or account with Employer; (ii) Executive shall not aid anyone else to
take or secure from Employer, its customers, clients or accounts;
(iii) directly or indirectly solicit, take away, divert, interfere or
conduct business with any account or customer of Employer with respect
to services or products which are competitive with those of the
Employer; or (iv) directly or indirectly, alone or with any third
party, solicit, hire or retain
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<PAGE>
any person employed by the Employer (or any person under contract as
an independent contractor).
c. That Executive shall, concurrent with the execution of
this Agreement, execute and be bound by the terms of a
Non-Solicitation and Non-Competition Agreement, in form substantially
as attached hereto as Exhibit "C", with such modifications thereto as
Employer may elect.
12. Extent of Services. The Executive shall devote his or her
entire time, attention and energies to the business of the Employer or to such
other business as the Employer shall designate. The Executive shall not, during
the term of this Agreement, be engaged in any other business activity whether or
not such business activity is pursued for gain, profit, or other pecuniary
advantage, except as otherwise specifically approved in writing by the Board of
Directors of Employer. In no event shall the Executive be prevented from
investing his or her assets in such form or manner as will not require any
services on the part of the Executive in the operation of the affairs of the
companies in which such investments are made.
13. Employer's Employment Policies. Executive's employment
hereunder shall be subject to and governed by such employment practices and
policies as Employer may adopt at any time or from time to time.
14. Remedies. The remedies provided herein shall be deemed
cumulative, and the exercise of one shall not preclude the exercise of any other
remedy based upon any particular occurrence or contingency, nor shall the
specification of remedies herein exclude any rights or remedies at law or in
equity which may be available hereto, including any rights to damages or
injunctive relief. Executive acknowledges and agrees that the remedy at law for
breach of this Agreement, including the provisions under paragraph 6 above, is
inadequate because a breach would result in irreparable harm and damage to
Employer which cannot be adequately compensated by a monetary award, and the
covenants and restrictions contained in this Agreement are reasonable as to
scope and duration, and necessary, fundamental and required for the protection
of Employer's business. Accordingly, Executive agrees that Employer shall be
entitled to an ex parte temporary restraining order and preliminary injunction
for breach of this Agreement or such other form of injunctive or equitable
relief as may be used by any court of competent jurisdiction to restrain or
enjoin Executive from breaching any such covenant or restriction or to
specifically enforce this Agreement, and Employer shall not be required to post
any bond.
15. Executive's Restrictions. Executive represents and
warrants to Employer that there are no existing agreements or covenants
whatsoever which would inhibit or prevent Executive from entering into and
performing this Agreement and working for Employer.
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<PAGE>
16. Miscellaneous.
a. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent by certified
mail to Executive's residence in the case of the Executive, or to its
principal office in the case of the Employer.
b. The waiver by the Employer of a breach of any provision of
this Agreement by the Executive shall not operate or be construed as a
waiver of any subsequent breach by the Executive.
c. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Employer. This Agreement may not be
assigned by Executive.
d. Employer shall be the owner of all discoveries, concepts,
ideas, processes, methods, formulas, techniques, trademarks, trade
names, copyrights, patents, improvements and know-how developed,
produced or conceived by Executive (either solely or jointly with
other persons) during the initial term and any renewal terms of this
Agreement, regardless of whether the same arise during the hours of
Executive's employment or with the use of Employer's facilities,
materials or personnel. Executive agrees, upon request, to execute any
and all documents necessary or desirable to evidence Employer's
ownership of any of such property or rights and to deliver copies of
any related items to Employer. All properties and rights of Employer
described in this subparagraph 11d. shall be deemed to be within the
scope of the restrictions of Paragraph 6 of this Agreement.
e. This Agreement contains the entire agreement of the
parties, and all other agreements, understandings, contracts, whether
written or oral, are null and void and of no force and effect,
provided, however, that the parties may also execute an agreement of
non-solicitation governing some of the matters set forth in Paragraph
6, in which case all of such terms are incorporated herein. This
Agreement may not be changed orally but only by an agreement in
writing signed by, respectively, Mr. Campion and, in the case of
binding the Corporation, an executed board resolution, against whom
enforcement of any waiver, change, modification, extension, or
discharge is sought. Except for a deferred bonus from 1995, the
outstanding balance of which, as of the date hereof , is $53,000.00,
Executive is not owed any other monies or thing by Employer, and
Employer has no other liability to Executive, except as specifically
provided herein.
f. In the event that any section, paragraph, sentence, clause
or phrase of this Agreement shall be declared invalid for any reason,
such invalidity shall not thereby affect the remainder of said
agreement.
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<PAGE>
g. This Agreement is to be governed by and construed under
the laws of the state of California, and the venue for such dispute
shall be in Los Angeles, California.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first above written.
Employer:
SHOWPOWER, INC., a California
Attest: corporation, Employer
/s/ Stephen R. Bernstein By: /s/ Jeffrey B. Stone
- ----------------------------- ----------------------------
Secretary Chairman of the Board
Executive:
/s/ John J. Campion
----------------------------
MESL
By: /s/ John J. Campion
---------------------------
Its: Authorized Representative
---------------------------
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<PAGE>
EXHIBIT "A"
ADDITIONAL SPECIFIC DUTIES
Executive shall be employed as the Chief Executive Officer of
the Employer. His duties shall include primary responsibility for the marketing,
administration, financing, strategic planning, capital expenditures and human
resource management of Employer. It is specifically agreed however, that the
Board of Directors may, at any time, with respect to the title of President, and
the performance of administration, financing and human resource management
("Excepted Duties") of the Employer, relieve Executive of his title as President
and his responsibilities for the Excepted Duties and delegate such title and the
Excepted Duties to other employees of Employer, or to such persons as the Board
of Directors may otherwise elect, provided however, that (a) James C. Button,
shall not, under any circumstances be named as President and (b) Executive shall
be required to report only to the Board of Directors, or its duly authorized
representative. A delegation shall not in an way be deemed a breach by Employer
under this Employment Agreement.
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<PAGE>
EXHIBIT "B"
COMPENSATION AND BENEFITS PACKAGE
Base Salary: $200,000 per year, payable in twenty six equal
installments on every other Wednesday, provided
however, that upon the payment by Employer of all
existing shareholder debt, including any additional
shareholder debt incurred during the term of the
agreement, Executive's base salary shall become
$240,000 per annum.
Incentive Compensation: Executive shall be entitled to receive additional
compensation each year equal to six and sixty-seven
hundredths (6.67%) percent of the "Free Cash Flow" of
the Employer. For purposes of this Agreement, Free Cash
Flow shall mean the amount equal to Employer's EBITDA
(as defined in accordance with generally accepted
accounting principals GAAP) in any fiscal year, minus
the sum of amounts paid for (i) principal repayments,
(ii) interest expense, (iii) capital lease payments and
(iv) the cash portion of capital investments, excluding
investments funded with proceeds of any offerings of
the equity securities of the Employer.
Automobile: Employer shall provide Executive with an automobile of
his choosing and shall reimburse Executive for the cost
of reasonable and proper maintenance and insurance
expenses for such automobile, provided however, that
such reimbursement shall not exceed $2,500 per month.
Other Benefits:
a. Life Insurance. Employee shall be eligible to participate
in the Employer's Group Life Insurance Plan, which provides a life insurance
policy with a death benefit of ten times base compensation. The value of the
insurance premium will be reported as taxable compensation to Employee. The
separate key man policy in the amount of $2 million on the Executive's life
shall be for the benefit the Employer.
b. 401 (K) Plan. Employee shall be eligible to participate in
Employer's 401 (K) Plan, which provides that all contributions by Employee up to
the first six percent (6%)
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<PAGE>
of base compensation shall be matched by Employer at the rate of fifty cents for
each Employee dollar contributed. The vesting period under such plan shall
commence as of the first date of Employee's employment with the Company.
c. Health insurance. Employee shall be eligible to
participate in Employer's group health insurance plans which provides for
medical and dental coverages.
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<PAGE>
EXHIBIT "C"
NON-SOLICITATION and NON-COMPETITION AGREEMENT
THIS NON-SOLICITATION and NON-COMPETITION AGREEMENT is
entered into as of this 23rd day of May 1996, between John J. Campion
("Executive") and SHOWPOWER, INC., a corporation organized and existing under
the laws of the state of California (hereinafter called "Employer" or
"Company"), and is made with reference to the following facts:
A. Employer is engaged in the business of providing temporary
electrical power and/or heating, ventilation and air conditioning and cooling
("HVAC") and related services for private, public and spectator events, power
generation and HVAC and distribution equipment for such events and related
engineering, design and consulting services on an international basis and enjoys
a fine international reputation, which could be irreparably damaged should
Employee compete with Employer in violation of this Non-Solicitation Agreement;
and
B. Employer conducts its sales, marketing, services and
promotion on a worldwide basis and, accordingly, the geographic scope of this
Non-Solicitation Agreement shall be all states of the United States and all
countries of the world (the "Territory"); and
C. Executive is presently employed by Employer, and through
such employment relationship has been and will be provided with information
concerning Employer's business and shall receive training in such business and
will continue to come in contact with Employer's customers throughout the
duration of the employment relationship.
D. Employer and Executive recognize that Employer's business
methods, operations and information and its relationship with its customers,
clients and accounts are confidential and proprietary having been developed at
considerable time and expense to Employer.
NOW, THEREFORE, in consideration of and mutually in reliance
on the premises, representations, covenants, undertakings and agreements herein
set forth, and for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
17. Non-Solicitation. During the three (3) year period
beginning with the date of termination of Executive's employment with Employer
or any of its subsidiaries or affiliates, Executive shall not for any reason,
either directly or indirectly, (a) make known to any person, firm or
corporation, the names and addresses of any of Employer's clients or any other
information pertaining to them; (b) call on, solicit, take away, or attempt to
call on, solicit or take away, any of Employer's clients on whom Executive
called or with whom Executive became acquainted during Executive's employment
with Employer or induce any such client to patronize
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<PAGE>
any competitor of Employer, either on Executive's behalf or that of another
person, firm or corporation or (c) call on, solicit, take away, or attempt to
call on, solicit, or take away, any of Employer's Executives, consultants and
independent contractors with whom Executive became acquainted during Executive's
employment with Employer or induce any such employee, consultant or independent
contractor to become an employee, consultant or independent contractor to any
competitor of Employer, either on Executive's behalf or that of another person,
firm or corporation. The foregoing is not intended to restrict Executive's right
to call on persons in connection with matters that are exclusively personal or
social.
18. Covenant Not to Compete. To accord to Company the full
value of the Executive's time and as a material inducement to Company to enter
into and perform the transactions contemplated by the Employment Agreement and
this Covenant Not to Compete and by Purchaser to enter into and perform the
transactions contemplated by the Stock Purchase Agreement, as such terms are
defined in that certain Stock Purchase Agreement dated May 23, 1996 between
Company and Purchaser, except as otherwise provided hereinbelow, during the
three (3) year period beginning with the date of termination of Employee's
employment with Employer or any of its subsidiaries or affiliates, Executive
shall not for any reason engage or become interested, own, purchase, organize or
take preparatory steps for the organization of, build, finance, acquire, lease,
operate, manage, or invest in any business or permit his name or any part
thereof to be used or employed in connection with any business in competition
with or otherwise similar to Company's Business (as defined below), directly or
indirectly (as legal or beneficial owner, stockholder, partner, director,
officer, Executive, consultant, manager, agent or associate, or otherwise),
anywhere in the Territory, except that Executive may hold, as a passive investor
only, not more than five percent (5%) of the outstanding securities of any class
of any publicly held company engaged in such business or related business.
19. Employer's Business. For purposes of this
Non-Solicitation Agreement, the parties agree that Employer's Business is a full
service company which provides and/or operates temporary electric power supply,
service personnel, chillers, air handlers, heaters, mobile generators and
distribution equipment to provide temporary electrical power and distribution
and/or heating, air conditioning and cooling and ventilation services and
equipment for a variety of functions, throughout the United States and overseas
on an international basis, and the provision of engineering, design and
consulting services related to such equipment and of or in connection with:
19.1 Clients engaged in the trade show, event, motion
picture, television, product launch, entertainment and music
industries, including by way of example but not limited to: broadcast
and cable television companies; record companies; production
companies; live stage shows for paying audiences;
19.2 Live sporting events, automobile rallies and races;
product launches, trade shows and exhibitions; amateur athletic
events; all video/satellite broadcast companies; corporate and
industrial theatre;
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<PAGE>
19.3 Any musical event where a "musical term" is included in
the name of the event. As used herein, "musical term" shall included
by way of example, but not by way of limitation: jazz; punk; rock; and
roll; country music; rap music; gospel music; and Christian music;
19.4 Any event which takes place in a temporary structure and
for which either temporary electrical power or environmental controls
are utilized; and
19.5 All existing, prospective and former customers of
Employer in the businesses and industries described above;
"Prospective customers" are limited to those industries and businesses
described above.
20. Information Use. Executive shall use the information and
training provided by Employer as governed by this Non-Solicitation Agreement
during the employment relationship with Employer only for the purposes of
carrying out and completing the obligations of Executive's position, and shall
not use such information or training for any other purpose. Executive agrees
that, during the term of Executive's employment with Employer, Executive shall
refer any inquiries and prospects exclusively to Employer. In addition,
Executive shall comment favorably regarding Employer and Employer's conduct of
Employer's Business if asked by any third party.
21. Confidentiality.
21.1 Executive will hold in strictest confidence, not
disclose to any person, firm or corporation, and not exploit or use,
without the express authorization of an officer of Employer, the
nature of Executive's duties and responsibilities on behalf of
Employer, any information, process, development or experimental work,
work in process, client list, pricing policy and financial data, or
any other secret or confidential matter relating to the sales or
business of Employer or its affiliates or subsidiaries.
21.2 Executive acknowledges and agrees that the names,
addresses, preferences and all documentation of Employer, whether
prepared by Executive or otherwise, relating to identity, preferences,
purchasing patterns, modes of operation, program designs and sales and
contact details of Employer's clients, and the identity of any and all
suppliers of goods or services, forwarding agents, referral sources
constitute trade secrets of Employer; and that the sale or
unauthorized use or disclosure of any of Employer's trade secrets
obtained by Executive during Executive's employment with Employer
shall constitute unfair competition and a violation of applicable
state law. Employer competes and will compete in the marketplace by
virtue of its ability to formulate and maintain secrecy of the
information described herein. Executive shall not, in any way,
infringe upon this secrecy by engaging in unfair competition with
Employer.
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<PAGE>
21.3 All records of the accounts of clients, route books,
itineraries, costing sheets, prices, schedules, other documentation,
computer hardware and software, and any other records and books
relating in any manner whatsoever to the clients of Employer, whether
prepared by Executive or otherwise, and whether situated inside or
outside the offices of Employer, shall be the exclusive property of
Employer, regardless of who actually purchased, prepared, entered, or
in any manner worked on the original document and/or record.
21.4 All obligations of Executive under this Section 4 shall
survive for an indefinite period following the execution and delivery,
and any termination, of this Non-Solicitation Agreement. The trade
secrets and information referred to in this Non-Solicitation Agreement
gravely affect the effective and successful conduct of Employer's
business and its good will, and any breach of this Section 4 is a
material breach.
22. Remedies. The parties to this Non-Solicitation Agreement
acknowledge and agree that (a) the remedy at law for a breach of this
Non-Solicitation Agreement is inadequate because a breach would result in
irreparable harm and damage to Employer which cannot be adequately compensated
by a monetary award, and (b) the covenants and restrictions contained in this
Non-Solicitation Agreement are reasonable as to scope and duration and
necessary, fundamental and required for the protection of Employer's Business.
Accordingly, Executive agrees that Employer shall be entitled to an ex parte
temporary restraining order and preliminary injunction for breach of this
Non-Solicitation Agreement, or such other form of injunctive or equitable relief
as may be used by any court of competent jurisdiction to restrain or enjoin
Executive from breaching any such covenant or restriction or to specifically
enforce this Non-Solicitation Agreement, and Employer shall not be required to
post any bond. Further, Executive agrees that Employer's right to equitable
relief hereunder is in addition to any other relief or remedy to which Employer
is entitled at law and in equity.
23. Successors and Assigns. This Non-Solicitation Agreement
and the respective rights and obligations of the parties hereunder shall be
binding upon, inure to the benefit of, and be enforceable by the parties hereto
and their respective parent, affiliate and subsidiary corporations, successors
(including but not limited to, any successor in interest to all or substantially
all of the asset of Employer's Business), heirs, assigns and legal and personal
representatives; it being understood that Employer may freely assign its rights
hereunder to any corporation, entity, business or person into which or with
which Employer shall merge, combine, affiliate or consolidate, or which
controls, is controlled by or is under common control with Employer.
Notwithstanding the above, however, Executive may not assign any rights, nor
delegate any duties under, this Non-Solicitation Agreement.
24. Severability. The covenants and other provisions
contained herein shall cover the activities of Executive in every part of the
Territory; and such covenants shall be construed as if each covenant is divided
into separate and distinct covenants in respect of
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<PAGE>
Employer's Business, each capacity in which Executive is prohibited from
soliciting, each portion of the Term and each part of the Territory. Each such
covenant shall constitute separate and several covenants distinct from all other
such covenants. Each of the parties hereto recognizes that the territorial
restrictions contained in this Non-Solicitation Agreement are properly required
for adequate protection of Employer's Business and that in the event any
covenant or other provision contained herein shall be deemed to be illegal,
unenforceable or unreasonable by a court or other tribunal of competent
jurisdiction with respect to any part of the Territory, the Term or any other
provision of this Non-Solicitation Agreement, such covenant shall not be
affected with respect to any other part of the Territory or with respect to any
other jurisdiction, and each of the parties hereto agrees and submits to the
reduction of said territorial restriction to such an area, to the Term as said
court or tribunal shall deem reasonable.
25. Notices. All notices hereunder to the parties hereto
shall be in writing and sent by certified or registered mail, and by air mail if
mailed to an addressee outside of the continental United States, return receipt
requested, postage prepaid, or by telegraph or telex, addressed to the
respective parties, in the case of Executive, to Executive's last known
residential address as reflected in the records of Employer; and if to Employer,
to the principal business office of Employer.
Any party may by written notice complying with the
requirements of this Section specify another or different person or address for
the purpose of notification hereunder. All notices hereunder shall be deemed to
have been given and received on the next day following the sending of such
telegram or telex and, if mailed, on the fifth business day following such
mailing.
26. Other Restrictions. The restrictions, covenants and
agreements contained herein, are in addition to, and Executive shall further be
subject to and restricted by, any other restrictions, covenants and agreements
set forth in any other agreement of the parties relating to the subject matter
hereof, including without limitation any employment agreement or covenant not to
compete. In the event the terms of such other agreement(s) is more or less
restrictive than those contained herein, and a conflict exists between such
agreements, it is the parties' intent and their agreement that the more
restrictive terms shall apply to Executive.
27. Entire Agreement. Except as may otherwise be referred to,
referenced or incorporated herein, this Non-Solicitation Agreement contains the
entire and only agreements of the parties hereto respecting the matters herein
set forth, supersedes or incorporates all prior agreements and understandings
between the parties hereto regarding the matters herein contemplated, and this
Non-Solicitation Agreement may not be changed or terminated orally, nor shall
any change, termination or attempted waiver of any of the provisions herein
contained be binding unless in writing signed by the party against whom the same
is sought to be enforced, nor shall this paragraph itself be waived verbally.
This Non-Solicitation Agreement may be amended only by a written instrument duly
executed by or on behalf of the parties hereto.
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<PAGE>
28. Counterparts. This Non-Solicitation Agreement may be
executed by the parties hereto in any number of counterparts, each of which
shall be deemed to be an original, but all of such counterparts together shall
constitute one and the same instrument.
29. Governing Law. This Non-Solicitation Agreement is made
and intended to be performed in the State of California, and shall take effect
under, be construed and enforced according to, and the rights and obligations of
the parties shall be governed in all respects by, the laws of the State of
California applicable to agreements made and to be performed in that State.
30. Attorneys' Fees. In the event of any controversy, claim
or dispute between the parties hereto arising out of or relating to this
Non-Solicitation Agreement, including but not limited to a controversy settled
by arbitration, the prevailing party shall be entitled to recover from the
losing party reasonable expenses, attorneys' fees and costs.
31. Headings. The headings in this Non-Solicitation Agreement
have been inserted for convenience of reference only, and shall in no way affect
the interpretation of the terms or provisions of this Non-Solicitation
Agreement.
32. No Waiver. Employer's failure to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver or deprive Employer of its right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
Any waiver must be in writing.
IN WITNESS WHEREOF, this Non-Solicitation and Non-Competition
Agreement has been duly executed on the date first above written.
EXECUTIVE: EMPLOYER:
SHOWPOWER, INC.
/s/ John J. Campion By: /s/ Jeffrey B. Stone
- --------------------------- -------------------------
Its: Chairman of the Board
-------------------------
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Exhibit 10.3
May 9, 1996
Mr. Laurence Anderson
3714 Vermont St.
Long Beach, CA 90814
RE: Employment term sheet
---------------------
Dear Laurence:
This letter will confirm the basic terms of our agreement
under which Showpower, Inc. ("SP") shall enter into an employment agreement with
you ("you" or "Executive"), which definitive agreement (Agreement) shall be
executed within fifteen business days from the date hereof. In consideration for
the terms hereof, you agree to release SP from any and all liability it may have
with respect to the payment of any other compensation due to you as of the date
hereof, other than a deferred bonus in the amount of $30,077.51, and to
terminate any and all existing agreements, whether written or oral, between you
and SP, including, but not limited to, that certain document entitled
"Compensation Agreement" and dated as of August 29, 1995 and executed by you,
John Campion and David Bernstein.
For the period you are employed you shall receive
compensation as follows (where stated on an annual basis, pro-rated for the
calendar year remaining):
1. Salary, annual basis: $118,000 payable bi-weekly.
2. Term: Three years.
3. Discretionary bonus: You shall be eligible to receive a
discretionary year end bonus above and beyond the compensation stated above.
Year end bonuses shall be granted at the sole discretion of the Board of
Directors.
<PAGE>
Mr. Laurence Anderson -2- May 9, 1996
4. Equity Interest:
a. Grant of Option for Equity Interest. The shareholders of
SP shall grant you an option, under which, for the sum of $100.00,
sell you an equity interest in SP of twenty-four and three tenths
shares, equal to two and forty-three hundredths percent (2.43%) before
a transaction with J. Stone or May 30, 1996, or an equity interest in
SP equal to one and six tenths percent (1.60) after a transaction with
J. Stone or June 1, 1996. Such grant of equity is conditioned upon
your execution of a shareholders' agreement, and is personal to you,
and may not be transferred or assigned.
b. SP's Right of Repurchase. Upon the termination of
Executive's employment hereunder for any reason, Employer shall have
the right, upon sixty days written notice to Executive, to purchase
the equity interest of Executive, for a price equal to its fair market
value, as determined by an independent M.A.I.
certified appraiser.
5. Other Benefits. You shall receive health insurance for
yourself, and be eligible to continue to participate in SP's 401(k) retirement
plan. In addition, you shall other benefits, and be subject to all other
policies as noted in SP's employee handbook, of which you acknowledge receiving,
reading and understanding same.
6. Other Covenants. You agree to enter restrictive covenants
with respect to non-solicitation and non-competition under which you agree,
that, for the 24 months after termination of the Employment Agreement for any
reason, not to solicit client's, vendors or customers of SP, and, provided SP
pays you the sum of $95,000 per year, you agree not to compete in any way with
SP in the business in which SP operates at the time of such termination.
7. Termination. The Employment Agreement shall be terminable
prior to the scheduled expiration of its term as follows:
a. The Employer may terminate this Employment Agreement at
any time with good cause, whereupon all compensation to Executive
shall cease upon the effective date of termination. As used in this
Paragraph 7, the term "good cause" shall include incompetency, neglect
of duty, insubordination, dishonesty, breach of any provision of this
Agreement, any other conduct which is contrary to the faithful and
diligent performance of Executive's duties, or Executive's failure to
adequately perform any duties reasonably assigned to Executive, and
specifically shall include (i) dishonesty by Executive detrimental to
the best interests of Employer or any of its affiliates, (ii)
continuing inattention to or
<PAGE>
Mr. Laurence Anderson -3- May 9, 1996
neglect of the duties to be performed by Executive, (iii) willful
disloyalty of Executive to Employer, (iv) the death of Executive, (v)
participation by Executive in any fraud, (vi) the imparting of any
material confidential information by Executive in violation of this
Agreement, or (vii) any other material violation of this Agreement by
Executive, provided however, that no finding of good cause shall
result from the Executive's prudent exercise of his business judgement
in the performance of his duties hereunder.
b. The Employer may terminate this Employment Agreement at
any time without cause, provided however, if Employer wishes to
continue to enforce the covenant not to compete contained in the
Non-Solicitation Agreement attached hereto as Exhibit "C", Employer
shall be required to continue to pay the Executive $95,000 per annum
as of the date of termination for twenty-four months after such
termination.
c. Upon the express written agreement of the parties.
If this letter agreement accurately reflects our
understanding, please execute the enclosed copy, fax back and mail the original
to me. This letter may be executed in multiple counterparts, each of which shall
be deemed an original.
Kind regards,
Showpower, Inc. Accepted and agreed.
/s/ David C. Bernstein /s/ Laurence Anderson
- ------------------------- ------------------------
David C. Bernstein Laurence Anderson
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of the
1st day of July, 1996, by and between SHOWPOWER, INC., a California corporation
(hereinafter the "Employer"), and Stephen R. Bernstein (hereinafter the
"Executive").
1. Employment. The Employer hereby employs the Executive and
the Executive hereby accepts employment upon the terms and conditions
hereinafter set forth.
2. Term. Subject to the provisions for termination as
hereinafter provided, the term of this Agreement shall begin on the date of
execution hereof and continue for a term of three (3) consecutive years.
3. Duties. Executive shall be appointed Executive Vice
President of the Company for the term of this Agreement and shall perform such
duties and responsibilities as may be assigned from time to time by the Board of
Directors of the Employer. Executive shall also be responsible for and perform
the duties described on Exhibit "A," attached hereto.
4. Compensation and Benefits. For services rendered by the
Executive under this Agreement, the Executive shall receive a base salary as set
forth on Exhibit "B", attached hereto. Executive shall also receive all benefits
including pension, group insurance and participation plans which the Employer' s
Board of Directors may adopt from time to time and make available to Employer's
employees generally, and any other benefits listed on Exhibit "B." Such salary
and benefits will be reviewed annually, and an increase may be granted in the
sole discretion of the Employer's Board of Directors. Employer recognizes that
Executive's current base compensation is twenty-five percent less than
Executive's previous compensation. Should Laurence Anderson or John Campion
receive an increase in their respective base compensation, it is specifically
agreed that Employer shall provide Executive with a similar increase in his base
compensation, as determined by the Board of Directors, effective as of the same
date as Campion or Anderson's increase, provided, however, in no event shall
this increase be required to exceed more than $35,000 per annum.
5. Additional Potential Bonus Compensation. For each fiscal
year of Employer, within sixty days of the end of each fiscal year, upon
conditions enumerated herein, Executive shall be entitled to bonus compensation
as determined in the sole discretion of the Board of Directors of Employer.
6. Business Expenses. Executive will be entitled to prompt
reimbursement of ordinary and necessary expenses incurred by the Executive in
performing the services contemplated hereunder, including all reasonable travel
and living expenses while away from home on business or at the request of and in
the service of Employer, provided that such
<PAGE>
expenses are incurred and accounted for in accordance with the policies and
procedures for Employer, as may be modified from time to time by the Board of
Directors.
7. Inventions. In consideration of this Agreement and
Executive's continued employment with Employer, Executive hereby assigns to
Employer all discoveries, inventions, improvements and developments made or
conceived by him, alone or in collaboration with others, during and prior to his
employment, whether or not during regular working hours, and relating to any
methods, apparatus, products or components thereof, which, prior to the
termination of this Agreement are manufactured, sold, leased, used, or under
development by or pertain to the business of Employer. All such items are works
for hire and shall upon execution hereof become and remain the property of
Employer, its successors and assigns. Executive will disclose promptly in
writing to Employer all such discoveries, inventions, improvements and
developments and, at the request of Employer and at Employer's expense,
Executive will make, execute, and deliver all application papers, assignments or
instruments, and perform or cause to be performed such other lawful acts, as
Employer may deem necessary or desirable in making or prosecuting applications,
domestic or foreign, for patents, re-issues, and extensions thereof, and assist
and cooperate with Employer or its representative in any controversy or legal
proceedings relating to such discoveries, inventions, improvements and
developments, or to the patents which may be procured thereon. The obligations
of Executive shall survive any termination of this Agreement.
8. Termination. This Agreement may be terminated prior to the
scheduled expiration of its term as follows:
(a) The Employer may terminate this Agreement at any time
with good cause, whereupon all compensation to Executive shall cease
as of the effective date of termination. As used in this Paragraph 8,
the term "good cause" shall mean (i) dishonesty by Executive
detrimental to the best interests of Employer, (ii) continuing
inattention to or neglect of the duties to be performed by Executive,
(iii) willful disloyalty of Executive to Employer, (iv) the death or
disability of Executive, (v) conviction by a court of competent
jurisdiction of Executive in any fraud, or (vi) the imparting of any
material confidential information by Executive in violation of this
Agreement. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated with "good cause" as defined by
subsections (i), (ii), (iii) or (vi) unless there has been a
determination by at least four (4) members of the Board of Directors
at a meeting held after at least five (5) days notice to the Executive
and an opportunity for him to appear thereat together with his
counsel. As used in this paragraph 8, the term "disability" shall mean
that the Executive has become physically or mentally incapable of
performing his duties for a period of 90 or more consecutive days.
(b) The Employer may terminate this Agreement at any time
without good cause, whereupon the Executive shall be entitled to
receive all compensation and benefits payable through the effective
date of termination plus a severance
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<PAGE>
payment equal to the greater of (i) $172,500 or (ii) the base salary
payable to the Executive through the scheduled expiration date of this
Agreement.
(c) The Executive may terminate this Agreement at any time
upon thirty (30) days written notice to the Employer.
(d) Upon written agreement of the parties.
9. Disclosure of Information and Restrictive Covenants. It is
noted by the parties hereto that in the regular performance of the duties
encompassed by this Agreement, Executive will become familiar with and have
access to Employer's business methods and operation, its clients, customer lists
and accounts and its trade secrets and other confidential information
(collectively the "Information"). Therefore, as part of the consideration to
Employer for entering into this Agreement, the Executive hereby covenants and
agrees:
(a) That Executive shall hold the Information in strictest
confidence and shall not disclose to any person, firm or company, the
Information, or any part thereof, except where authorized by the
Employer, and shall not use the Information, or any part thereof, in
any way which shall be detrimental to the Employer, it being
understood that the Executive shall not use any such Information for
Executive's own benefit or the benefit of any other party, firm or
company.
(b) That the relationship between the Executive and the
accounts, customers and clients of Employer results in a unique and
special situation whereby the Executive is placed in a position to
either further the business of the Employer or to deleteriously affect
such business and, accordingly, during the term of this Agreement and
for a period of eighteen (18) months after the expiration or
termination of this Agreement, (i) the Executive shall not, in any way
or for any reason, encourage any customer, client or account of
Employer to sever or alter the relationship of such customer, client
or account with Employer; (ii) Executive shall not aid anyone else to
take or secure from Employer, its customers, clients or accounts;
(iii) directly or indirectly solicit, take away, divert, interfere or
conduct business with any account or customer of Employer with respect
to services or products which are competitive with those of the
Employer; or (iv) directly or indirectly, alone or with any third
party, solicit, hire or retain any person employed by the Employer (or
any person under contract as an independent contractor).
10. Extent of Services. Except as provided herein, the
Executive shall devote his entire working time, attention and energies to the
business of the Employer or to such other business as the Employer shall
designate. Except as provided herein, the Executive shall not, during the term
of this Agreement, be engaged in any other business activity whether or not such
business activity is pursued for gain, profit, or other pecuniary advantage,
except as otherwise
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<PAGE>
specifically approved in writing by the Board of Directors of Employer. Employer
agrees however, for a period of one year from the date hereof, that Executive
may continue to devote such time, attention and energies as may be necessary to
permit a smooth transition of duties which Executive has performed for
Rock-It-Cargo, USA, Inc., Viscount Air Services, Inc., MVP Air Tours, Ltd.,
Trijet, Ltd., Chapman Freeborn Airmarketing U.S.A., Inc., Air Apparent, Inc.,
ACS Associates, Inc., Metro Transport, Inc. and Medical Resources International,
Inc. to other individuals, provided, however, that during such period Executive
shall devote not less than 40 hours per week to the affairs of Employer. It is
specifically agreed that Executive shall not be required to spend more than
sixteen calendar days in every thirty calendar day period outside New York City.
11. Employer's Employment Policies. Executive's employment
hereunder shall be subject to and governed by such employment practices and
polices as Employer may adopt at any time or from time to time that are not
inconsistent with the express terms of this Agreement.
12. Remedies. The remedies provided herein shall be deemed
cumulative, and the exercise of one shall not preclude the exercise of any other
remedy based upon any particular occurrence or contingency, nor shall the
specification of remedies herein exclude any rights or remedies at law or in
equity which may be available hereto, including any rights to damages or
injunctive relief. Executive acknowledges and agrees that the remedy at law for
breach of this Agreement, including the provisions under paragraph 9 above, is
inadequate because a breach would result in irreparable harm and damage to
Employer which cannot be adequately compensated by a monetary award, and the
covenants and restrictions contained in this Agreement are reasonable as to
scope and duration, and necessary, fundamental and required for the protection
of Employer's business. Accordingly, Executive agrees that Employer shall be
entitled to an ex parte temporary restraining order and preliminary injunction
for breach of this Agreement or such other form of injunctive or equitable
relief as may be used by any court of competent jurisdiction to restrain or
enjoin Executive from breaching any such covenant or restriction or to
specifically enforce this Agreement, and Employer shall not be required to post
any bond.
13. Executive's Restrictions. Executive represents and
warrants to Employer that there are no existing agreements or covenants
whatsoever which would inhibit or prevent Executive from entering into and
performing this Agreement and working for Employer.
14. Miscellaneous.
(a) Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent by certified
mail to Executive's residence in the case of the Executive, or to its
principal office in the case of the Employer.
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<PAGE>
(b) The waiver by the Employer of a breach of any provision
of this Agreement by the Executive shall not operate or be construed
as a waiver of any subsequent breach by the Executive.
(c) The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Employer. This Agreement may not be
assigned by Executive.
(d) Employer shall be the owner of all discoveries, concepts,
ideas, processes, methods, formulas, techniques, trademarks, trade
names, copyrights, patents, improvements and know-how developed,
produced or conceived by Executive (either solely or jointly with
other persons) during the initial term and any renewal terms of this
Agreement, regardless of whether the same arise during the hours of
Executive's employment of with the use of Employer's facilities,
materials or personnel. Executive agrees, upon request, to execute any
and all documents necessary or desirable to evidence Employer's
ownership of any of such property or rights and to deliver copies of
any related items to Employer. All properties and rights of Employer
described in this subparagraph 14(d) shall be deemed to be within the
scope of the restrictions of Paragraph 9 of this Agreement.
(e) This Agreement contains the entire agreement of the
parties. This Agreement may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of
any waiver, change, modification, extension, or discharge is sought.
(f) In the event that any section, paragraph, sentence,
clause or phrase of this Agreement shall be declared invalid for any
reason, such invalidity shall not thereby affect the remainder of this
Agreement.
(g) This Agreement is to be governed by and construed under
the laws of the state of California, and the venue for such dispute
shall be in Los Angeles, California.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first above written.
Employer:
ATTEST:
SHOWPOWER, INC., a California
corporation, Employer
/s/ Stephen R. Bernstein
- ------------------------------ By: /s/ Jeffrey B. Stone
Secretary -------------------------
Chairman of the Board
/s/ Stephen R. Bernstein
--------------------------
Stephen R. Bernstein
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<PAGE>
EXHIBIT "A"
Additional Specific Duties
Executive shall be employed as the Executive Vice President
of the Employer. His duties shall include primary responsibility for legal
affairs, financing and accounting, structuring of international business
transactions, but not operations or marketing, and shall report directly to the
Chairman of the Board of the Employer.
-7-
<PAGE>
EXHIBIT "B"
COMPENSATION AND BENEFITS PACKAGE
Base Salary: $115,000 per year, payable in twenty-six equal
installments on every other Wednesday.
Automobile: Employer shall pay for the cost of reasonable and
proper parking of an automobile at 84th St. and Third
Ave. in New York, NY or a similar amount as an
automobile allowance upon Executive's request.
Other Benefits:
a. 401(K) Plan. Executive shall be eligible to participate in
Employer's 401(K) Plan. The vesting period under such plan shall commence as of
the first date of Employee's employment with the Company.
b. Health Insurance. Employer shall pay the premium cost of a
family under the Employer's group health plan with a full indemnity option.
c. Life Insurance. Employer shall pay for a policy of term
life insurance on Executive's life, with a minimum death benefit of ten times
Executive's base compensation. Executive shall have the right to designate the
owner and beneficiaries of such policy.
d. Professional Licenses. Employer shall pay the annual costs
for maintaining Executive's professional licenses in the States of New York and
Pennsylvania, including costs of registration and that necessary to fulfill
mandatory education costs. Should Employer request Executive to become a member
of the Bar of the State of California, or any other state, Employer shall bear
all costs related thereto.
e. Other Benefit Plans. If Employer shall, at any time during
the term hereof, commence any other benefit, stock option, bonus, or any other
type of incentive plan in which any employee of Executive shall have the
opportunity to participate, Executive shall have the right to participate in
such plan.
f. Vacation. Executive shall be entitled to receive four
weeks paid vacation per annum.
-8-
Exhibit 10.5
PROMISSORY NOTE AND
SECURITY AGREEMENT
This Agreement made and entered this 21st day of January,
1998, by and between:
SHOWPOWER, INC.
18128 S. SANTA FE AVENUE
RANCHO DOMINGUEZ, CA 90221
(herein called "Debtor"), and Caterpillar Financial Services Corporation (herein
called "Company").
1. Grant of Security Interest. Debtor hereby grants to
Company a first priority continuing security interest in the property described
below, whether now owned or hereafter acquired, and all present and future
attachments and accessories thereto and replacements, all cash and non-cash
proceeds and products thereof, including amounts payable under any insurance
policy (herein called, collectively, the "Collateral"):
(1) "SEE ATTACHMENT I"
Debtor agrees to notify Company if the Collateral is
domiciled in a location different than a location owned by debtor, for more than
90 days.
2. Obligations. The security interest hereby granted is to
secure (a) the payment when due of any and all indebtedness (as defined below)
heretofore or hereafter owing by Debtor to Company; (b) the performance of all
obligations of Debtor to Company, including, but not limited to, obligations of
Debtor hereunder; (c) all past, present and future advances or financings, of
whatever type, by Company to Debtor, and extension or renewals thereof, whether
or not presently contemplated by Debtor and Company; and (d) all existing and
future liabilities, of whatever type, of Debtor to Company. The term
"indebtedness," as used throughout this Agreement, means financial obligations
and liabilities of every kind, whether primary or secondary, direct or
contingent, and whether incurred as maker, endorser, guarantor, surety or
otherwise and whether or not matured. Debtor agrees that the security interest
herein granted to Company shall extend to all of the Collateral for so long as
any portion of the indebtedness secured hereby or any other indebtedness of
Debtor to Company remains unpaid or any duties or obligations of Debtor remain
undischarged, whether such property comprising a part of the Collateral is
acquired by Debtor prior to, contemporaneously with, or subsequent to the date
of this Agreement.
3. Promise to Pay. Debtor promises to pay to Company the
total principal amount of One Million Eight Hundred Seventy-Five Thousand One
Hundred Fifty-Four and 54/100 ($1,875,154.54) Dollars plus interest at the fixed
rate of Nine (9%) per annum in 84 monthly payments in the amount of $30,288.07
(See attached amortization Schedule) commencing on February 21, 1998, and
continuing on the same date of every month in which a payment is due as set
forth in Exhibit A until fully paid. The final payment shall be in the amount of
the then unpaid
<PAGE>
balance including accrued interest, late charges and all other costs, expenses,
fees or liabilities required to be paid by Debtor.
Interest shall be computed on the actual number of days
expired in a year of 360 days. Payment shall be made at the address of Company
or at such other address as Company may from time to time specify in writing.
Time is of the essence hereof. If any payment of principal
and interest or any other sum due under this Agreement is not paid when due, the
Debtor agrees to pay a late charge of five cents ($.05) per dollar on, and in
addition to, the amount of each such payment, but not exceeding any lawful
maximum. The Debtor agrees that upon the failure of the Debtor to make payment
of any amount due hereunder or upon the happening of any event of default or
other breach of any term or condition contained in this Agreement, the entire
principal sum remaining unpaid, together with all interest thereon and any other
sum payable under this Agreement, shall, at the election of Secured Party or the
holder hereof, immediately become due and payable, with interest thereon at
eighteen percent (18%) per annum or the highest rate allowable by law (whichever
is lower) from the date of such accelerated maturity until paid.
The Debtor hereby waives presentment, demand, protest, notice
of protest of nonpayment and all pleas of division and discussion.
4. Representations and Warranties. Debtor represents and
warrants to Company as follows: (a) the execution, delivery and performance of
this Agreement is within Debtor's corporate powers if Debtor is a corporation,
is duly authorized by Debtor, and is not in conflict with any provision of law,
the Articles of Incorporation or Bylaws of Debtor or any other indenture,
agreement or undertaking by which Debtor is bound; (b) this Agreement
constitutes a valid obligation of Debtor, legally binding upon it and
enforceable in accordance with its terms; (c) all property forming part of the
Collateral is now or, at the time it becomes part of the Collateral, shall be
owned by Debtor by good and marketable title, and shall at all times be and
remain free from all liens, claims, security interests and encumbrances, except
for the security interest granted hereby and any other security interest(s)
agreed to in writing by Company and Debtor shall defend the Collateral against
all claims and demands of all persons claiming an interest therein; (d) all
balance sheets, earnings statements, financial data and any other information or
documentation related to the business or financial condition of Debtor which
have been or may hereafter be furnished to Company to induce it to advance funds
or extend credit to Debtor shall fairly represent the operations and financial
condition of Debtor, as of the date stated therein, and shall be accurate and
correct in all material respects; and (e) no representation, warranty, or
statement by Debtor contained herein, or any certificate or other document
furnished or to be furnished by Debtor in connection with the transaction
contemplated hereby contains or at the time of delivery shall contain any untrue
statement of material fact, or omits, or shall omit at the time of delivery, to
state a material fact required to make such certificate or other document not
misleading. The representations and warranties specified above are in addition
to and not in lieu of any representations and warranties set forth in any other
related document.
-2-
<PAGE>
5. Further Agreements. Debtor agrees at any time to execute
or obtain the execution of, in form and substance satisfactory to Company, such
financing statements, subordinations, releases or waivers and other documents
relating to the Collateral as Company may from time to time request. Debtor
agrees that Company may file any such financing statements and other documents
which Company deems to be necessary or appropriate to evidence and properly
secure the Company's interest in the Collateral, and Debtor will pay all costs,
including attorney's fees, incurred in connection with such filings. Debtor
agrees that Company may enter upon Debtor's premises or wherever the Collateral
may be located at any reasonable time to inspect the Collateral and Debtor's
books and records pertaining to the Collateral, and Debtor shall assist Company
in making such inspection.
6. Use of Collateral; First and Prior Lien. Debtor agrees
that it will not misuse, conceal, pledge, mortgage, encumber or in any way use
or dispose of the Collateral unlawfully, and that it will keep the Collateral
free of, and shall defend the Collateral from and against, all liens, claims,
security interests and encumbrances, except for the security interest granted
hereby and any other security interest(s) agreed to in writing by Company.
Debtor, at its sole expense, shall maintain the Collateral in good repair and
operating condition. Debtor shall be solely responsible for and shall promptly
pay when due all taxes and other charges of every nature which may be levied or
assessed against the Collateral, its use or operation or which arise out of or
are connected with this Agreement by any governmental agency. Debtor shall not
change the location of any collateral from that specified herein without prior
written consent of Company.
7. Insurance. Debtor shall bear the risk of any loss, damage
or destruction to the Collateral. Debtor shall, at its expense, insure the
Collateral against all risks for its full insurable value, with such insurance
companies and under such policies and in such form as are satisfactory to
Company. Such insurance shall be primary, without right of contribution from any
insurance carried by Company, shall name Company as loss payee, shall be payable
to Company as its interest may appear and shall provide that it may not be
canceled or altered so as to affect the interest of Company without at least
thirty (30) days' prior written notice to Company. At the request of Company,
Debtor shall furnish Company with satisfactory evidence of such insurance.
Debtor shall promptly notify Company of any loss or damage to the Collateral and
of any claim relating thereto. Debtor shall not make adjustments relating to the
Collateral with insurers without Company's prior written consent, and Debtor
hereby irrevocably appoints Company Debtor's attorney-in-fact to endorse all
drafts or checks payable to Debtor, and to take all other actions necessary to
collect any proceeds of such insurance. Any amounts so collected shall be
applied by Company to the indebtedness secured hereby.
8. Substitute Performance. In the event Debtor shall fail to
maintain the aforementioned insurance, pay taxes or other charges, properly
maintain or repair the Collateral, or perform any other obligation required
hereunder, Company may (but need not) at any time thereafter make expenditures
for any or all such purposes in order to maintain and preserve the Collateral.
The amount so expended, together with interest thereon at the lesser of eighteen
percent (18%) per annum or the highest lawful contract rate of interest, shall
be immediately due and payable by Debtor and shall be secured by the security
interest herein granted.
-3-
<PAGE>
9. Disposition of Collateral. Debtor shall not sell, lease,
assign or transfer any of the Collateral without the prior written consent of
Company. All proceeds received by Debtor forming part of the Collateral shall be
received under an express trust for the benefit of Company and shall not be
commingled with other monies, assets or accounts of Debtor and shall be
immediately paid to Company.
10. Default. Debtor shall be in default hereunder upon the
occurrence of any of the following events: (a) Debtor fails to pay when due any
indebtedness or liability secured hereby; (b) Debtor fails to observe or perform
any of the provisions of this Agreement or of any other instrument or agreement
relating to all or any part of the Collateral; (c) any representation, warranty,
financial statement or other information made or furnished by Debtor to Company
is untrue in any material respect as of the date made or furnished; (d) Debtor
ceases to do business, becomes insolvent, makes an assignment for the benefit of
creditors or files any petition or action under any bankruptcy, reorganization,
insolvency or moratorium law, or any other law or laws for the relief of, or
relating to, Debtors; (e) any involuntary petition is filed under any bankruptcy
statute against Debtor or any receiver, trustee, custodian or similar official
is appointed to take possession of the properties of Debtor unless such petition
or appointment ceases to be in effect within ten (10) days of said filing or
appointment; (f) the dissolution, merger or consolidation of Debtor without the
express prior written approval of Company; (g) the sale, transfer or other
disposition by Debtor of any of the Collateral or of any substantial portion of
Debtor's assets or property, except for full value in the ordinary course of
business; (h) the death of a Debtor who is a natural person or of any partner of
a Debtor which is a partnership; (i) the assignment by Debtor of an equity
interest in any of the Collateral without the prior written consent of Company;
(j) Debtor fails to maintain licenses and permits necessary for its business
operations or fails to comply with all applicable laws and regulations affecting
the ownership, use, sale, lease or storage of the Collateral; (k) the Collateral
or any part thereof becomes lost, stolen or materially damaged, or levied on,
seized or attached; (1) any default shall occur under any other agreement
between Debtor and Company or Debtor and any subsidiary or affiliate of Company;
(m) if a surety takes over performance of a Debtor's job or extends financial
assistance to Debtor; (n) if Debtor or any partner of Debtor dies, or the
controlling voting or non-voting interest in Debtor is changed by reason of
sale, gift, bequeath or any other disposition without the Company's written
consent; or (o) Company reasonably deems itself to be insecure.
11. Rights and Remedies. Upon the occurrence of any default
hereunder and at any time thereafter, Company may, at its option, (a) declare
any or all indebtedness and liabilities of Debtor secured hereby immediately due
and payable without notice or demand; (b) recover any additional damages and
expenses sustained by Company by reason of the breach of any provision of this
Agreement by Debtor; (c) enforce the security interest granted hereunder; (d)
without notice, liability or legal process, enter upon the premises where any of
the Collateral may be and take possession thereof; and (e) require Debtor to
assemble the Collateral and make it available to Company at a place designated
by Company which is reasonably convenient to Company and Debtor. Company shall
have all rights given to a secured party by law and all of Company's rights and
remedies shall be cumulative and nonexclusive, to the extent permitted by
applicable law. Company may, at its option, undertake commercially reasonable
efforts to sell or dispose of all or
-4-
<PAGE>
any part of the Collateral, and the proceeds of any such sale or disposition
shall be applied: first, to reimburse Company for all reasonable expenses of
retaking, holding, preparing for sale or disposition, and selling or disposing
of the Collateral, including all taxes and reasonable attorney's fees; and,
second, to the extent not previously paid by Debtor, to pay all indebtedness and
liabilities secured hereby. Any surplus shall be paid to the person entitled
thereto. Debtor shall promptly pay any deficiency to Company. Debtor hereby
acknowledges that sales for cash or on credit to a wholesaler, retailer or user,
and with or without the Collateral being present, are all commercially
reasonable dispositions of the Collateral. Debtor agrees to pay all reasonable
attorney's fees and all costs and expenses incurred by Company in enforcing this
Agreement upon the occurrence of any default hereunder. Company shall have the
right, immediately and without further action by it, to set off against the
indebtedness and liabilities of Debtor all money owed by Company to Debtor,
whether or not due, and Company shall be deemed to have exercised such right of
setoff and to have a charge against any such money immediately upon the
occurrence of a default hereunder, even though such charge is made or entered on
the books of Company subsequent thereto.
12. Indemnification. Debtor shall defend, indemnify and save
Company harmless from any and all claims, losses, liabilities, demands, suits,
judgments and causes of action, and all costs or expenses in connection
therewith (including attorney's fees) resulting from or in any way connected
with the selection, ownership, possession, use, demonstration, display,
delivery, disposition, maintenance or repair by Debtor or any third person of
all or any part of the Collateral.
13. Integration; Amendment; Waiver. This Agreement
constitutes the entire agreement between the parties and may not be altered or
amended except by a writing signed by all parties hereto. Waiver of any default
hereunder shall not constitute waiver of any subsequent default. Any waiver or
consent by Company of or to any default by Debtor hereunder must be in writing
specifically set forth. If this instrument is signed by more than one Debtor,
the singular "Debtor" shall include the plural, and the obligations of all such
Debtors shall be joint and several.
14. Assignment. Any or all of the rights of Company under
this Agreement and in the Collateral may be assigned by Company at any time. No
assignment of this Agreement or any right hereunder may be made by Debtor
without the prior written consent of Company. This Agreement shall be binding
upon the heirs, personal representatives, successors and assigns of Debtor and
inure to the benefit of Company, its successors and assigns. Time is of the
essence of this Agreement. The Collateral is and shall remain personal property
at all times notwithstanding the manner in which it is attached or affixed to
realty. Company or its agent shall have the right at all reasonable times to
inspect the Collateral and to inspect and copy any books or records relating
thereto.
15. Governing Law; Construction; Severability. This Agreement
shall be construed no more strictly against one party than the other, regardless
of which party drafted the Agreement. Any provision found to be invalid under
any applicable law shall be inapplicable and deemed omitted, but the remaining
provisions hereof shall be given effect in accordance with the manifest intent
hereof. Notwithstanding any termination of this Agreement, all terms and
conditions
-5-
<PAGE>
hereof shall continue to apply after such termination to all property forming a
part of the Collateral prior to or at the time of such termination.
16. General. The headings appearing in each section hereof
are for convenience of reference only and are not to be considered or construed
as a substantive part of this Agreement.
In Witness Whereof, Debtor and Company have duly executed
this Agreement as of the day and year aforesaid.
Showpower, Inc. Caterpillar Financial Services Corporation
("Debtor") ("Company")
By: /s/ MICHAEL W. CRABBE By: /s/ [need name of signatory]
------------------------ ----------------------------
Title: Chief Financial Officer Title: Regional Manager
------------------------ ----------------------------
-6-
<PAGE>
ATTACHMENT I
COLLATERAL DESCRIPTION
(4) 1200 Amp AC Motion Picture Generators equipped with (4) Caterpillar
3116 Engines, s/n #'s 2WGO6353, 2WGO6354, 2WGO6355, & 2WGO6356, (4)
Caterpillar XQ 1250, 3512 Modules s/n #'s 24ZO3499, 24ZO4953, 24ZO6526
& 24ZO5744 and (4) Marathon 1265 Generators, s/n #"s LM226146-1197,
LM226143-1197, LM226130-1197 & LM226135-1197.
(10) York 100 Ton/2OOkW Portable Air Handlers, s/n #'s 9702030001E,
9702030002E, 9702030003E, 9702030004E, 9702030005E, 9702030006E,
9702030007E, 9702030008E, AHU30009E200, & AHU300NRI864.
(4) York 25 Ton/72kw DX Portable Air Conditioners, s/n #'s NGEM085473,
NGFM080697, NGFM080698 & NGFM080699.
(1) lot: Flexible hose, manifolds, fittings, electric cable tails, with
CamLok connectors, pumps and spare parts.
(50) Movincool IOSFU-1 Spot Coolers, s/n #'s 0797-0017, 0697-0069,
0797-0020, 0797-0019, 0797-0012, 0797-0014, 0797-0024, 0797-0018,
0797-0029, 0797-0023, 0797-0026, 0797-0025, 0797-0032, 0797-0031,
0797-0008, 0797-0009, 0797-0059, 0797-0052, 0797-0016, 0797-0055,
0797-0033, 0797-0004, 0797-0056, 0797-0034, 0797-0047, 0797-0037,
0797-0005, 0797-0001, 0797-0006, 0797-0007, 0797-0028, 0797-0038,
0797-0027, 0797-0030, 0797-0039, 0797-0041, 0797-0045, 0797-0003,
0697-0088, 0697-0089, 0697-0085, 0697-0086, 0697-0084, 0697-0076,
0697-0069, 0697-0082, 0697-0077, 0697-0074, 0697-0087, & 0697-0083.
SHOWPOWER, INC.
BY: /s/ MICHAEL W. CRABBE
-------------------------
TITLE: Chief Financial Officer
-------------------------
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<PAGE>
ACKNOWLEDGMENT
State of California )
)
County of Los Angeles )
On this 16th day of January, 1998, before me Sheila J.
Pearce, a Notary Public in and for said County of Los Angeles, residing therein,
duly commissioned and sworn, personally appeared Michael W. Crabbe, known to me
to be the CFO of Showpower, Inc., the corporation that executed the within
instrument, and known to me to be the person who executed the within instrument
on behalf of said corporation, and acknowledged to me that such corporation
executed same.
In Witness Whereof, I hereunder subscribe my name and affix
my official seal in my office in said County of Los Angeles on the day and year
first above written.
/s/ SHEILA J. PEARCE
-----------------------
Notary Public
(Seal)
My commission expires: February 9, 2000
-8-
Exhibit 10.6.1
LOAN AND SECURITY AGREEMENT Number: 3025
<TABLE>
<S> <C> <C> <C>
Name of Debtor: Showpower, Inc. Name of Secured Party: Charter Financial, Inc.
Address: 18128 South Santa Fe Avenue Address: 153 East 53rd Street
Rancho Dominguez, CA 90221 New York, NY 10022
</TABLE>
Quantity DESCRIPTION OF PERSONAL PROPERTY (Show: Manufacturer, Model No.,
Serial No., Other Identification)
Various equipment as more fully described on the attached Schedule "A"
annexed hereto and made a part hereof.
Location of Equipment: Same As Above
SCHEDULE OF OBLIGATIONS
Loan Amount ("Unpaid Cash Price Balance") $1,350,000.00
Documentation Fees $750.00
Interest ("Finance Charge") $365,538.00
Time Balance $1,716,288.00
Term of Loan Forty-Nine Months
Number of Payments 49
Payments Payable Monthly in Advance
Amount of Each Payment 48 @ $30,131.00 each
1 @ $270,000.00
Debtor agrees to pay the Time Balance to Secured Party in
forty-nine (49) installments commencing on January 1, 1997, and continuing on
the 1st day of each month thereafter until and including January 1, 2001. The
first installment shall be in the amount of $30,131.00, the next forty-seven
(47) installments shall each be in the amount of $30,131.00 and the last
installment shall be in the amount of $270,000.00.
ADDITIONAL TERMS AND CONDITIONS
1. Grant of Security Interest. Debtor hereby grants to Secured
Party a security interest in the personal property described above (hereinafter
with all renewals, substitutions and
<PAGE>
replacements and all parts, repairs, improvements, additions and accessories
incorporated therein or affixed thereto referred to as the "Equipment"),
together with any and all proceeds thereof and any and all insurance policies
and proceeds with respect thereto.
2. Obligations Secured. The aforesaid security interest is
granted by Debtor as security for (a) the payment of the Time Balance (as set
forth in the Schedule of Obligations) and the payment and performance of all
other indebtedness and obligations now or hereafter owing by Debtor to Secured
Party, of any and every kind and description hereunder, and any and all renewals
and extensions of the foregoing, and all interest fees, charges, expenses and
attorneys' fees accruing or incurred in connection with any of the foregoing
(all of which Time Balance, indebtedness and obligations are hereinafter
referred to as the "Liabilities") and (b) the payment and performance of all
other indebtedness and obligations now or hereafter owing by Debtor to Secured
Party, of any and every kind and description, howsoever arising or evidenced
[PAGE 2 MISSING]
-2-
<PAGE>
in accordance with its terms; and entering into this Agreement and carrying out
its terms and provisions will not violate the terms or constitute a breach of
any other agreement to which Debtor is a party.
7. Affirmative Covenants of Debtor. Debtor shall (a) cause the
Equipment to be kept in good condition and use the Equipment only in the manner
for which it was designed and intended so as to subject it only to ordinary wear
and tear and cause to be made all needed and proper repairs, renewals and
replacements thereto; (b) maintain at all times property damage, fire, theft and
comprehensive insurance for the full replacement value of the Equipment, with
loss payable provisions in favor of Secured Party and any assignee of Secured
Party as their interests may appear, and maintain public liability insurance in
amounts satisfactory to Secured Party, naming Secured Party and any assignee of
Secured Party as insureds with all of said insurance and loss payable provisions
to be in form, substance and amount and written by companies approved by Secured
Party, and deliver the policies therefor, or duplicates thereof, to Secured
Party; (c) pay or reimburse Secured Party for any and all taxes, assessments and
other governmental charges of whatever kind or character, however designated
(together with any penalties, fines or interest thereon) levied or based upon or
with respect to the Equipment, the Liabilities or this Agreement or upon the
manufacture, purchase, ownership, delivery, possession, use, storage, operation,
maintenance, repair, return or other disposition of the Equipment, or upon any
receipts or earnings arising therefrom, or for titling or registering the
Equipment, or upon the income or other proceeds received with respect to the
Equipment or this Agreement provided, however, that Debtor shall pay taxes on or
measured by the net income of Secured Party and franchise taxes of Secured Party
only to the extent that such net income taxes or franchise taxes are levied or
assessed in lieu of any other taxes, assessments or other governmental charges
hereinabove described; (d) pay all shipping and delivery charges and other
expenses incurred in connection with the Equipment and pay all lawful claims,
whether for labor, materials, supplies, rents or services, which might or could
if unpaid become a lien on the Equipment; (e) comply with all governmental laws,
regulations, requirements and rules, all instructions and warranty requirements
of Secured Party or the manufacturer of the Equipment, and with the conditions
and requirements of all policies of insurance with respect to the Equipment and
this Agreement; (f) mark and identify the Equipment with all information and in
such manner as Secured Party may request from time to time and replace promptly
any such marking or identification which are removed, defaced or destroyed; (g)
at any and all times during business hours, grant to Secured Party free access
to enter upon the premises wherein the Equipment shall be located and permit
Secured Party to inspect the Equipment; (h) reimburse Secured Party for all
charges, costs and expenses (including attorneys' fees) incurred by Secured
Party in defending or protecting its interests in the Equipment in the attempted
enforcement or enforcement of the provisions of this Agreement or in the
attempted collection or collection of any of the Liabilities; (i) indemnify and
hold any assignee of Secured Party, and Secured Party, harmless from and against
all claims, losses, liabilities, damages, judgments, suits, and all legal
proceedings, and any and all costs and expenses in connection therewith
(including attorneys' fees) arising out of or in any manner connected with the
manufacture, purchase, ownership, delivery, possession, use, storage, operation,
maintenance, repair, return or other disposition of the Equipment or with this
Agreement, including, without limitation, claims for injury to or death of
persons and for damage of property, and give Secured Party prompt notice of any
such claim or liability, provided, however, that the foregoing
-3-
<PAGE>
shall not affect or impair any warranty made by Secured Party; and (j) maintain
a system of accounts established and administered in accordance with generally
accepted accounting principles and practices consistently applied, and, within
thirty (30) days after the end of each fiscal quarter, deliver to Secured Party
a balance sheet as at the end of such quarter and statement of operations for
such quarter, and, within one hundred and twenty (120) days after the end of
each fiscal year, deliver to Secured Party a balance sheet as at the end of such
year and statement of operations for such year. in each case prepared in
accordance with generally accepted accounting principles and practices
consistently applied and certified by Debtor's chief financial officer as fairly
presenting the financial position and results of operation of Debtor, and, in
the case of year end financial statements, certified by an independent
accounting firm acceptable to Secured Party.
8. Negative Covenants of Debtor. Debtor shall not (a) create,
incur, assume or suffer to exist any mortgage, lien, pledge or other encumbrance
or attachment of any kind whatsoever upon, affecting or with respect to the
Equipment or this Agreement or any of Debtor's interests hereunder; (b) make any
changes or alterations in or to the Equipment except as necessary for compliance
with clause (a) of paragraph 7 above; (c) permit the name of any person,
association or corporation other than Secured Party to be placed on the
Equipment as a designation that might be interpreted as a claim of interest in
the Equipment; (d) part with possession or control of or suffer or allow to pass
out of its possession or control any of the Equipment or change the location of
the Equipment or any part thereof from the location shown above; (e) assign or
in any way dispose of all or any part of its rights or obligations under this
Agreement or enter into any lease of all or any part of the Equipment; or (f)
change its name or address from that set forth above unless it shall have given
Secured Party no less than thirty (30) days prior written notice thereof.
9. Equipment Personalty. The Equipment is, and shall at all times
be and remain, personal property notwithstanding that the Equipment or any part
thereof may now be, or hereafter become, in any manner affixed or attached to,
or imbedded in, or permanently resting upon real property or attached in any
manner to real property by cement, plaster, nails, bolts, screws or otherwise.
If requested by Secured Party with respect to any item of Equipment, Debtor will
obtain and deliver to Secured Party waivers of interest or liens in recordable
form satisfactory to Secured Party, from all persons claiming any interest in
the real property on which such item of Equipment is installed or located.
10. Events of Default and Remedies. If any one or more of the
following events ("Events of Default") shall occur:
(a) Debtor shall fail to make any payment in respect of the
Liabilities when due; or
(b) Any certification, statement, representation, warranty or
financial report or statement heretofore or hereafter furnished by or on
without any liability arising with respect thereto, and any and all
claims in connection with such personalty shall be deemed to have been
waived unless notice of such claim is made
-4-
<PAGE>
by certified or registered mail upon Secured Party within three business
days after repossession.
Secured Party shall apply the cash Proceeds from any sale or
other disposition of the Equipment first, to the reasonable expenses of
re-taking, holding, preparing for sale, selling, leasing and the like, and to
reasonable attorneys' fees and other expenses which are to be paid or reimbursed
to Secured Party pursuant hereto, and second, to all Outstanding portions of the
Liabilities and to any Other Liabilities in such order as Secured Party may
elect, and third, any surplus to Debtor, subject to any duty of Secured Party
imposed by law to the holder of any subordinate security interest in the
Equipment known to Secured Party; provided however, that Debtor shall remain
liable with respect to unpaid Portions of the Liabilities owing by it and will
pay Secured Party on demand any deficiency remaining with interest as provided
for in paragraph 15 below.
11. Secured Party's Right to Perform for Debtor. If Debtor fails
to perform or comply with any of its agreements contained herein Secured Party
may perform or comply with such agreement and the amount of any payments and
expenses incurred by Secured Party in connection with such performance or
compliance, together with interest thereon at the rate provided for in paragraph
15 below, shall be deemed a part of the Liabilities and shall be payable by
Debtor upon demand.
12. Further Assurances. Debtor will cooperate with Secured Party
for the purpose of protecting the interests of Secured Party if the Equipment,
including, without limitation, the execution of all Uniform Commercial Code
financing statements requested by Secured Party. Secured Party and any assignee
of Secured Party are each authorized to the extent permitted by applicable law
to file one or more Uniform Commercial Code financing statements disclosing any
security interest in the Equipment without the signature of Debtor or signed by
Secured Party or any assignee of Secured Party as attorney-in-fact for Debtor.
Debtor will pay all costs of filing any financing, continuation or termination
statements with respect to this Agreement, including, without limitation, any
documentary stamp taxes relating thereto. Debtor will do whatever may be
necessary to have a statement of the interest of Secured Party and of any
assignee of Secured Party in the Equipment noted on any certificate of title
relating to the Equipment and will deposit said certificate with Secured Party
or such assignee. Debtor shall execute and deliver to Secured Party, upon
request such other instruments and assurances as Secured Party deems necessary
or advisable for the implementation, effectuation, confirmation or perfection of
this Agreement and any rights of Secured Party hereunder.
13. Non-Waiver; Etc. No course of dealing by Secured Party or
Debtor or any delay or omission on the part of Secured Party in exercising any
rights hereunder shall operate as a waiver of any rights of Secured Party. No
waiver or consent shall be binding upon Secured Party unless it is in writing
and signed by Secured Party. A waiver on any one occasion shall not be construed
as a bar to or a waiver of any right and/or remedy on any future occasion. To
the extent permitted by applicable law, Debtor hereby waives the benefit and
advantage of and covenants not to assert against Secured Party, any valuation,
inquisition, stay, appraisement, extension or redemption laws now existing or
which may hereafter exist which, but for this provision, might be
-5-
<PAGE>
applicable to any sale or other disposition made under the judgment, order or
decree of any court or under the powers of sale and other disposition conferred
by this Agreement or otherwise. Debtor hereby waives any right to a jury trial
with respect to any matter arising under or in connection with this Agreement.
14. Entire Agreement; Severability; Etc. This Agreement
constitutes the entire agreement between Secured Party and Debtor and all
conversations, agreements and representations relating to this Agreement or to
the Equipment are integrated herein. If any provision hereof or any remedy
herein provided for shall be invalid under any applicable law, such provision or
remedy shall be inapplicable and deemed omitted, but the remaining provisions
and remedies hereunder shall be given effect in accordance with the intent
hereof. Neither this Agreement nor any term hereof may be changed, discharged,
terminated or waived except in an instrument in writing signed by the party
against which enforcement of the change, discharge, termination or waiver is
sought. This Agreement shall in all respects be governed by and construed in
accordance with the internal laws of the State of New York, including all
matters of construction, validity and performance, and shall be deemed a
purchase money security agreement within the meaning of the Uniform Commercial
Code. The captions in this Agreement are for convenience of reference only and
shall not define or limit any of the terms or provisions hereof. This Agreement
shall inure to the benefit of and be binding upon Secured Party and Debtor and
their respective successors and assigns, subject, however, to the limitations
set forth in this Agreement with respect to Debtor's assignment hereof. No right
or remedy referred to in this Agreement is intended to be exclusive but each
shall be cumulative and in addition to any other right or remedy referred to in
this Agreement or otherwise available to Secured Party, at law or in equity, and
shall be in addition to the provisions contained in any instrument referred to
herein and any instrument supplemental hereto. Debtor shall be liable for all
costs and expenses, including attorneys' fees and disbursements, incurred by
reason of the occurrence of any Event of Default or the exercise of Secured
Party's remedies with respect thereto. Time is of the essence with respect to
this Agreement and all of its provision.
15. Prepayment; Rebate; Interest. Except for the installment
payments of the Time Balance as set forth in the Schedule of Obligations, the
Debtor may not prepay the Time Balance, in whole or in part, at any time. In the
event Secured Party declares all of the Time Balance to be due and payable
pursuant to clause (1) of paragraph 10 above, Debtor shall pay to Secured Party
an amount equal to the sum of (a) all accrued and unpaid amounts as of the
Declaration Date plus interest thereon, and (b) the present value of all future
installments set forth in this Agreement over the remaining unexpired term of
this Agreement discounted to present value using a discount rate of six percent
(6%) provided that the amount of the Finance Charge earned by Secured Party
computed as aforesaid shall not exceed the highest amount permitted by
applicable law. The Time Balance as reduced to present value in accordance with
the preceding sentence shall bear interest from and after the Declaration Date,
and all other Liabilities due and payable under the Agreement (including past
due installments) shall bear interest from and after their respective due dates,
at the lesser of 1.5% per month or the highest rate permitted by applicable law,
provided, however, that Debtor shall have no obligation to pay any interest on
interest except to the extent permitted by applicable law.
-6-
<PAGE>
16. Consent to Jurisdiction. Debtor hereby irrevocably consents
to the jurisdiction of the courts of the State of New York and of any federal
court located in such state in connection with any action or proceeding arising
out of or relating to this Agreement or the transactions contemplated hereby.
Any such action or proceeding will be maintained in the United States District
Court for the Southern District of New York or in any court of the State of New
York located in the County of New York and Debtor waives any objections based
upon venue or forum non conveniens in connection with any such action or
proceeding. Debtor consents that process in any such action or proceeding may be
served upon it by registered mail directed to Debtor at its address set forth at
the head of this Agreement or in any other manner permitted by applicable law or
rules of court. Debtor hereby irrevocably appoints Secretary of State of the
State of New York as its agent to receive service of process in any such action
or proceeding.
17. Notices. Notice hereunder shall be deemed given if served
personally or by certified or registered mail, return receipt requested, to
Secured Party and Debtor at their respective addresses set forth at the head of
this Agreement. Any party hereto may from to time by written notice to the other
change the address to which notices are to be sent to such party. A copy of any
notice sent by Debtor to Secured Party shall be concurrently sent by Debtor to
any assignee of Secured Party of which Debtor has notice.
The Debtor agrees to all the provisions set forth above. This
Agreement is executed pursuant to due authorization. DEBTOR ACKNOWLEDGES RECEIPT
OF A SIGNED TRUE COPY OF THIS AGREEMENT.
Accepted on January 6, 1997 Date: December 30, 1996
CHARTER FINANCIAL, INC. SHOWPOWER, INC. (Debtor)
(Secured Party) (Signature of Proprietor or name of
Corporation or Partnership)
By /s/ STUART ABRAMSON By /s/ JOHN J. CAMPION
------------------------ --------------------------
Its Vice President Its Chief Executive Officer
------------------------ --------------------------
(Title of Officer) (if Corporation, President or Vice
President should sign and give
official title; if Partnership, state
partner)
-7-
Exhibit 10.6.2
AMENDMENT TO LOAN AND SECURITY AGREEMENT NO. 3025 DATED
DECEMBER 30,1996 (THE "AGREEMENT") BY AND BETWEEN SHOWPOWER, INC.
AS DEBTOR AND CHARTER FINANCIAL INC. AS SECURED PARTY
The Agreement is hereby amended as follows:
(i) the Unpaid Cash Price Balance is increased by
$150,000.00 from $1,350,000.00 to a total of $1,500,000.00.
(ii) the Finance Charge is increased by $40,608.00 from
$365,538.00 to a total of $406,146.00.
(iii) the Time Balance is increased by $190,608.00 from
1,716,288.00 to a total of $1,906,896.00.
(iv) the first 48 payments are each increased by $3,346.00
from 30,131.00 to $33,477.00 and the 49th payment is increased by $30,000.00
from $270,000.00 to $300,000.00.
Debtor agrees to pay the Time Balance to Secured Party in
forty-nine (49) installments commencing on January 1, 1997 and continuing on the
1st day of each month thereafter until and including January 1, 2001. The first
installment shall be in the amount of $33,477.00, the next forty-seven (47)
installments shall each be in the amount of $33,477.00 and the last installment
shall be in the amount of $300,000.00.
2. Except for the increase in the amounts as set forth
hereinabove, there are no other modifications or amendments to the Agreement,
which remains in full force and effect.
DEBTOR: SECURED PARTY:
SHOWPOWER, INC. CHARTER FINANCIAL, INC.
By: /s/ STEPHEN R. BERNSTEIN By: /s/ STUART ABRAMSON
---------------------------- ------------------------
Title: Executive Vice President Title: Vice President
Date: January 9, 1997 Date: January 10, 1997
Exhibit 11.1
SHOWPOWER, INC.
COMPUTATION OF INCOME PER COMMON SHARE
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1997
1996 1997 Supplemental*
-------------- -------------- ------------
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 172,401 $ 930,604
Weighted average shares outstanding . . . . . . . . . . . . . 990,294 1,724,580
Dilutive effect of restricted stock after application of
treasury stock method. . . . . . . . . . . . . . . . . . . -- 76,563
Shares used in calculating diluted income per share . . . . . 990,294 1,801,143
Basic net income per share . . . . . . . . . . . . . . . . . . $ 0.17 $ 0.54
Diluted net income per share. . . . . . . . . . . . . . . . . $ 0.17 $ 0.52
Pro forma:
Pro forma net income. . . . . . . . . . . . . . . . . . . . . $ 103,021 $ 632,370 $ 632,370
Weighted average shares outstanding. . . . . . . . . . . . . . 990,294 1,724,580 1,783,117
Dilutive effect of restricted stock after application of
treasury stock method. . . . . . . . . . . . . . . . . . . -- 76,563 76,563
Shares used in calculating diluted income per share . . . . . 990,294 1,801,143 1,859,680
Pro forma basic net income per share . . . . . . . . . . . . $ 0.10 $ 0.37 $ 0.35
Pro forma diluted net income per share. . . . . . . . . . . . .$ 0.10 $ 0.35 $ 0.34
</TABLE>
- -------------------------
* Dilutive effect of distribution to shareholders after application of
treasury stock method is an additional 58,537 shares.
Exhibit 18.1
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
March 6, 1998
Mr. Michael Crabbe
Chief Financial Officer
Showpower, Inc.
18128 South Santa Fe Avenue
Rancho Dominguez, California 90221
Dear Michael:
We have audited the consolidated balance sheet of Showpower, Inc. and
subsidiaries as of December 31, 1997 and the related consolidated statements of
income, stockholders' equity and cash flows for the years ended December 31,
1997 and 1996, included in the Registration Statement on Form SB-2 filed by
Showpower, Inc. with the Securities and Exchange Commission, and have issued our
report thereon dated March 6, 1998. Note 4 to such financial statements contains
a description of your adoption during the year ended December 31, 1997 of the
straight-line depreciation method. In our judgment, such change is to an
alternative accounting principle that is preferable under the circumstances.
Yours truly,
/s/ Deloitte & Touche LLP
Exhibit 21.1
EXHIBIT 21.1
SUBSIDIARIES
State or Other Jurisdiction
Subsidiary of Incorporation or Organization
---------- --------------------------------
Showpower Overseas, LLC Indiana
Templine, Ltd. U.K.
Showpower Brasil, S.A. Brazil
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Showpower, Inc. on Form
SB-2 of our report dated March 6, 1998 (which expresses an unqualified opinion
and includes an explanatory paragraph relating to a change in the Showpower,
Inc.'s estimated useful lives of and method of accounting for depreciation of
property and equipment) appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the headings "Summary Consolidated
Financial Information," "Selected Consolidated Financial Information" and
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Los Angeles, California
April 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000828360
<NAME> SHOWPOWER, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 485,788
<SECURITIES> 0
<RECEIVABLES> 1,388,480
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,340,958
<PP&E> 12,056,711
<DEPRECIATION> (4,026,299)
<TOTAL-ASSETS> 11,724,658
<CURRENT-LIABILITIES> 3,948,408
<BONDS> 2,196,938
0
0
<COMMON> 6,678,491
<OTHER-SE> (1,372,119)
<TOTAL-LIABILITY-AND-EQUITY> 11,724,658
<SALES> 0
<TOTAL-REVENUES> 17,294,036
<CGS> 0
<TOTAL-COSTS> 8,908,759
<OTHER-EXPENSES> 7,176,276
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203,667
<INCOME-PRETAX> 1,047,166
<INCOME-TAX> 116,562
<INCOME-CONTINUING> 930,604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 930,604
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.35
</TABLE>
Exhibit 99.1
CONSENT
I have reviewed the Registration Statement on Form SB-2
relating to the initial public offering of common stock of Showpower, Inc. and
hereby consent to be named as a director of Showpower, Inc. upon consummation of
its initial public offering and to the references to me under the heading
"Management--Executive Officers and Directors" in such Registration Statement.
/s/ VINCENT A. CARRINO
-------------------------
Vincent A. Carrino
Dated: April 10, 1998
Exhibit 99.2
CONSENT
I have reviewed the Registration Statement on Form SB-2
relating to the initial public offering of common stock of Showpower, Inc. and
hereby consent to be named as a director of Showpower, Inc. upon consummation of
its initial public offering and to the references to me under the heading
"Management--Executive Officers and Directors" in such Registration Statement.
/s/ ERIC C. JACKSON
---------------------
Eric C. Jackson
Dated: March 28, 1998
