AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1998
REGISTRATION NO. 333-50595
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
SHOWPOWER, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7359 95-4678707
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
18128 S. SANTA FE AVENUE
RANCHO DOMINGUEZ, CALIFORNIA 90221
(310) 604-9676
(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
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
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
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box: /x/
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C>
Common Stock, par value $.01 per share............................ 1,380,000 $17,940,000 $ 5,293
Representative Warrants........................................... 120,000 $1,200 --
Common Stock, par value $.01 per share, underlying Representative
Warrants........................................................ 120,000 $1,872,000 $553
Total............................................................. -- -- $5,846(2)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
(2) Previously paid.
------------------------
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 JUNE 1, 1998
PROSPECTUS
1,200,000 SHARES
SHOWPOWER, INC.
[LOGO OMITTED]
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.
The Common Stock has been approved for listing on The American Stock
Exchange (the 'AMEX') under the symbol 'SHO,' subject to notice of issuance.
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE SEVEN 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
THE PUBLIC AND COMMISSIONS(1) THE COMPANY(2)
<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 June_________ , 1998.
------------------------
PRIME CHARTER LTD.
THE DATE OF THIS PROSPECTUS IS JUNE , 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 such State.
<PAGE>
[MAP OF WORLD INDICATING
LOCATIONS OF BRANCH OFFICES
AND SELECTED 1997 - 1998 PROJECT SITES]
[POTOGRAPH OF EQUIPMENT]
[POTOGRAPH OF EQUIPMENT]
[POTOGRAPH OF EQUIPMENT]
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.'
2
<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 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.
3
<PAGE>
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
<TABLE>
<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>
4
<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' 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 financial data set forth below as of March 31, 1998 and for the
three months ended March 31, 1997 and 1998 have been derived from the unaudited
consolidated financial statements of the Company. In the opinion of the Company,
its unaudited consolidated financial statements have been prepared on the same
basis as the audited consolidated statements and include all adjustments
(consisting of normal recurring charges) necessary for a fair presentation of
the financial position and results of operations as of such dates and for the
three months then ended. The financial data for the three months ended March 31,
1998 are not necessarily indicative of results to be expected for the full
fiscal year. 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>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------- --------------------
1996 1997(1) 1997(1) 1998
------- ------- ------- ------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue..................................................... $11,567 $17,294 $ 2,460 $4,273
Cost of sales............................................... 7,609 9,790 1,419 2,452
------- ------- ------- ------
Gross profit................................................ 3,958 7,504 1,041 1,821
Selling, general and administrative expenses................ 3,552 6,179 1,061 1,627
Stock compensation.......................................... -- 107 -- 36
------- ------- ------- ------
Income (loss) from operations(2)(3)......................... 406 1,218 (20) 158
Other income and (expense).................................. (233) (171) (37) (114)
------- ------- ------- ------
Income (loss) before income taxes........................... 173 1,047 (57) 44
Income tax provision (benefit).............................. 1 116 (18) (41)
------- ------- ------- ------
Net income (loss)........................................... $ 172 $ 931 $ (39) $ 85
------- ------- ------- ------
------- ------- ------- ------
Basic net income (loss) per share........................... $ 0.17 $ 0.54 $ (0.03) $ 0.04
Diluted net income (loss) per share......................... 0.17 0.52 (0.03) 0.04
PRO FORMA DATA:(4)
Income (loss) before income taxes........................... $ 173 $ 1,047 $ (57) $ 44
Pro forma income tax provision (benefit).................... 70 415 (15) 63
------- ------- ------- ------
Pro forma net income (loss)................................. $ 103 $ 632 $ (42) $ (19)
------- ------- ------- ------
------- ------- ------- ------
Pro forma basic net income (loss) per share................. $ 0.10 $ 0.37 $ (0.04) $(0.01)
Pro forma diluted net income (loss) per share............... 0.10 0.35 (0.04) (0.01)
Supplemental pro forma basic net income (loss) per
share(5).................................................. $ -- $ 0.35 -- $(0.01)
Supplemental pro forma diluted net income (loss) per
share(5).................................................. -- 0.34 -- (0.01)
OTHER FINANCIAL DATA:
EBITDA(6)................................................... $ 1,469 $ 2,354 $ 226 $ 532
Net cash provided by (used in) operating activities......... 969 2,363 (128) (503)
Net cash used in investing activities....................... 1,801 4,018 2,284 249
Net cash provided by financing activities................... 847 1,955 2,568 544
Capital expenditures, including non-cash items.............. 1,699 2,903 178 2,555
Equipment rental expense.................................... 2,307 2,810 310 761
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
AS OF --------------------------------------------
DECEMBER 31, PRO FORMA
1997 ACTUAL PRO FORMA(7) AS ADJUSTED(7)(8)
------------ ------- ------------ -----------------
<S> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Working capital (deficit)............................... $ (1,608) $(1,860) $ (2,460) $ 7,270
Current assets.......................................... 2,341 2,336 2,336 10,468
Total assets............................................ 11,725 14,287 14,287 22,419
Current liabilities..................................... 3,949 4,196 4,796 3,198
Long-term liabilities................................... 2,470 4,683 5,408 2,838
Total liabilities....................................... 6,419 8,879 10,204 6,036
Stockholders' equity.................................... 5,306 5,408 4,083 16,383
</TABLE>
- ------------------
(1) Includes the results of operations of Templine subsequent to its acquisition
on March 17, 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 $725,000 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.'
6
<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 consideration to be paid for future acquisitions. The Company has no current
agreements or commitments and is not currently engaged in active negotiations
with respect to any acquisitions.
7
<PAGE>
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 a recent decline in the rate of inflation and a reduction in 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 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.'
8
<PAGE>
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 57% of the Company's outstanding Common Stock (54% 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 $7.35 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.'
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
9
<PAGE>
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 479,563 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.
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.
10
<PAGE>
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), during
the three months ended March 31, 1998 ($2,481,000) and thereafter
(approximately $332,000) 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.
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
12
<PAGE>
treatment of certain of the Company's assets and liabilities and is reflected
through an increase in deferred income tax liabilities, $725,000 of which
relates to tax and accounting differences as of March 31, 1998.
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 March
31, 1998 was $2,767,562 ($1.36 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 March 31, 1998 would have been $15,067,562, or
$4.65 per share. See 'Use of Proceeds.' This represents an immediate increase in
net tangible book value of $3.29 per share to existing stockholders of the
Company and an immediate dilution in net tangible book value of $7.35 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.... $1.36
Increase in pro forma net tangible book value per share attributable to new
investors........................................................................ 3.29
-----
Pro forma net tangible book value per share after giving effect to the Offering....... 4.65
------
Dilution per share to new investors................................................... $ 7.35
------
------
</TABLE>
The following table summarizes, as of March 31, 1998, 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>
13
<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 March 31, 1998. 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 MARCH 31, 1998
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
------- ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
DEBT:
CURRENT:
Bank lines of credit............................................. $ 594 $ 594 $ --
Current portion of long-term debt................................ 1,039 1,039 635
Current portion of capital lease obligations..................... 104 104 104
Due to stockholders.............................................. -- 600 --
------- ------------ -----------------
Total.......................................................... 1,737 2,337 739
LONG TERM:
Long-term debt................................................... 4,402 4,402 1,832
Capital lease obligations........................................ 41 41 41
------- ------------ -----------------
Total.......................................................... 4,443 4,443 1,873
------- ------------ -----------------
Total debt (including current portion)...................... 6,180 6,780 2,612
------- ------------ -----------------
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............................................ 6,694 6,694 18,982
Notes receivable from stockholders.................................... (489) (489) (489)
Cumulative foreign currency translation adjustment.................... 7 7 7
Accumulated deficit................................................... (824) (2,149) (2,149)
------- ------------ -----------------
Total stockholders' equity....................................... 5,408 4,083 16,383
------- ------------ -----------------
Total capitalization........................................... $11,588 $ 10,863 $18,995
------- ------------ -----------------
------- ------------ -----------------
</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 $3,568,000
outstanding at March 31, 1998, which will be repaid from the proceeds of the
Offering. See 'Use of Proceeds.'
14
<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' 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 financial data set forth below as of March 31, 1998 and for the
three months ended March 31, 1997 and 1998 have been derived from the unaudited
consolidated financial statements of the Company. In the opinion of the Company,
its unaudited consolidated financial statements have been prepared on the same
basis as the audited consolidated statements and include all adjustments
(consisting of normal recurring charges) necessary for a fair presentation of
the financial position and results of operations as of such dates and for the
three months then ended. The financial data for the three months ended March 31,
1998, are not necessarily indicative of results to be expected for the full
fiscal year. 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>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------- ----------------------------
1996 1997(1) 1997(1)
-------- ---------- ----------------------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue...................................... $ 11,567 $ 17,294 $ 2,460
Cost of sales................................ 7,609 9,790 1,419
-------- ---------- ------------
Gross profit................................. 3,958 7,504 1,041
Selling, general and administrative
expenses................................... 3,552 6,179 1,061
Stock compensation........................... -- 107 --
-------- ---------- ------------
Income (loss) from operations(2)(3).......... 406 1,218 (20)
Other income and (expense)................... (233) (171) (37)
-------- ---------- ------------
Income (loss) before income taxes............ 173 1,047 (57)
Income tax provision (benefit)............... 1 116 (18)
-------- ---------- ------------
Net income (loss)............................ $ 172 $ 931 $ (39)
-------- ---------- ------------
-------- ---------- ------------
Basic net income (loss) per share............ $ 0.17 $ 0.54 $ (0.03)
Diluted net income (loss) per share.......... 0.17 0.52 (0.03)
PRO FORMA DATA:(4)
Income (loss) before income taxes............ $ 173 $ 1,047 $ (57)
Pro forma income tax provision (benefit)..... 70 415 (15)
-------- ---------- ------------
Pro forma net income (loss).................. $ 103 $ 632 $ (42)
-------- ---------- ------------
-------- ---------- ------------
Pro forma basic net income (loss) per
share...................................... $ 0.10 $ 0.37 $ (0.04)
Pro forma diluted net income (loss) per
share...................................... 0.10 0.35 (0.04)
Supplemental pro forma basic net income
(loss) per share(5)........................ $ -- $ 0.35 --
Supplemental pro forma diluted net income
(loss) per share(5)........................ -- 0.34 --
Shares used in computing basic net income per
share...................................... 990,294 1,724,580 1,159,080
Shares used in computing diluted net income
per share.................................. 990,294 1,801,143 1,159,080
OTHER FINANCIAL DATA:
EBITDA(6).................................... $ 1,469 $ 2,354 $ 226
Net cash provided by (used in) operating
activities................................. 969 2,363 (128)
Net cash used in investing activities........ 1,801 4,018 2,284
Net cash provided by financing activities.... 847 1,955 2,568
Capital expenditures, including non-cash
items...................................... 1,699 2,903 178
Equipment rental expense..................... 2,307 2,810 310
<CAPTION>
1998
----------------------------
<S> <C>
INCOME STATEMENT DATA:
Revenue...................................... $ 4,273
Cost of sales................................ 2,452
------------
Gross profit................................. 1,821
Selling, general and administrative
expenses................................... 1,627
Stock compensation........................... 36
------------
Income (loss) from operations(2)(3).......... 158
Other income and (expense)................... (114)
------------
Income (loss) before income taxes............ 44
Income tax provision (benefit)............... (41)
------------
Net income (loss)............................ $ 85
------------
------------
Basic net income (loss) per share............ $ 0.04
Diluted net income (loss) per share.......... 0.04
PRO FORMA DATA:(4)
Income (loss) before income taxes............ $ 44
Pro forma income tax provision (benefit)..... 63
------------
Pro forma net income (loss).................. $ (19)
------------
------------
Pro forma basic net income (loss) per
share...................................... $ (0.01)
Pro forma diluted net income (loss) per
share...................................... (0.01)
Supplemental pro forma basic net income
(loss) per share(5)........................ $ (0.01)
Supplemental pro forma diluted net income
(loss) per share(5)........................ (0.01)
Shares used in computing basic net income per
share...................................... 1,913,080
Shares used in computing diluted net income
per share.................................. 2,018,128
OTHER FINANCIAL DATA:
EBITDA(6).................................... $ 532
Net cash provided by (used in) operating
activities................................. (503)
Net cash used in investing activities........ 249
Net cash provided by financing activities.... 544
Capital expenditures, including non-cash
items...................................... 2,555
Equipment rental expense..................... 761
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
AS OF --------------------------------------------
DECEMBER 31, PRO FORMA
1997 ACTUAL PRO FORMA(7) AS ADJUSTED(7)(8)
------------ ------- ------------ -----------------
<S> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Working capital (deficit)............................. $ (1,608) $(1,860) $ (2,460) $ 7,270
Current assets........................................ 2,341 2,336 2,336 10,468
Total assets.......................................... 11,725 14,287 14,287 22,419
Current liabilities................................... 3,949 4,196 4,796 3,198
Long-term liabilities................................. 2,470 4,683 5,408 2,838
Total liabilities..................................... 6,419 8,879 10,204 6,036
Stockholders' equity.................................. 5,306 5,408 4,083 16,383
</TABLE>
- ------------------
(1) Includes the results of operations of Templine subsequent to its acquisition
on March 17, 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 $725,000 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.'
16
<PAGE>
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.'
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 over the term of
and commensurate with the scope of services 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.
17
<PAGE>
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.
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.
Fluctuations in currency exchange rates result in fluctuations in reported
results of operations and financial position of the Company for business
conducted in currencies other than the U.S. dollar. For transactions denominated
in currencies other than the U.S. dollar, the Company's results of operations
are converted at average rates of exchange during the reporting period 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, which increased stockholders'
equity by $16,762 at December 31, 1997 and $7,287 at March 31, 1998.
RESULTS OF OPERATIONS
The following table sets forth components of the Company's statement of
operations as a percentage of revenue.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------- ----------------
1996 1997 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue............................................................ 100 % 100 % 100 % 100 %
Cost of sales...................................................... 66 57 58 57
---- ---- ---- ----
Gross profit....................................................... 34 43 42 43
Selling, general and administrative................................ 31 35 43 38
Stock compensation................................................. -- 1 -- 1
---- ---- ---- ----
Operating income (loss)............................................ 3 7 (1) 4
Interest and other (net)........................................... (2) (1) (2) (3)
---- ---- ---- ----
Income (loss) before income taxes.................................. 1 6 (3 ) 1
Income tax (provision) benefit..................................... -- (1 ) 1 1
---- ---- ---- ----
Net income (loss).................................................. 1 % 5 % (2 )% 2 %
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
18
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Revenue. Revenue increased to $4,273,058 for the first quarter of 1998 from
$2,460,675 for the same period in 1997, an increase of $1,812,383, or 74%, due
primarily to increases in special events, including the Winter Olympics in
Nagano, Japan, concert touring and a full quarter of Templine operations in
1998. The first quarter of 1998 included a special touring event which accounted
for approximately 25% of the increase and concert tours by the Rolling Stones
and U2. Templine operations accounted for approximately $296,000 of the
increase.
Cost of sales. Cost of sales increased to $2,452,455 for the first quarter
of 1998 from $1,419,342 for the same period in 1997, an increase of $1,033,113,
or 73%, as a result of increased sales. Cost of sales as a percentage of revenue
was 57% in the first quarter of 1998 and 58% in the first quarter of 1997.
Equipment rental expense increased to $760,647 (18% of revenue) for the first
quarter of 1998 from $310,170 (13% of revenue) for the first quarter of 1997.
The increase in rental expense of $450,477 accounted for 44% of the total
increase in cost of sales and reflected increased special event and concert
touring projects in the first quarter of 1998 over the corresponding period in
1997. Shipping and other costs declined as a percentage of revenue in the first
quarter of 1998, partially offsetting increased equipment rental expense.
Gross profit. Gross profit increased to $1,820,603 for the first quarter of
1998 from $1,041,333 for the same period in 1997, an increase of $779,270, or
75%. Gross profit as a percentage of revenue was 43% in the first quarter of
1998 and 42% in the first quarter of 1997 as a result of the above factors.
Templine accounted for approximately $53,556 of the increase in gross profit.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $1,626,930 for the first quarter of 1998
from $1,061,049 for the same period in 1997, an increase of $565,881, or 53%.
The increase resulted primarily from an increase in employees required to
support the growth in operations after the first quarter of 1997, a full quarter
of Templine operations and the newly opened branches in Fort Lauderdale and Rio
de Janeiro in 1998. Templine accounted for $205,879 of the increase in selling,
general and administrative expense. Selling, general and administrative expenses
decreased to 38% of revenue for the first quarter of 1998 from 43% of revenue
for the corresponding period in 1997, principally as a result of increased
revenue.
Stock compensation expense. During 1997, the Company made restricted stock
awards of an aggregate of 128,768 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. Stock compensation expense
resulting from the restricted stock awards made in March 1997 was first
recognized in the second quarter of 1997, resulting in the increase of $35,579
in the first quarter of 1998.
Operating income (loss). As a result of the foregoing, operating income
increased to $158,094 in the first quarter of 1998 from an operating loss of
$19,716 for the same period in 1997, an increase of $177,810. The first quarter
of 1998 increase consisted of an increase in operating income of $490,576,
partially offset by $149,966 related to a full quarter loss for Templine in 1998
and the absence in 1998 of $162,800 of income recognized during the first
quarter of 1997 and attributable to a joint venture terminated in 1997. The
Company acquired Templine on March 17, 1997. The Templine operating loss was
$212,566 for the first quarter of 1998 as compared to $62,600 for the portion of
the first quarter of 1997 that the Company owned Templine. As a result of
seasonal fluctuations in its business, Templine's operations have resulted in a
loss for the first quarter of 1996 and 1997, while full year results of
operations were profitable in 1996 and 1997.
Interest expense. Interest expense increased to $102,897 for the first
quarter of 1998 from $37,723 for the same period in 1997, an increase of
$65,174, due primarily to increased borrowings in 1998.
Pro forma income tax provision (benefit). Pro forma income tax provision
(benefit) 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 a 40% combined state and federal tax rate during the
periods presented. Templine's operations are subject to United Kingdom
corporation tax. A tax benefit was recognized in the first quarter of 1998 and
1997 in anticipation of full fiscal year income.
19
<PAGE>
Pro forma net loss. As a result of the foregoing, pro forma net loss
improved to $19,330 in the first quarter of 1998 from $41,708 for the same
period in 1997, an improvement of $22,378.
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.
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 $226,000 to $168,000
in 1997 from $394,000 in 1996.
20
<PAGE>
Stock compensation expense. In connection with restricted stock awards made
during 1997, 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 (loss). 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
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 income tax provision (benefit). 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 (loss). 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 30, 1998, $3,433,000 was outstanding under such commitment and there
was additional availability of $67,000. 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 30, 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
21
<PAGE>
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 30, 1998, borrowings under the two bank lines
of credit totaled approximately $1,000,000.
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.
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
$2,417,000, 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 plans for material
capital expenditures. 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 the years ended December 31, 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
operating activities totaled $503,035 and $128,197 for the three months ended
March 31, 1998 and 1997, respectively, an increase of $374,838. The increase was
primarily the result of deferred costs related to the World Cup project
beginning in May 1998, as well as deferred Offering costs.
Cash used in investing activities for the years ended December 31, 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 used in investing activities totaled $249,439 and $2,283,634 for the three
months ended March 31, 1998 and 1997, respectively. The decrease was due
primarily to the acquisition of Templine in 1997.
Cash provided by financing activities for the years ended December 31, 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. Cash provided by financing
activities totaled $543,779 and $2,567,552 for the three months ended March 31,
1998 and 1997, respectively. The sale of Common Stock in 1997 occurred in the
first quarter. Other first quarter cash flows from financing activities
consisted of issuance of long term debt and bank borrowing in both 1998 and
1997.
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. For the
three months ended March 31, 1998, the Company repaid principal of $221,329 on
long term indebtedness.
The Company has formed a corporate 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 March 31, 1998, the Company had incurred
operating expenses of approximately $324,000 and anticipates funding the balance
of its commitment by the end of the second quarter of 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.
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<PAGE>
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. 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.
23
<PAGE>
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.
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.
24
<PAGE>
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 corporate 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 March 31, 1998, the Company had incurred operating
expenses of approximately $324,000 and anticipates funding the balance of its
commitment by the end of the second quarter of 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.
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<PAGE>
The Company has no current agreements or commitments and is not currently
engaged in active negotiations with respect to any acquisitions.
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.
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
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<PAGE>
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 3,000 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.
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
27
<PAGE>
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. In 1996,
two customers comprised 11% and 10% of the Company's revenue, respectively, 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.
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.
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<PAGE>
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.
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.
29
<PAGE>
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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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------------
<S> <C> <C>
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*
</TABLE>
- ------------------
* 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 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.
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<PAGE>
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 historically have
not received 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. After the Offering,
non-employee directors are expected to receive compensation in the form of
annual grants of options to purchase 1,000 shares of Common Stock.
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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
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 $133,333 $28,135 $256,170 77,260 $ 9,868
Laurence Anderson,
President..................... 150,000 66,667 11,847 170,780 51,507 4,376
Stephen R. Bernstein,
Executive Vice President...... 148,990 -- 5,179 -- -- 4,928
Gary M. Rosner,
Vice President/Operations..... 79,039 27,500 9,101 -- -- 2,371
</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 of not less than 6.67% of the Company's earnings before income
taxes, plus depreciation, amortization and interest expense minus principal
payments, interest expense, capital lease payments and capital investments as
provided in the employment agreement. 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 of not less than 3.33% of the Company's earnings before income taxes,
plus depreciation, amortization and interest expense minus principal payments,
interest expense, capital lease payments and capital investments as provided in
the employment agreement. 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 at the discretion of the Board. 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 $12,000, plus a bonus to be awarded
annually at the discretion of the Board. The agreement with Mr. Stone expires in
May 2000.
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.
33
<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 May 19, 1998, the Compensation Committee granted non-qualified stock
options to employees under the 1998 Stock Option Plan for an aggregate of
479,563 shares of Common Stock, effective at the closing date of the Offering.
Each of such options has an exercise price equal to the initial public offering
price set forth on the cover page of this Prospectus and has a term of 10 years.
The options vest in three equal annual installments commencing on the date of
consummation of the Offering. Included in these grants were grants of options to
purchase 141,375 shares to Mr. Campion, 70,688 shares to Mr. Anderson, 25,000
shares to Stephen R. Bernstein and 25,000 shares to Mr. Rosner.
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.
34
<PAGE>
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 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
$20,291, $3,324, $196,658 and $9,969, respectively. The notes were paid in full
in January 1997 with the proceeds of long-term debt as follows: Mr.Masterson--
$1,117,595; David C. Bernstein--$139,455; 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.
35
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of May 22, 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..................................... 251,310(1) 12.0% 7.6%
Laurence Anderson................................... 127,575(2) 6.2 3.9
Stephen R. Bernstein................................ 146,165(3) 6.9 4.4
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................................... 8,333(6) * *
Gary M. Rosner...................................... 8,333(7) * *
Vincent A. Carrino**................................ 150,800(8) 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 executive
officers as a group (12 persons).................. 1,900,843(9) 88.9 57.0
</TABLE>
- ------------------
* Less than 1%
** Director designee
(1) Mr. Campion shares voting and investment power with respect to 126,925
shares with his spouse. Includes 77,261 shares granted by the Company as a
Restricted Stock Award, which are subject to certain forfeiture provisions
until March 18, 2000. Includes 47,125 shares issuable upon the exercise of
options which become exercisable within 60 days.
(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. Includes 23,563 shares issuable upon the exercise of
options which become exercisable within 60 days.
(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. Includes 8,333 shares issuable upon the
exercise of options which become exercisable within 60 days.
(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 8,333 shares issuable upon the exercise of options which become
exercisable within 60 days.
(7) Includes 8,333 shares issuable upon the exercise of options which become
exercisable within 60 days.
(8) Includes 120,640 shares owned by two limited partnerships, the general
partner of which is a corporation controlled by Mr. Carrino.
(9) Includes 95,687 shares issuable upon the exercise of options which become
exercisable within 60 days.
36
<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 May 22, 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 474,563 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.
REPRESENTATIVE WARRANTS
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 date hereof at
a per share exercise price equal to 150% of the public offering price of the
Common Stock. The Representative Warrants will be restricted from sale,
transfer, assignment or hypothecation for a period of one year from the date
hereof, except to officers or partners of the Representative or those of the
Underwriters. 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.
37
<PAGE>
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 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.'
38
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company, New York, NY.
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.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------ ---------
<S> <C>
Prime Charter Ltd....................................................................................
---------
Total........................................................................................... 1,200,000
---------
---------
</TABLE>
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 Representative 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 also agreed to pay the fees and expenses of counsel to
the Underwriters up to a maximum of $145,000.
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 date hereof at
a per share exercise price equal to 150% of the public offering price of the
Common Stock. The Representative Warrants will be restricted from sale,
transfer, assignment or hypothecation for a period of one year from the date
hereof, except to officers or partners of the Representative or those of the
Underwriters. During the period beginning one year from the consummation of the
Offering and ending seven years after the date hereof, the holder of the
Representative Warrants may require the Company to register for resale to the
public the shares of Common Stock issued or issuable upon exercise of the
Representative Warrants. Such demand registration right may be exercised once
during such period. In addition, during such period the Company has agreed 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
40
<PAGE>
the underwriting discounts and commissions and a pro-rata portion of the
non-accountable expense allowance. The 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.
The Common Stock has been approved for listing on The American Stock
Exchange under the symbol 'SHO,' subject to notice of issuance.
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 Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and (Unaudited) March 31, 1998......................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996 and 1997 and (Unaudited) the
Three Months Ended March 31, 1997 and 1998............................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996 and 1997 and
(Unaudited) the Three Months Ended March 31, 1998........................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and 1997 and (Unaudited) the
Three Months Ended March 31, 1997 and 1998............................................................... 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 operations, stockholders' equity and cash flows for
the years ended December 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Note 17, as to which
the date is May 19, 1998)
F-2
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 485,788 $ 277,093
Accounts receivable, net of allowance for doubtful accounts of
$114,980 at December 31, 1997 and $176,377 at March 31, 1998........ 1,388,480 1,345,796
Due from employees (Note 12).......................................... 57,191 38,173
Prepaid expenses and other current assets............................. 409,499 675,106
------------ -----------
Total current assets.............................................. 2,340,958 2,336,168
------------ -----------
PROPERTY AND EQUIPMENT (Notes 4, 5, 6 and 11):
Property and equipment................................................ 12,056,711 14,590,042
Accumulated depreciation and amortization............................. (4,026,299) (4,338,590)
------------ -----------
Property and equipment, net....................................... 8,030,412 10,251,452
------------ -----------
OTHER ASSETS:
Intangible assets, less accumulated amortization of $158,461 at
December 31, 1997 and $192,675 at March 31, 1998 (Note 3)........... 1,291,127 1,315,022
Deposits and other assets............................................. 62,161 383,960
------------ -----------
Total other assets................................................ 1,353,288 1,698,982
------------ -----------
TOTAL............................................................. $11,724,658 $14,286,602
------------ -----------
------------ -----------
<CAPTION>
MARCH 31, 1998
--------------------------
PRO FORMA
DECEMBER 31, ACTUAL SEE NOTE 16
1997 (UNAUDITED) (UNAUDITED)
------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................................... $ 1,404,330 $ 1,296,755 $ 1,296,755
Due to stockholders................................................... 600,000
Due to affiliates (Note 12)........................................... 42,834 66,445 66,445
Accrued payroll and related expenses.................................. 378,716 194,964 194,964
Other accrued expenses................................................ 335,740 292,035 292,035
Customer deposits..................................................... 578,429 578,951 578,951
Current portion of long-term debt (Note 6)............................ 727,687 1,039,383 1,039,383
Current portion of capital lease obligations (Note 11)................ 134,891 104,028 104,028
Income taxes.......................................................... 226,286 29,635 29,635
Bank lines of credit (Note 6)......................................... 119,495 594,028 594,028
------------ ----------- -----------
Total current liabilities....................................... 3,948,408 4,196,224 4,796,224
------------ ----------- -----------
LONG-TERM LIABILITIES:
Long-term debt (Note 6)............................................... 2,196,938 4,402,033 4,402,033
Long-term portion of capital lease obligations (Note 11).............. 52,591 41,032 41,032
Deferred income taxes (Note 9)........................................ 220,349 239,729 964,729
------------ ----------- -----------
Total long-term liabilities..................................... 2,469,878 4,682,794 5,407,794
------------ ----------- -----------
Total liabilities............................................... 6,418,286 8,879,018 10,204,018
------------ ----------- -----------
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;
outstanding, 2,041,848 shares....................................... 20,418 20,418 20,418
Additional paid-in capital............................................ 6,658,073 6,693,652 6,693,652
Notes receivable from stockholders (Note 7)........................... (478,944) (489,217) (489,217)
Cumulative foreign currency translation adjustment.................... 16,762 7,287 7,287
Accumulated deficit................................................... (909,937) (824,556) (2,149,556)
------------ ----------- -----------
Total stockholders' equity...................................... 5,306,372 5,407,584 4,082,584
------------ ----------- -----------
TOTAL........................................................... $11,724,658 $14,286,602 $14,286,602
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- ------------------------
1996 1997 1997 1998
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SALES.................................................... $11,567,589 $17,294,036 $2,460,675 $4,273,058
COST OF SALES............................................ 7,608,709 9,790,219 1,419,342 2,452,455
----------- ----------- ---------- ----------
GROSS PROFIT............................................. 3,958,880 7,503,817 1,041,333 1,820,603
----------- ----------- ---------- ----------
OPERATING EXPENSES:
Selling, general and administrative.................... 3,552,297 6,179,079 1,061,049 1,626,930
Stock compensation expense............................. 106,737 35,579
----------- ----------- ---------- ----------
Total operating expenses............................. 3,552,297 6,285,816 1,061,049 1,662,509
----------- ----------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS............................ 406,583 1,218,001 (19,716) 158,094
----------- ----------- ---------- ----------
OTHER INCOME AND (EXPENSE):
Interest expense....................................... (237,015) (203,667) (37,723) (102,897)
Interest and other income (expense).................... 3,883 32,832 335 (11,624)
----------- ----------- ---------- ----------
Total other expense.................................. (233,132) (170,835) (37,388) (114,521)
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES........................ 173,451 1,047,166 (57,104) 43,573
INCOME TAX PROVISION (BENEFIT) (Note 9) ................. 1,050 116,562 (17,852) (41,808)
----------- ----------- ---------- ----------
NET INCOME (LOSS)........................................ $ 172,401 $ 930,604 $ (39,252) $ 85,381
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
BASIC NET INCOME (LOSS) PER SHARE........................ $ 0.17 $ 0.54 $ (0.03) $ 0.04
DILUTED NET INCOME (LOSS) PER SHARE...................... $ 0.17 $ 0.52 $ (0.03) $ 0.04
PRO FORMA AMOUNTS (Unaudited) (Note 16):
Income (loss) before income taxes, as reported......... $ 173,451 $ 1,047,166 $ (57,104) $ 43,573
Pro forma income tax provision (benefit)............... 70,430 414,796 (15,396) 62,903
----------- ----------- ---------- ----------
Pro forma net income (loss)............................ $ 103,021 $ 632,370 $ (41,708) $ (19,330)
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Pro forma basic net income (loss) per share............ $ 0.10 $ 0.37 $ (0.04) $ (0.01)
Pro forma diluted net income (loss) per share.......... $ 0.10 $ 0.35 $ (0.04) $ (0.01)
Supplemental pro forma basic net income (loss) per
share................................................ -- $ 0.35 -- $ (0.01)
Supplemental pro forma diluted net income (loss) per
share................................................ -- $ 0.34 -- $ (0.01)
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
NOTES FOREIGN
ADDITIONAL RECEIVABLE CURRENCY
COMMON PAID-IN FROM TRANSLATION ACCUMULATED
SHARES STOCK CAPITAL STOCKHOLDERS ADJUSTMENT DEFICIT TOTAL
--------- ------- ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996, As
previously reported........... 753,994 $7,540 $2,842,460 $(2,311,662) $ 538,338
Change in method of
depreciation (Note 4)....... 918,720 918,720
--------- ------- ---------- ----------- ----------
BALANCE, JANUARY 1, 1996, As
restated...................... 753,994 7,540 2,842,460 (1,392,942) 1,457,058
Issuance of common stock (Note
7).......................... 405,086 4,051 1,217,703 1,221,754
Net income.................... 172,401 172,401
Distribution to
stockholders................ (120,000) (120,000)
--------- ------- ---------- ----------- ----------
BALANCE, DECEMBER 31, 1996...... 1,159,080 11,591 4,060,163 (1,340,541) 2,731,213
Issuance of common stock (Note
7).......................... 754,000 7,540 2,492,460 2,500,000
Stock granted to officers
(Note 7).................... 128,768 1,287 425,663 426,950
Unearned compensation expense
(Note 7).................... (320,213) (320,213)
Stockholders notes, including
accrued interest of $21,674
(Note 7).................... $ (478,944) (478,944)
Net income.................... 930,604 930,604
Distribution to
stockholders................ (500,000) (500,000)
Foreign currency translation
adjustment.................. $ 16,762 16,762
--------- ------- ---------- ------------ ---------- ----------- ----------
BALANCE, DECEMBER 31, 1997...... 2,041,848 20,418 6,658,073 (478,944) 16,762 (909,937) 5,306,372
Compensation expense
(unaudited)................. 35,579 35,579
Accrued interest
(unaudited)................. (10,273) (10,273)
Net income (unaudited)........ 85,381 85,381
Foreign currency translation
adjustment (unaudited)...... (9,475) (9,475)
--------- ------- ---------- ------------ ---------- ----------- ----------
BALANCE, MARCH 31, 1998
(UNAUDITED)................... 2,041,848 $20,418 $6,693,652 $ (489,217) $ 7,287 $ (824,556) $5,407,584
--------- ------- ---------- ------------ ---------- ----------- ----------
--------- ------- ---------- ------------ ---------- ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- ------------------------
1996 1997 1997 1998
----------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 172,401 $ 930,604 $ (39,252) $ 85,381
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 1,058,529 1,103,332 244,917 385,837
Stock compensation expense.............................. 106,737 35,579
Gain on settlement (Note 13)............................ (162,800) (162,800)
Loss on disposal........................................ 23,790
Deferred income taxes................................... 28,981 (58) 19,380
Changes in operating assets and liabilities:
Accounts receivable................................... (607,854) (276,492) 297,666 61,702
Prepaid expenses and other current assets............. (27,840) (350,212) (10,194) (265,607)
Other assets.......................................... 114,612 19,347 32,308 (321,799)
Accounts payable...................................... 230,280 487,260 (258,965) (107,575)
Due to affiliate...................................... 39,504 (53,024) (34,058) 23,611
Other accrued expenses................................ 310,232 (73,608) (204,877) (247,205)
Customer deposits..................................... (321,360) 482,945 25,936 522
Income taxes.......................................... 119,544 (18,820) (196,651)
----------- ----------- ----------- ---------
Net cash provided by (used in) operating
activities....................................... 968,504 2,362,614 (128,197) (503,035)
----------- ----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquired businesses, net of cash acquired................. (170,000) (2,105,361) (2,105,361) (100,000)
Purchases of property and equipment....................... (1,623,898) (1,904,370) (177,768) (149,439)
Other..................................................... (6,931) (8,612) (505)
----------- ----------- ----------- ---------
Net cash used in investing activities.............. (1,800,829) (4,018,343) (2,283,634) (249,439)
----------- ----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 1,221,754 2,042,730 1,942,730
Proceeds from issuance of long term debt.................. 684,717 674,726 332,997
Borrowings under bank lines of credit..................... 119,495 75,941 474,533
Principal payments on long-term debt...................... (18,899) (242,043) (92,092) (221,329)
Principal payments on stockholder loans................... (80,185)
Principal payments on capital lease obligations........... (155,510) (149,762) (33,753) (42,422)
Distributions to stockholders............................. (120,000) (500,000)
----------- ----------- ----------- ---------
Net cash provided by financing activities.......... 847,160 1,955,137 2,567,552 543,779
----------- ----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 14,835 299,408 155,721 (208,695)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 171,545 186,380 186,380 485,788
----------- ----------- ----------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 186,380 $ 485,788 $ 342,101 $ 277,093
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
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
NOTE 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.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information--Financial information as of March 31, 1998
and for the three months ended March 31, 1997 and 1998 is unaudited. In the
opinion of the Company's management, the Company's unaudited financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments (consisting of normal recurring charges)
necessary for a fair presentation of the financial position and results of
operations.
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:
<TABLE>
<S> <C>
Rental equipment................................................................. 7-10 years
Vehicles......................................................................... 5 years
Furniture and fixtures........................................................... 7 years
Other equipment.................................................................. 5-7 years
</TABLE>
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.
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 by 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
F-7
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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. For the three months ended March 31,
1998, sales to three customers comprised 13%, 12%, and 10% of total sales,
respectively.
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.
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.
F-8
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
NOTE 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 by 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.
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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------- THREE MONTHS ENDED
1996 1997 MARCH 31, 1997
----------- ----------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Sales............................................... $13,801,000 $17,495,000 $2,662,000
Income (loss) before income taxes................... $ 604,000 $ 971,000 $ (133,000)
Net income (loss)................................... $ 451,000 $ 876,000 $ (94,000)
Basic net income (loss) per share................... $ 0.46 $ 0.51 $ (0.08)
Diluted net income (loss) per share................. $ 0.46 $ 0.49 $ (0.08)
</TABLE>
NOTE 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.
F-9
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997
NOTE 4--ACCOUNTING CHANGES--(CONTINUED)
The effect of these changes was an increase in net income and net income
per share, as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1997
-------- --------
<S> <C> <C>
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, diluted and supplemental net income per share............. $ 0.12 $ 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
</TABLE>
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
<S> <C> <C>
Rental equipment......................................................... $10,300,828 $12,516,980
Vehicles................................................................. 711,095 745,847
Furniture and fixtures................................................... 165,226 171,301
Other equipment.......................................................... 463,144 469,478
Leasehold improvements................................................... 67,464 67,464
Work in process.......................................................... 348,954 618,972
----------- -----------
12,056,711 14,590,042
Accumulated depreciation and amortization................................ (4,026,299) (4,338,590)
----------- -----------
$ 8,030,412 $10,251,452
----------- -----------
----------- -----------
</TABLE>
Property and equipment depreciation and amortization expense for the years
ended December 31, 1996 and 1997 was $1,027,652 and $991,537, respectively,
after giving effect to a change in depreciation (see Note 4). Depreciation and
amortization for the three months ended March 31, 1997 and 1998 was $225,984 and
$350,638, respectively.
F-10
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997
NOTE 6--LONG-TERM DEBT
The following is a summary of long-term debt:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
<S> <C> <C>
Notes payable to Charter Financial, Inc., payable in monthly installments
of $54,704, due January 2001 to March 2002 bearing annual interest at
approximately 8.9% to 11.0%, secured by rental equipment................. $1,698,110 $2,107,209
Notes payable to Caterpillar Financial Services Corp. payable in monthly
installments of $55,270 due March 2002 through March 2005, bearing annual
interest at approximately 9.2% to 9.3%, secured by rental equipment...... 968,056 2,973,845
Notes payable, denominated in British pounds sterling, payable in monthly
installments including interest ranging from 5% to 24%, through November
2000, secured by vehicles and rental equipment........................... 147,918 164,418
Notes payable, payable in monthly installments including interest at 9.9%,
due June 1998, secured by rental equipment............................... 110,541 63,357
Note payable in monthly installments including interest at 9.5%, due
January 2001, unsecured.................................................. 132,587
------------ ----------
Total notes payable........................................................ 2,924,625 5,441,416
Less current portion....................................................... 727,687 1,039,383
------------ ----------
Total long-term portion.................................................... $2,196,938 $4,402,033
------------ ----------
------------ ----------
</TABLE>
Maturities of the long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, MARCH 31,
DECEMBER 31, 1997 1998
------------- ------------ ----------
<S> <C> <C>
1998....................................................................... $ 727,417 $ 943,789
1999....................................................................... 647,379 987,826
2000....................................................................... 682,983 1,055,731
2001....................................................................... 676,834 1,134,956
2002....................................................................... 190,012 574,769
Thereafter................................................................. 744,339
------------ ----------
Total...................................................................... $2,924,625 $5,441,410
------------ ----------
------------ ----------
</TABLE>
Unused equipment financing availability totaled $3,489,890 at December 31,
1997 and $892,114 as of March 31, 1998. Available financing under the
arrangement with Caterpillar Financial Services Corp. is $2,463,635 as of
December 31, 1997 and $380,463 as of March 31, 1998, 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 arrangement with Charter Financial, Inc. is $1,026,255 as of
December 31, 1997 and $511,651 as of March 31, 1998, 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%.
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
.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
F-11
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997
NOTE 6--LONG-TERM DEBT--(CONTINUED)
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.
The Company has a line of credit of 150,000 British pounds sterling
(approximately $249,000 at March 31, 1998). The U.K. line of credit bears
interest based on the bank's reference rate and with a term through December 1,
1999.
NOTE 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.
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.
F-12
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997
NOTE 8--EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS 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.................... $ 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 attributed to common
stockholders and effect of
restricted stock........... $ 172,401 990,294 $ 0.17 $ 930,604 1,801,143 $0.52
----------- ------------- --------- ----------- ------------- ---------
----------- ------------- --------- ----------- ------------- ---------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------------
1997 1998
----------------------------------------- -----------------------------------------
INCOME INCOME
(LOSS) SHARES PER SHARE (LOSS) SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC NET INCOME (LOSS) PER
SHARE
Net (loss) income............. $ (39,252) 1,159,080 $ (0.03) $ 85,381 1,913,080 $0.04
----------- ------------- --------- ----------- ---------
----------- ------------- --------- ----------- ---------
DILUTED NET INCOME (LOSS) PER
SHARE
Effect of restricted stock.... 105,048
-------------
Income (loss) attributed to
common stockholders and
effect of restricted
stock...................... $ (39,252) 1,159,080 $ (0.03) $ 85,381 2,018,128 $0.04
----------- ------------- --------- ----------- ------------- ---------
----------- ------------- --------- ----------- ------------- ---------
</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.
NOTE 9--INCOME TAXES
Significant components of the income tax provision (benefit) are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------ --------------------
1996 1997 1997 1998
------ -------- -------- --------
<S> <C> <C> <C> <C>
Current................................................... $1,050 $ 87,581 $(17,794) $(61,188)
Deferred.................................................. 28,981 (58) 19,380
------ -------- -------- --------
Total..................................................... $1,050 $116,562 $(17,852) $(41,808)
------ -------- -------- --------
------ -------- -------- --------
</TABLE>
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
F-13
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997
NOTE 9--INCOME TAXES--(CONTINUED)
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 income tax depreciation 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 and $1,812,409 greater than the U.S. tax basis,
primarily resulting from the use of accelerated depreciation for tax purposes at
December 31,1997 and March 31, 1998, respectively. 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.
NOTE 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.
NOTE 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 and $310,170 and $760,647 for the three
months ended March 31, 1997 and 1998, 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:
<TABLE>
<S> <C>
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
--------
--------
</TABLE>
F-14
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997
NOTE 11--LEASES--(CONTINUED)
Future Minimum Lease Payments--The future minimum lease payments under
operating and capital leases are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1998
--------------------- ----------------------
YEAR ENDING OPERATING CAPITAL OPERATING CAPITAL
DECEMBER 31, LEASES LEASES LEASES LEASES
- ------------ --------- -------- ---------- --------
<S> <C> <C> <C> <C>
1998........................................................... $ 166,940 $152,364 $ 226,455 $100,185
1999........................................................... 84,381 46,235 357,381 46,235
2000........................................................... 15,770 5,125 291,770 5,125
2001........................................................... 15,770 1,129 312,470 1,129
2002........................................................... 15,770 312,470
Thereafter..................................................... 81,478 1,713,328
--------- -------- ---------- --------
Total minimum lease payments................................... $ 380,109 204,853 $3,213,874 152,674
--------- ----------
--------- ----------
Amount representing interest................................... (17,371) (7,614)
-------- --------
Present value of net minimum lease payments.................... 187,482 145,060
Current portion of capital lease obligations................... (134,891) (104,028)
-------- --------
Long-term portion.............................................. $ 52,591 $ 41,032
-------- --------
-------- --------
</TABLE>
NOTE 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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1996 1997
-------- --------
<S> <C> <C>
Travel agency services....................................................... $109,619 $117,607
Freight services............................................................. $218,704 $217,098
Templine freight and maintenance services.................................... $ -- $ 50,000
Due to affiliates as of December 31, 1997.................................... $ 42,834
</TABLE>
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>
SHOWPOWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997
NOTE 13--SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest and income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------------- ------------------------
1996 1997 1997 1998
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest expense................................. $264,790 $ 234,639 $ 40,328 $ 112,548
Income taxes..................................... $ 1,050 $ 53,373 $ -- $ 65,528
Summary of noncash investing and financing
activities:
Acquisition of intangibles by assuming
liabilities.................................... $ 60,000 $ -- $ -- $ --
Purchases of assets through capital lease and
note payable financing......................... $ 74,630 $ 998,869 $ -- $2,405,123
Repayment of stockholder notes through issuance
of long-term debt.............................. $ -- $1,326,524 $1,326,524 $ --
</TABLE>
Assets acquired and (liabilities assumed) in connection with the
acquisition of Templine in 1997 were as follows:
<TABLE>
<S> <C>
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
----------
----------
</TABLE>
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>
SHOWPOWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997
NOTE 14--SEGMENT INFORMATION
Information about the Company's operations in different geographic areas is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------
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>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------------------
ADJUSTMENTS
UNITED UNITED AND
STATES KINGDOM ELIMINATIONS CONSOLIDATED
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue...................................... $ 4,014,525 $ 349,973 $ (91,440) $ 4,273,058
----------- ---------- ----------- ------------
----------- ---------- ----------- ------------
Operating profit (loss)...................... $ 462,100 $ (212,566) $ (91,440) $ 158,094
----------- ---------- -----------
----------- ---------- -----------
Interest expense............................. (102,897)
Interest and other expense................... (11,624)
------------
Income before income taxes................... $ 43,573
------------
------------
Identifiable assets.......................... $11,451,086 $3,129,969 $(294,453) $ 14,286,602
----------- ---------- ----------- ------------
----------- ---------- ----------- ------------
</TABLE>
NOTE 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.
NOTE 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
F-17
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997
NOTE 16--PRO FORMA AMOUNTS (UNAUDITED)--(CONTINUED)
deferred income taxes. Deferred tax liabilities of approximately $725,000 would
have been recorded had the conversion to a C Corporation taken place on March
31, 1998.
Adjustments to Equity--The pro forma adjustments to accumulated deficit are
as follows:
<TABLE>
<CAPTION>
ACCUMULATED
DEFICIT
-----------
<S> <C>
March 31, 1998--Actual......................................................... $ (824,556)
Distribution payable to stockholders........................................... (600,000)
Deferred income taxes.......................................................... (725,000)
-----------
March 31, 1998--Pro Forma...................................................... $(2,149,556)
-----------
-----------
</TABLE>
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.
NOTE 17--SUBSEQUENT EVENTS
Long-Term Debt--In April 1998, the Company issued long-term debt in the
aggregate amount of $512,169 to Caterpillar Financial Services Corp. and Charter
Financial, Inc. under the equipment financing arrangements described in Note 6.
1998 Stock Option Plan--In May 1998, the Company granted non-qualified
stock options to employees under the 1998 Stock Option Plan for an aggregate of
479,563 shares of common stock, effective at the date of the Company's
contemplated initial public stock offering. Each of such options has an exercise
price equal to the initial public offering price and has a term of 10 years. The
options vest in three equal annual installments beginning at the date of the
initial public offering.
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-18
<PAGE>
[INSIDE BACK COVER]
[Photographs of backstage passes for concert touring events]
Showpower provides temporary power generation and temperature
control rental equipment and support services on a worldwide basis
for entertainment, corporate and special events.
<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
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 12
S Corporation Conversion....................... 12
Dividend Policy................................ 13
Dilution....................................... 13
Capitalization................................. 14
Selected Consolidated Financial Information.... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 17
Business....................................... 24
Management..................................... 31
Certain Transactions........................... 35
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
</TABLE>
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 omitted]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
PRIME CHARTER LTD.
June , 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.
<TABLE>
<S> <C>
SEC Registration Fee................................................................. $ 5,846
NASD................................................................................. 2,482
AMEX Listing Fee..................................................................... 20,000
Printing and Engraving Expenses...................................................... 75,000
Issuer's Counsel Legal Fees and Expenses............................................. 140,000
Accounting Fees and Expenses......................................................... 140,000
Underwriter's Counsel Legal Fees and Blue Sky Fees................................... 160,000
Underwriter's Non-Accountable Expense Allowance...................................... 432,000
Miscellaneous........................................................................ 116,672
------------
Total................................................................................ $ 1,092,000
------------
------------
</TABLE>
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. The purchasers in such transactions
represented to the Company that they qualified as 'accredited investors' within
the meaning of Rule 501 of Regulation D promulgated under the Act.
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) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high end
of the estimated maximum offering rate may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price
II-2
<PAGE>
represent no more than a 20% change in the maximum aggregate offering
price set forth in the 'Calculation of Registration Fee' table in the
effective registration statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(2) 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 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.
(3) 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.
(4) 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.
(5) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(6) 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 Amendment to
Registration Statement to be signed on its behalf by the undersigned, in the
City of Rancho Dominguez, California, on May 28, 1998.
SHOWPOWER, INC.
By: /s/ JOHN J. CAMPION
__________________
John J. Campion
Chief Executive Officer
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 May 28, 1998
- --------------------------------------- (principal executive officer)
John.J. Campion
/s/ MICHAEL W. CRABBE Vice President/Chief Financial Officer May 28, 1998
- --------------------------------------- (principal financial and account officer)
Michael W. Crabbe
/s/ JEFFREY B. STONE Chairman of the Board May 28, 1998
- ---------------------------------------
Jeffrey B. Stone
* Director May 28, 1998
- ---------------------------------------
Joseph A. Ades
* Director May 28, 1998
- ---------------------------------------
David C. Bernstein
* Director May 28, 1998
- ---------------------------------------
Robert E. Masterson
*By: /s/ JEFFREY B. STONE May 28, 1998
- ---------------------------------------
Jeffrey B. Stone
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------------
<C> <S> <C>
1.1* Form of Underwriting Agreement
1.2* Form of Representatives Warrant
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** Employment Agreement dated May 23, 1996 between the Registrant and Laurence Anderson
10.4* Employment Agreement dated July 1, 1996 between the Registrant and Stephen R.
Bernstein
10.5.1* Promissory Note and Security Agreement dated January 21, 1998 between the Registrant
and Caterpillar Financial Services Corporation
10.5.2** Schedule of additional indebtedness owed to 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.
10.6.3** Schedule of additional indebtedness owed to Charter Financial, Inc.
10.7** Revolving Credit Loan & Security Agreement dated March 2, 1998 between
the Registrant
and Comerica Bank--California
10.8** Variable rate-single payment note dated March 2, 1998 from the Registrant to Comerica
Bank--California
10.9** Employment Agreement dated May 23, 1998 between the Registrant and Jeffrey B. Stone
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 (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>
- ------------------
* Previously filed.
** Filed with this amendment.
II-5
EXHIBIT 4.1
[FORM OF STOCK CERTIFICATE]
SHOWPOWER, INC.
[LOGO]
COMMON STOCK COMMON STOCK
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 825396 10 4
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $0.01 PER
SHARE OF
SHOWPOWER, INC.
(THE "CORPORATION") TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER
HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS
CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED
BY THE TRANSFER AGENT AND REGISTERED BY THE REGISTRAR.
WITNESS THE FACSIMILE SIGNATURES OF THE DULY AUTHORIZED OFFICERS OF THE
CORPORATION.
DATED:
_________________________ _________________________
SECRETARY CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NEW YORK) TRANSFER AGENT
AND REGISTRAR
BY ________________________________________
AUTHORIZED SIGNATURE
<PAGE>
SHOWPOWER, INC.
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 PREFERENCES AND/OR
RIGHTS.
THE FOLLOWING ABBREVIATIONS, WHEN USED IN THE INSCRIPTION ON THE FACE OF
THIS CERTIFICATE, SHALL BE CONSTRUED AS THOUGH THEY WERE WRITTEN OUT IN FULL
ACCORDING TO APPLICABLE LAWS OR REGULATIONS:
TEN COM - AS TENANTS IN COMMON
TEN ENT - AS TENANTS BY THE ENTIRETIES
JT TEN - AS JOINT TENANTS WITH
RIGHT OF SURVIVORSHIP AND
NOT AS TENANTS IN COMMON
UNIF GIFT MIN ACT - ________ CUSTODIAN __________
(CUST) (MINOR)
UNDER UNIFORM GIFTS TO MINORS
ACT _________________________
(STATE)
UNIF TRF MIN ACT - _____ CUSTODIAN (UNTIL AGE ___)
(CUST)
_______________ UNDER UNIFORM TRANSFERS
(MINOR)
TO MINORS ACT _________________________
(STATE)
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE LIST.
FOR VALUE RECEIVED, ___________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/_____________________________________/_______________________________________
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
______________________________________________________________________________
______________________________________________________________________________
_______________________________________________________________________ SHARES
OF THE COMMON STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT ___________________________________________
ATTORNEY TO TRANSFER THE SAID SHARES OF COMMON STOCK ON THE BOOKS OF THE
WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION.
DATED ____________________
X__________________________________________________________
X__________________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURES GUARANTEED:
BY
______________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17AD-15.
EXHIBIT 5.1
BAKER & DANIELS
300 NORTH MERIDIAN STREET, SUITE 2700, INDIANAPOLIS, INDIANA 46204
(317) 237-0300 . FAX (317) 237-1000
May 29, 1998
Showpower, Inc.
18128 S. Santa Fe Avenue
Rancho Dominguez, CA 90221
Ladies and Gentlemen:
We have examined the corporate records and proceedings of Showpower, Inc.,
a Delaware corporation (the 'Company'), with respect to: (a) the organization of
the Company and (b) the legal sufficiency of all corporate proceedings of the
Company taken in connection with the authorization, issuance, form, validity and
nonassessability of the authorized but unissued shares (including the shares to
cover an over-allotment option) of Common Stock, $.01 par value per share, of
the Company ('Common Stock') to be offered for sale by the Company under its
Registration Statement on Form SB-2 (Registration No. 333-50595) (the
'Registration Statement'), in connection with which this opinion is given.
Based on such examination, we are of the opinion that:
1. The Company is a duly organized and validly existing corporation
under the laws of the State of Delaware.
2. The Company is authorized to have outstanding 6,500,000 shares of
Common Stock.
3. The shares of Common Stock being offered pursuant to the
Registration Statement are validly authorized, and when the Registration
Statement shall have become effective and the authorized but unissued
shares of Common Stock being offered by the Company pursuant thereto have
been sold upon the terms and conditions described in the Registration
Statement and set forth in the Underwriting Agreement filed as an exhibit
to the Registration Statement, all of such shares will be legally issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to us under the heading 'Legal
Matters' in the Prospectus which is a part of the Registration Statement. In
giving this consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Act or rules and regulations of
the Securities and Exchange Commission promulgated thereunder.
Yours very truly,
BAKER & DANIELS
Exhibit 10.3
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"), and Laurence Anderson (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 perform such duties and responsibilities
as may be assigned from time to time by the Board of Directors, as President of
the Employer, effective July 1, 1996. 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 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
twenty four and three tenths shares of Common Stock of Employer for
$100.00 at any time. At such time as such interest is acquired by
Executive, Executive agrees to execute the Shareholders' Agreement of
all the Shareholders of Employer, a Share Deposit Agreeement, and such
other documents which Employer deems necessary, in its sole discretion,
to give effect to the rights and obligations contained in such
agreements. Such interest shall be purchased pro-rata from David C.
Bernstein and John J. Campion only, and shall be personal to Executive
and may not be assigned or transferred. 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.
<PAGE>
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, or is terminated for good cause, as
defined in paragraph 11 hereof, the Employer shall be obligated solely
to pay to Executive the amount that Executive has paid for such stock,
plus simple interest from the date of such purchase at the annual rate
of 10%. 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 a rate equal to the prime rate
of interest in effect as of the date of closing, as announced by
Citibank, n.a., New York, NY or its successor), 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 to any third parties arising from the Employer's entering into
this agreement, 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 his
relationship with Employer.
8. Business Expenses. Executive will be entitled to prompt
reimbursement of ordinary and necessary business expenses
- 2 -
<PAGE>
incurred by the Executive in performing the services 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 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 this agreement and Executive's
continued employment with Employer, Executive hereby assigns 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. 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. Executive hereby forever assign to Employer all the
right, title and interest to all inventions previously invented by Executive.
The obligations of Executive 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
11, 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 neglect of the duties to be performed by Executive,
(iii) willful disloyalty of Executive to Employer, (iv) the death of
- 3 -
<PAGE>
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
- 4 -
<PAGE>
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).
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, provided however, that Executive
shall not, directly or indirectly, invest in any competitor of Employer.
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 12 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
- 5 -
<PAGE>
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.
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 17(d) shall be deemed to be within the
scope of the restrictions of Paragraph 12 of this Agreement.
e. This Agreement contains the entire agreement of the parties;
provided, that the parties may also execute an agreement of
non-solicitation governing some of the matters set forth in Paragraph
12, 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 the party
- 6 -
<PAGE>
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 said 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.
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
By: /s/ PLEASE SUPPLY**************
- ------------------------------- ------------------------------
Secretary Chairman of the Board
Executive:
/s/ Laurence Anderson
----------------------------------
Laurence Anderson
- 7 -
<PAGE>
EXHIBIT "A"
ADDITIONAL SPECIFIC DUTIES
Executive shall, effective July 1, 1996, be employed as the President
of the Employer. His duties shall include primary responsibility for the
operations, administration, financing and human resource management. Prior to
July 1, 1996, Executive shall be employed as the Employer's Vice President -
Operations.
- 8 -
<PAGE>
EXHIBIT "B"
COMPENSATION AND BENEFITS PACKAGE
Base Salary: Effective July 1, 1996 $ 150,000 per year, payable
in twenty six equal installments on every other
Wednesday.
Incentive Compensation: Executive shall be entitled to receive additional
compensation each year equal to three and
thirty-three hundredths (3.33%) 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)
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 reimbursements, shall not exceed
$1,000 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 Executive's base compensation. The value of
the insurance premium will be reported as taxable compensation to Executive.
b. 401(K) Plan. Executive shall be eligible to participate in
Employer's 401(K) Plan, which provides that all contributions by Executive up to
the first six percent (6%) of base compensation shall be matched by Employer at
the rate of fifty cents for each Executive dollar contributed. The vesting
period under such plan shall commence as of the first date of Executive's
employment with the Company.
- 9 -
<PAGE>
c. Health Insurance. Executive shall be eligible to participate in
Employer's group health insurance plans which provides for medical and dental
coverages.
- 10 -
<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 Laurence Anderson ("Executive") and
SHOWPOWER, INC., a corporation organized and existing under the laws of the
state of California (hereinafter called "Employer"), 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
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<PAGE>
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 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 employees,
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 Employee'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:
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<PAGE>
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;
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.
- 13 -
<PAGE>
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.
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,
- 14 -
<PAGE>
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 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
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<PAGE>
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.
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.
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<PAGE>
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.
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<PAGE>
IN WITNESS WHEREOF, this Non-Solicitation Agreement has been duly
executed on the date first above written.
EXECUTIVE: EMPLOYER:
SHOWPOWER, INC.
By: PLEASE SUPPLY*********
- --------------------- -----------------------
Laurence Anderson Its:
-----------------------
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EXHIBIT 10.5.2
SCHEDULE OF ADDITIONAL INDEBTEDNESS TO
CATERPILLAR FINANCIAL SERVICES CORPORATION
<TABLE>
<S> <C>
Promissory Note and Security Agreement dated March 6, 1997
Original principal amount: $500,500
Interest rate: 9.15%
Term: 60 months
Promissory Note and Security Agreement dated October 24, 1997
Original principal amount: $535,854
Interest rate: 9.15%
Term: 60 months
Promissory Note and Security Agreement dated January 22, 1998
Original principal amount: $48,990
Interest rate: 9.0%
Term: 84 months
</TABLE>
The foregoing Schedule summarizes the material terms of additional
indebtedness the documentation of which is otherwise substantially identical to
Exhibit 10.5.1.
EXHIBIT 10.6.3
SCHEDULE OF ADDITIONAL INDEBTEDNESS TO
CHARTER FINANCIAL, INC.
<TABLE>
<S> <C>
Loan and Security Agreement dated August 20, 1997
Original principal amount: $261,495
Term: September 1, 1997--September 1, 2001
Loan and Security Agreement dated December 4, 1997
Original principal amount: $211,000
Term: December 5, 1997--December 5, 2001
Loan and Security Agreement
Original principal amount: $107,816
Term: 49 months
Loan and Security Agreement
Original principal amount: $150,000
Term: 49 months
Loan and Security Agreement
Original principal amount: $173,094
Term: 49 months
</TABLE>
The foregoing Schedule summarizes the material terms of additional
indebtedness the documentation of which is otherwise substantially identical to
Exhibit 10.6.1.
Exhibit 10.7
[Comerica Logo]
REVOLVING CREDIT LOAN & SECURITY
AGREEMENT
(ACCOUNTS AND INVENTORY)
- --------------------------------------------------------------------------------
OBLIGOR # NOTE # AGREEMENT DATE
March 02,1998
- --------------------------------------------------------------------------------
CREDIT LIMIT INTEREST RATE OFFICER NO./INITIALS
$2,000,000.00 B+ 0.750% * 48276, Joseph P. Yurosek
- --------------------------------------------------------------------------------
*SEE ADDENDUM FOR RATE OPTION
THIS AGREEMENT is entered into on March 02, 1998, between Commerica
Bank - California ("Bank") as secured party, whose Headquarter Office is 333
West Santa Clara Street, San Jose, CA and SHOWPOWER, INC. ("Borrower"), a
Corporation whose sole place of business (if it has only one), chief executive
office (if it has more than one place of business) or residence (if an
individual) is located at 18128 SOUTH SANTA FE AVENUE, RANCHO DOMINGUEZ,
CALIFORNIA. This parties agree as follows:
1. DEFINITIONS
1.1 "Agreement" as used in this Agreement means and includes this Revolving
Credit Loan & Security Agreement (Accounts and Inventory), any concurrent or
subsequent rider to this Revolving Credit Loan & Security Agreement (Accounts
and Inventory) and any extensions, supplements, amendments or modifications to
this Revolving Credit Loan & Security Agreement (Accounts and Inventory) and to
any such rider.
1.2 "Bank Expenses" as used in this Agreement means and includes: all costs
or expenses required to be paid by Borrower under this Agreement which are paid
or advanced by Bank; taxes and insurance premiums of every nature and kind of
Borrower paid by Bank; filing, recording, publication and search fees, appraiser
fees, auditor fees and costs, and title insurance premiums paid or incurred by
Bank in connection with Bank's transactions with Borrower; costs and expenses
incurred by Bank in collecting the Receivables (with or without suit) to correct
any default or enforce any provision of this Agreement, or in gaining possession
of, maintaining, handling, preserving, storing, shipping, selling, disposing of,
preparing for sale and/or advertising to sell the Collateral, whether or not a
sale is consummated; costs and expenses of suit incurred by Bank in enforcing or
defending this Agreement or any portion hereof, including, but not limited to,
expenses incurred by Bank in attempting to obtain relief from any stay,
restraining order, injunction or similar process which prohibits Bank from
exercising any of its rights or remedies; and attorneys' fees and expenses
incurred by Bank in advising, reviewing, amending, terminating, enforcing,
defending or concerning this Agreement, or any portion hereof or any agreement
related hereto, whether or not suit is brought. Bank Expenses shall include
Bank's in-house legal charges at reasonable rates.
1.3 "Base Rate" as used in this Agreement means that variable rate of
interest so announced by Bank at its headquarters office in San Jose, California
as its "Base Rate" from time to time and which serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto.
1.4 "Borrower's Books" as used in this Agreement means and includes all of
the Borrower's books and records including but not limited to: minute books;
ledgers; records indicating, summarizing or evidencing Borrower's assets,
liabilities, Receivables, business operations or financial condition, and all
information relating thereto, computer programs; computer disk or tape files;
computer printouts; computer runs; and other computer prepared information and
equipment of any kind.
1.5 "Borrowing Base" as used in this Agreement means the sum of: (1)
Seventy Five* percent (75.000%) of the net amount of Eligible Accounts after
deducting therefrom all payments, adjustments and credits applicable thereto
("Accounts Receivable Borrowing Base"); and (2) the amount, if any, of the
advances against Inventory agreed to be made pursuant to any Inventory Rider
("Inventory Borrowing Base"), or other rider, amendment or modification to this
Agreement, that may now or hereafter be entered into by Bank and Borrower.
*NONE PERCENTAGE IF BORROWINGS NOT EXCEED $750,000.00 (INCLUDING LETTER OF
CREDIT); OR SEVENTY FIVE PERCENTAGE (75%) IF BORROWINGS EXCEED $750,000.00.
1.6 "Cash Flow" as used in this Agreement means, for any applicable period
of determination, the Net Income (after deduction for income taxes and other
taxes of such person determined by reference to income or profits of such
person) for such period, plus, to the extent deducted in computation of such Net
Income, the amount of depreciation and amortization expense and the amount of
deferred tax liability during such period, all as determined in accordance with
GAAP. The applicable period of determination will be N/A, beginning with the
period from ___________________ to _________________.
1.7 "Collateral" as used in this Agreement means and includes each and all
of the following: the Receivables; the Intangibles; the negotiable collateral,
the Inventory; all money, deposit accounts and all other assets of Borrower in
which Bank receives a security interest or which hereafter come into the
possession, custody or control of Bank; and the proceeds of any of the
foregoing, including, but not limited to, proceeds of insurance covering the
collateral and any and all Receivables, Intangibles, negotiable collateral,
Inventory, equipment, money, deposit accounts or other tangible and intangible
property of borrower resulting from the sale or other disposition of the
collateral, and the proceeds thereof. Notwithstanding anything to the contrary
contained herein, collateral shall not include any waste or other materials
which have been or may be designated as toxic or hazardous by Bank.
1.8 "Credit" as used in this Agreement means all Obligations, except those
obligations arising pursuant to any other separate contract, instrument, note,
or other separate agreement which, by its terms, provides for a specified
interest rate and term.
1.
<PAGE>
1.9 "Current Assets" as used in this Agreement means, as of any applicable
date of determination, all cash, non-affiliated customer receivables, United
States government securities, claims against the United States government, and
inventories.
1.10 "Current Liabilities" as used in this Agreement means, as of any
applicable date of determination, (i) all liabilities of a person that should be
classified as current in accordance with GAAP, including without limitation any
portion of the principal of the indebtedness classified as current, plus (ii) to
the extent not otherwise included, all liabilities of the Borrower to any of its
affiliates whether or not classified as current in accordance with GAAP.
1.11 "Daily Balance" as used in this Agreement means the amount determined
by taking the amount of the Credit owed at the beginning of a given day, adding
any new Credit advanced or incurred on such date, and subtracting any payments
or collections which are paid and are applied by Bank in reduction of the Credit
on that date under the provisions of this Agreement.
1.12 "Eligible Accounts" as used in this Agreement means and includes those
accounts of Borrower which are due and payable within thirty (30) days, or less,
from the date of invoice, have been validly assigned to Bank and strictly comply
with all of Borrower's warranties and representations to Bank; but Eligible
Accounts shall not include the following: (a) accounts with respect to which the
account debtor is an officer, employee, partner, joint venturer or agent of
Borrower; (b) accounts with respect to which goods are placed on consignment,
guaranteed sale or other terms by reason of which the payment by the account
debtor may be conditional; (c) accounts with respect to which the account debtor
is not a resident of the United States; (d) accounts with respect to which the
account debtor is the United States or any department, agency or instrumentality
of the United States; (e) accounts with respect to which the account debtor is
any State of the United States or any city, county, town, municipality or
division thereof; (f) accounts with respect to which the account debtor is a
subsidiary of, related to, affiliated or has common shareholders, officers or
directors with Borrower; (g) accounts with respect to which Borrower is or may
become liable to the account debtor for goods sold or services rendered by the
account debtor to Borrower; (h) accounts not paid by an account debtor within
ninety (90) days from the date of the invoice; (i) accounts with respect to
which account debtors dispute liability or make any claim, or have any defense,
crossclaim, counterclaim, or offset; (j) accounts with respect to which any
Insolvency Proceeding is filed by or against the account debtor, or if an
account debtor becomes insolvent, fails or goes out of business; and (k)
accounts owed by any single account debtor which exceed twenty percent (20%) of
all of the Eligible Acccounts; and (l) accounts with a particular account debtor
on which over twenty-five percent (25%) of the aggregate amount owing is greater
than ninety (90) days from the date of the invoice.
1.13 "Event of Default" as used in this Agreement means those events
described in Section 7 contained herein below.
1.14 "Fixed Charges" as used in this Agreement means and includes, for any
applicable period of determination, the sum, without duplication, of (a) all
interest paid or payable during such period by a person on debt of such person,
plus (b) all payments of principal or other sums paid or payable during such
period by such person with respect to debt of such person having a final
maturity more than one year from the date of creation of such debt, plus (c) all
debt discount and expense amortized or required to be amortized during such
period by such person, plus (d) the maximum amount of all rents and other
payments paid or required to be paid by such person during such period under any
lease or other contract or arrangement providing for use of real or personal
property in respect of which such person is obligated as a lessee, use or
obligor, plus (e) all dividends and other distributions paid or payable by such
person or otherwise accumulating during such period on any capital stock of such
person, plus (f) all loans or other advances made by such person during such
period to any Affiliate of such person. The applicable period of determination
will be N/A, beginning with the period from _______________________ to
______________________.
1.15 "GAAP" as used in this Agreement means as of any applicable period,
generally accepted accounting principles in effect during such period.
1.16 "Insolvency Proceeding" as used in this Agreement means and includes
any proceeding or case commenced by or against the Borrower, or any guarantor of
Borrower's Obligations, or any of borrower's account debtors, under any
provisions of the Bankruptcy Code, as amended, or any other bankruptcy or
insolvency law, including but not limited to assignments for the benefit of
creditors, formal or informal moratoriums, composition or extensions with some
or all creditors, any proceeding seeking a reorganization, arrangement or any
other relief under the Bankruptcy code, as amended, or any other bankruptcy or
insolvency law.
1.17 "Intangibles" as used in this Agreement means and includes all of
Borrower's present and future general intangibles and other personal property
(including, without limitation, any and all rights in any legal proceedings;
goodwill, patents, trade names, copyrights, trademarks, blueprints, drawings,
purchase orders, computer programs, computer disks, computer tapes, literature,
reports, catalogs and deposit accounts) other than goods and Receivables, as
well as Borrower's Books relating to any of the foregoing.
1.18 "Inventory" as used in this Agreement means and includes all present
and future inventory in which Borrower has any interest, including, but not
limited to, goods held by Borrower for sale and all of Borrower's present and
future raw materials, work in process, finished goods, advertising materials,
and packing and shipping materials, wherever located and any documents of title
representing any of the above, and any equipment, fixtures or other property
used in the storing, moving, preserving, identifying, acccounting for and
shipping or preparing for the shipping of Inventory, and any and all other items
hereafter acquired by Borrower by way of substitution,
2.
<PAGE>
replacement, return, repossession or otherwise, and all additions and accessions
thereto, and the resulting product or mass, and any documents of title
respecting any of the above.
1.19 "Net Income" as used in this Agreement means the net income (or loss)
of a person for any period determined in accordance with GAAP but excluding in
any event:
(a) any gains or losses on the sale or other disposition, not in the
ordinary course of business, of investments or fixed or capital assets, and
any taxes on the excluded gains and any tax deductions or credits on
account on any excluded losses; and
(b) in the case of the Borrower, net earnings of any Person in which
Borrower has an ownership interest, unless such net earnings shall have
actually been received by Borrower in the form of cash distributions.
1.20 "Judicial Officer or Assignee" as used in this Agreement means and
includes any trustee, receiver, controller, custodian, assignee for the benefit
of creditors or any other person or entity having powers or duties like or
similar to the powers and duties of trustee, receiver, controller, custodian or
assignee for the benefit of creditors.
1.21 "Obligations" as used in this Agreement means and includes any and all
loans, advances, overdrafts, debts, liabilities (including, without limitation,
any and all amounts charged to Borrower's account pursuant to any agreement
authorizing Bank to charge Borrower's account), obligations, lease payments,
guaranties, covenants and duties owing by Borrower to Bank of any kind and
description whether advanced pursuant to or evidenced by this Agreement; by any
note or other instrument; or by any other agreement between Bank and Borrower
and whether or not for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including, without limitation, any debt; liability or obligation owing from
Borrower to others which Bank may have obtained by assignment, participation,
purchase or otherwise, and further including, without limitation, all interest
not paid when due and all Bank Expenses which Borrower is required to pay or
reimburse by this Agreement, by law, or otherwise.
1.22 "Person" or "person" as used in this Agreement means and includes any
individual, corporation, partnership, joint venture, association, trust,
unincorporated association, joint stock company, government, municipality,
political subdivision or agency, or other entity.
1.23 "Receivables" as used in this Agreement means and includes all
presently existing and hereafter arising accounts, instruments, documents,
chattel paper, general intangibles, all other forms of obligations owing to
Borrower, all of Borrower's rights in, to and under all purchase orders
heretofore or hereafter received, all moneys due to Borrower under all contracts
or agreements (whether or not yet earned or due), all merchandise returned to or
reclaimed by Borrower and the Borrower's books (except minute books) relating to
any of the foregoing.
1.24 "Subordinated Debt" as used in this Agreement means indebtedness of
the Borrower to third parties which has been subordinated to the Obligations
pursuant to a subordination agreement in form and content satisfactory to the
Bank.
1.25 "Subordination Agreement" as used in this Agreement means a
subordination agreement in form satisfactory to Bank making all present and
future indebtedness of the Borrower to N/A subordinate to the Obligations.
1.26 "Tangible Effective Net Worth" as used in this Agreement means net
worth as determined in accordance with GAAP consistently applied, increased by
Subordinated Debt, if any, and decreased by the following: patents, licenses,
goodwill, subscription lists, organization expenses, trade receivables converted
to notes, money due from affiliates (including officers, directors, subsidiaries
and commonly held companies).
1.27 "Tangible Net Worth" as used in this Agreement means, as of any
applicable date of determination, the excess of
a. the net book value of all assets of a person (other than patents,
patent rights, trademarks, trade names, franchises, copyrights, licenses,
goodwill, and similar intangible assets) after all appropriate deductions
in accordance with GAAP (including, without limitation, reserves for
doubtful receivables, obsolescence, depreciation and amortization), over
b. all Debt of such person.
1.28 "Total Liabilities" as used in this Agreement means the total of all
items of indebtedness, obligation or liability which, in accordance with GAAP
consistently applied, would be included in determining the total liabilities of
the Borrower as of the date Total Liabilities is to be determined, including
without limitation (a) all obligations secured by any mortgage, pledge, security
interest or other lien on property owned or acquired, whether or not the
obligations secured thereby shall have been assumed; (b) all obligations which
are capitalized lease obligations; and (c) all guaranties, endorsements or other
contingent or obligations with respect to the indebtedness of others, whether or
not reflected on the balance sheets of the Borrower, including any obligation to
furnish funds, directly or indirectly through the purchase of goods, supplies,
services, or by way of stock purchase, capital contribution, advance or loan or
any obligation to enter into a contract for any of the foregoing; EXCEPT FOR
BORROWER'S OBLIGATION TO CAPITALIZE SHOWPOWER BRAZIL, S.A. FOR THREE HUNDRED
FIFTY THOUSAND AND NO/100 DOLLARS ($350,000.00).
1.29 "Working Capital" as used in this Agreement means, as of any
applicable date of determination, Current Assets less Current Liabilities.
3.
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1.30 Any and all terms used in this Agreement shall be construed and
defined in accordance with the meaning and definition of such terms under and
pursuant to the California Uniform Commercial Code (hereinafter referred to as
the "Code") as amended.
1.31 LETTER OF CREDIT SUB-FEATURE: THE AMOUNT OF $300,000.00 FOR THE
ISSUANCE OF LETTERS OF CREDIT IS TO BE ALLOWED WITHIN THE BORROWING BASE AND
WITHIN THE LINE AMOUNT.
2. LOAN AND TERMS OF PAYMENT
For value received, Borrower promises to pay to the order of Bank such
amount, as provided for below, together with interest, as provided for
below.
2.1 Upon the request of Borrower, made at any time and from time to time
during the term hereof, and so long as no Event of Default has occurred, Bank
shall lend to Borrower an amount equal to the Borrowing Base*, provided,
however, that in no event shall Bank be obligated to make advances to Borrower
under this Section 2.1 whenever the Daily Balance exceeds, at any time, either
the Borrowing Base* or the sum of Two Million and no/100 ($2,000,000.00), such
amount being referred to herein as an "Overadvance".
*INCLUDING LETTER OF CREDIT SUB-FEATURE
2.2 Except as hereinbelow provided, the Credit shall bear interest, on the
Daily Balance owing, at a rate of zero 75/100** (0.750) percentage points per
annum above the Base Rate (the "Rate"). The Credit shall bear interest, from and
after the occurrence of an Event of Default and without constituting a waiver of
any such Event of Default, on the Daily Balance owing, at a rate three (3)
percentage points per annum above the Rate. All interest chargeable under this
Agreement that is based upon a per annum calculation shall be computed on the
basis of a three hundred sixty (360) day year for actual days elapsed.
**SEE ADDENDUM ATTACHED HERETO AND MADE A PART HEREOF FOR RATE OPTION
The Base Rate as of the date of this Agreement is Eight and 5/10 (8.500%)
per annum. In the event that the Base Rate announced is, from time to time
hereafter changed, adjustment in the Rate shall be made and based on the Base
Rate in effect on the date of such change. The Rate, as adjusted, shall apply to
the Credit until the Base Rate is adjusted again. The minimum interest payable
by the Borrower under this Agreement shall in no event be less than N/A per
month. All interest payable by Borrower under the Credit shall be due and
payable on the first day of each calendar month during the term of this
Agreement. A late payment charge equal to 5% of each late payment may be charged
on any payment not received by the Bank within 10 calendar days after the
payment due date, but acceptance of payment of this charge shall not waive any
Default under this Agreement.
2.3 Without affecting Borrower's obligation to repay immediately any
Overadvance in accordance with Section 2.1 hereof, all Overadvances shall bear
additional interest on the amount thereof at a rate equal to N/A (N/A%)
percentage points per month in excess of the interest rate set forth in Section
2.2, from the date incurred and for each month thereafter, until repaid in full.
2.4 UNUSED LINE FEE - ON THE LAST DAY EACH CALENDAR QUARTER, BORROWER SHALL
PAY TO BANK A FEE OF 0.125% PER ANNUM BASED ON THE DIFFERENCE BETWEEN THE
COMMITMENT AND AN AMOUNT EQUAL TO THE WEIGHTED AVERAGE TOTAL OUTSTANDING DURING
THE PREVIOUS QUARTERLY PERIOD OR PORTION THEREOF.
3. TERM.
3.1 This Agreement shall remain in full force and effect until May 01,
1999, or until terminated by notice by Borrower. Notice of such termination by
Borrower shall be effectuated by mailing of a registered or certified letter not
less than thirty (30) days prior to the effective date as such termination,
addressed to the Bank at the address set forth herein and the termination shall
be effective as of the date so fixed in such notice. Notwithstanding the
foregoing, should Borrower be in default of one or more of the provisions of
this Agreement, Bank may terminate this Agreement at any time without notice.
Notwithstanding the foregoing, should either Bank or Borrower become insolvent
or unable to meet its debts as they mature, or fail, suspend, or go out of
business, the other party shall have the right to terminate this Agreement at
any time without notice. On the date of termination all Obligations shall become
immediately due and payable without notice or demand; no notice of termination
by Borrower shall be effective until Borrower shall have paid all Obligations to
Bank in full. Notwithstanding termination, until all Obligations have been fully
satisfied, Bank shall retain its security interest in all existing Collateral
and Collateral arising thereafter, and Borrower shall continue to perform all of
its Obligations.
3.2 After termination and when Bank has received payment in full of
Borrower's Obligations to Bank, Bank shall reassign to Borrower all Collateral
held by Bank, and shall execute a termination of all security agreements and
security interests given by Borrower to Bank, upon the execution and delivery of
mutual general releases.
4. CREATION OF SECURITY INTEREST
4.1 Borrower hereby grants to Bank a continuing security interest in all
presently existing and hereafter arising Collateral in order to secure prompt
repayment of any and all Obligations owed by Borrower to Bank and in order to
secure prompt performance by Borrower of each and all of its covenants and
Obligations under this Agreement and otherwise created. Bank's security interest
in the Collateral shall attach to all Collateral without further act on the part
of Bank or Borrower. In the event that any Collateral, including proceeds, is
evidenced by or consists of a letter of credit, advice of credit, instrument,
money, negotiable documents, chattel paper or similar property (collectively,
"Negotiable Collateral"), Borrower shall, immediately upon receipt thereof,
endorse and assign such Negotiable Collateral over to Bank and deliver actual
physical possession of the Negotiable Collateral to Bank.
4.2 Bank's security interest in Receivables shall attach to all Receivables
without further act on the part of Bank or Borrower. Upon request from Bank,
Borrower shall provide Bank with schedules describing all Receivables created or
acquired by Borrower (including without limitation agings listing the names and
addresses of, and amounts owing by date by account debtors), and shall execute
and deliver written assignments of all Receivables to Bank all in a form
acceptable to Bank, provided, however, Borrower's failure to execute and deliver
such schedules and/or assignments shall not affect or limit Bank's security
interest and other rights in and to the Receivables. Together with each
schedule,
4.
<PAGE>
Borrower shall furnish Bank with copies of Borrower's customers' invoices or the
equivalent, and original shipping or delivery receipts for all merchandise sold,
and Borrower warrants the genuineness thereof. Bank or Bank's designee may
notify customers or account debtors of collection costs and expenses to
Borrower's account but, unless and until Bank does so or gives Borrower other
written instructions, Borrower shall collect all Receivables for Bank, receive
in trust all payments thereon as Bank's trustee, and, if so requested to do so
from Bank, Borrower shall immediately deliver said payments to Bank in their
original form as received from the account debtor and all letters of credit,
advices of credit,instruments, documents, chattel paper or any similar property
evidencing or constituting Collateral. Notwithstanding anything to the contrary
contained herein, if sales of Inventory are made for cash, Borrower shall
immediately deliver to Bank, in identical form, all such cash, checks, or other
forms of payment which Borrower receives. The receipt of any check or other item
of payment by Bank shall not be considered a payment on account until such check
or other item of payment is honored when presented for payment, in which event,
said check or other item of payment shall be deemed to have been paid to Bank
Two (2) calendar days after the date Bank actually receives such check or other
item of payment.
4.3 Bank's security interest in Inventory shall attach to all Inventory
without further act on the part of Bank or Borrower. Upon Bank's request
Borrower will from time to time at Borrower's expense pledge, assemble and
deliver such Inventory to Bank or to a third party as Bank's bailee; or hold the
same in trust for Bank's account or store the same in a warehouse in Bank's
name; or deliver to Bank documents of title representing said Inventory; or
evidence of Bank's security interest in some other manner acceptable to Bank.
Until a default by Borrower under this Agreement or any other Agreement between
Borrower and Bank, Borrower may, subject to the provisions hereof and consistent
herewith, sell the Inventory, but only in the ordinary course of Borrower's
business. A sale of Inventory in Borrower's ordinary course of business does not
include an exchange or a transfer in partial or total satisfaction of a debt
owing by Borrower.
4.4 Borrower shall execute and deliver to Bank concurrently with Borrower's
execution of this Agreement, and at any time or times hereafter at the request
of Bank, all financing statements, continuation financing statements, security
agreements, mortgages, assignments, certificates of title, affidavits, reports,
notices, schedules of accounts, letters of authority and all other documents
that Bank may request, in form satisfactory to Bank, to perfect and maintain
perfected Bank's security interest in the Collateral and in order to fully
consummate all of the transactions contemplated under this Agreement. Borrower
hereby irrevocably makes, constitutes and appoints Bank (and any of Bank's
officers, employees or agents designated by Bank) as Borrower's true and lawful
attorney-in-fact with power to sign the name of Borrower on any financing
statements, continuation financing statements, security agreement, mortgage,
assignment, certificate of title, affidavit, letter of authority, notice of
other similar documents which must be executed and/or filed in order to perfect
or continue perfected Bank's security interest in the Collateral.
Borrower shall make appropriate entries in Borrower's Books disclosing
Bank's security interest in the Receivables. Bank (through any of its officers,
employees or agents) shall have the right at any time or times hereafter during
Borrower's usual business hours, or during the usual business hours of any third
party having control over the records of Borrower, to inspect and verify
Borrower's Books in order to verify the amount or condition of, or any other
matter, relating to, said Collateral and Borrower's financial condition.
4.5 Borrower appoints Bank or any other person whom Bank may designate as
Borrower's attorney-in-fact, with power to endorse Borrower's name on any
checks, notes, acceptances, money order, drafts or other forms of payment or
security that may come into Bank's possession; to sign Borrower's name on any
invoice or bill of lading relating to any Receivables, on drafts against account
debtors, on schedules and assignments of Receivables, on verifications of
Receivables and on notices to account debtors; to establish a lock box
arrangement and/or to notify the post office authorities to change the address
for delivery of Borrower's mail addressed to Borrower to an address designated
by Bank, to receive and open all mail addressed to Borrower; and to retain all
mail relating to the Collateral and forward all other mail to Borrower; to send,
whether in writing or by telephone, requests for verification of Receivables;
and to do all things necessary to carry out this Agreement. Borrower ratifies
and approves all acts of the attorney-in-fact. Neither Bank nor its
attorney-in-fact will be liable for any acts or omissions or for any error of
judgement or mistake of fact or law. This power being coupled with an interest,
is irrevocable so long as any Receivables in which Bank has a security interest
remain unpaid and until the Obligations have been fully satisfied.
4.6 In order to protect or perfect any security interest which Bank is
granted hereunder, Bank may, in its sole discretion, discharge any lien or
encumbrance or bond the same, pay any insurance, maintain guards, warehousemen,
or any personnel to protect the Collateral, pay any service bureau, or, obtain
any records, and all costs for the same shall be added to the Obligations and
shall be payable on demand.
4.7 Borrower agrees that Bank may provide information relating to this
Agreement or relating to Borrower to Bank's parent, affiliates, subsidiaries and
service providers.
5. CONDITIONS PRECEDENT
5.1 Conditions precedent to the making of the loans and the extension of
the financial accommodations hereunder, Borrower shall execute, or cause to be
executed, and deliver to Bank, in form and substance satisfactory or Bank and
its counsel, the following:
a. This Agreement and other documents required by Bank;
b. Financing statements (Form UCC-1) in form satisfactory to Bank for
filing and recording with the appropriate governmental authorities;
5.
<PAGE>
c. If Borrower is a corporation, then certified extracts from the
minutes of the meeting of its board of directors, authorizing the
borrowings and the granting of the security interest provided for herein
and authorizing specific officers to execute and deliver the agreements
provided for herein;
d. If Borrower is a corporation, then a certificate of good standing
showing that Borrower is in good standing under the laws of the state of
its incorporation and certificates indicating that Borrower is qualified to
transact business and is in good standing in any other state in which it
conducts business;
e. If Borrower is a partnership, then a copy of Borrower's partnership
agreement certified by each general partner of Borrower;
f. UCC searches, tax lien and litigation searches, fictitious business
statement filings, insurance certificates, notices or other similar
documents which Bank may require and in such form as Bank may require, in
order to reflect, perfect or protect Bank's first priority security
interest in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement;
g. Evidence that Borrower has obtained insurance and acceptable
endorsements;
h. Waivers executed by landlords and mortgagees of any real property on
which any Collateral is located; and
i. Warranties and representations of officers.
6. WARRANTIES REPRESENTATIONS AND COVENANTS.
6.1 If so requested by Bank, Borrower shall, at such intervals designated
by Bank, during the term hereof execute and deliver a Report of Accounts
Receivable or similar report, in form customarily used by Bank, Borrower's
Borrowing Base at all times pertinent hereto shall not be less than the advances
made hereunder. Bank shall have the right to recompute Borrower's Borrowing Base
in conformity with this Agreement.
6.2 If any warranty is breached as to any account, or any account is not
paid in full by an account debtor within Ninety (90) days from the date of
invoice, or an account debtor disputes liability or makes any claim with respect
thereto, or a petition in bankruptcy or other application for relief under the
Bankruptcy Code or any other insolvency law is filed by or against an account
debtor, or an account debtor makes an assignment for the benefit of creditors,
becomes insolvent, fails or goes out of business, then Bank may deem ineligible
any and all accounts owing by that account debtor, and reduce Borrower's
Borrowing Base by the amount thereof. Bank shall retain its security interest in
all Receivables and accounts, whether eligible or ineligible, until all
Obligations have been fully paid and satisfied. Returns and allowances, if any,
as between Borrower and its customers, will be on the same basis and in
accordance with the usual customary practices of the Borrower, as they exist at
this time. Any merchandise which is returned by an account debtor or otherwise
recovered shall be set aside, marked with Bank's name, and Bank shall retain a
security interest therein. Borrower shall promptly notify Bank of all disputes
and claims and settle or adjust them on terms approved by Bank. After default by
Borrower hereunder, no discount, credit or allowance shall be granted to any
account debtor by Borrower and no return of merchandise shall be accepted by
Borrower without Bank's consent. Bank may, after default by Borrower, settle or
adjust disputes and claims directly with account debtors for amounts and upon
terms which Bank considers advisable, and in such cases Bank will credit
Borrower's account with only the net amounts received by Bank in payment of the
accounts, after deducting all Bank Expenses in connection therewith.
6.3 Borrower warrants, represents, covenants and agrees that:
a. Borrower has good and marketable title to the Collateral. Bank has
and shall continue to have a first priority perfected security interest in
and to the Collateral. The Collateral shall at all times remain free and
clear of all liens, encumbrances and security interests (except those in
favor or Bank).
b. All accounts are and will, at all times pertinent hereto, be bona
fide existing obligations created by the sale and delivery of merchandise
or the rendition of services to account debtors in the ordinary course of
business, free of liens, claims, encumbrances and security interests
(except as held by Bank and except as may be consented to, in writing, by
Bank) and are unconditionally owed to Borrower without defenses, disputes,
offsets, counterclaims, rights of return or cancellation, and Borrower
shall have received no notice of actual or imminent bankruptcy or
insolvency of any account debtor at the time an account due from such
account debtor is assigned to Bank.
c. At the time each account is assigned to Bank, all property giving
rise to such account shall have been delivered to the account debtor or to
the agent for the account debtor for immediate shipment to, and
unconditional acceptance by, the account debtor. Borrower shall deliver to
Bank, as Bank may from time to time require, delivery receipts, customer's
purchase orders, shipping instruction, bills of lading and any other
evidence of shipping arrangements. Absent such a request by Bank, copies of
all such documentation shall be held by Borrower as custodian for Bank.
6.4 At the time each eligible account is assigned to Bank, all such
eligible accounts will be due and payable on terms set forth in Section 1.12, or
on such other terms approved in writing by Bank in advance of the creation of
such accounts and which are expressly set forth on the face of all invoices,
copies of which shall be held by Borrower as custodian for Bank, and no such
eligible account will then be past due.
6.
<PAGE>
6.5 Borrower shall keep the Inventory only at the following locations:
_______________ and the owner or mortgages of the respective locations are:
_____________________________
a. Borrower, immediately upon demand by Bank therefor, shall now and
from time to time hereafter, at such intervals as are requested by Bank,
deliver to Bank, designations of Inventory specifying Borrower's cost of
inventory, the wholesale market value thereof and such other matters and
information relating to the Inventory as Bank may request;
b. Borrower's Inventory, valued at the lower of Borrower's cost or the
wholesale market value thereof, at all times pertinent hereto shall not be
less than N/A Dollars ($_______) of which no less than N/A Dollars ($______
N/A) shall be in raw materials and finished goods;
c. All of the Inventory is and shall remain free from all purchase
money or other security interests, liens or encumbrances, except as held by
Bank;
d. Borrower does now keep and hereafter at all times shall keep correct
and accurate records itemizing and describing the kind, type, quality and
quantity of the Inventory, its cost therefor and selling price thereof, and
the daily withdrawals therefrom and additions thereto, all of which records
shall be available upon demand to any of Bank's officers, agents and
employees for inspection and copying;
e. All Inventory, now and hereafter at all times, shall be new
Inventory of good and merchantable quality free from defects;
f. Inventory is not now and shall not at any time or times hereafter be
located or stored with a bailee, warehouseman or other third party without
Bank's prior written consent, and, in such event, Borrower will
concurrently therewith cause any such bailee, warehouseman or other third
party to issue and deliver to Bank, in a form acceptable to Bank, warehouse
receipts in Bank's name evidencing the storage of Inventory or other
evidence of Bank's prior rights in the Inventory. In any event, Borrower
shall instruct any third party to hold all such Inventory for Bank's
account subject to Bank's security interests and its instructions; and
g. Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours, to inspect and examine
the Inventory and to check and test the same as to quality, quantity, value
and condition and Borrower agrees to reimburse Bank for Bank's reasonable
costs and expenses in so doing.
6.6 Borrower represents, warrants and covenants with Bank that Borrower
will not, without Bank's prior written consent, SUCH CONSENT NOT TO BE
UNREASONABLY WITHHELD:
a. Grant a security interest in or permit a lien, claim or encumbrance
upon any of the Collateral to any person, association, firm, corporation,
entity or governmental agency or instrumentality;
b. Permit any levy, attachment or restraint to be made affecting any of
Borrower's assets;
c. Permit any Judicial Officer or Assignee to be appointed or to take
possession of any or all of Borrower's assets;
d. Other than sales of Inventory in the ordinary course of Borrower's
business, to sell, lease, or otherwise dispose of, move, or transfer,
whether by sale or otherwise, any of Borrower's assets, OTHER THAN RENTAL
EQUIPMENT OR AS OTHERWISE PERMITTED HEREUNDER;
e. Change its name, business structure, corporate identity or
structure; add any new fictitious names, liquidate, merge or consolidate
with or into any other business organization;
f. Move or relocate any Collateral;
g. Acquire any other business organization FOR A PURCHASE PRICE
EXCEEDING $250,000.00;
h. Enter into any transaction not in the usual course of Borrower's
business;
i. Make any investment in securities of any person, association, firm,
entity, or corporation other than the securities of the United States of
America OR CASH EQUIVALENT WITH THE MATURITY OF LESS THAN 180 DAYS;
j. Make any change in Borrower's financial structure or in any of its
business objectives, purposes or operations which would adversely effect
the ability of Borrower to repay Borrower's Obligations;
k. Incur any debts outside the ordinary course of Borrower's business
except renewals or extensions of existing debts and interest thereon. IT IS
SPECIFICALLY AGREED THAT BORROWER MAY, PROVIDED IT IS NOT IN DEFAULT
HEREUNDER, SECURE ADDITIONAL DEBT FOR ITS RENTAL EQUIPMENT;
l. Make any advance or loan except in the ordinary course of Borrower's
business as currently conducted, NOT TO EXCEED, IN THE AGGREGATE, FIFTY
THOUSAND AND NO/100 DOLLARS ($50,000.00).
7.
<PAGE>
m. Make loans, advance or extensions of credit to any Person, except
for sales on open account and otherwise in the ordinary course of business;
n. *Guarantee or otherwise, directly or indirectly, in any way be or
become responsible for obligations of any other Person, whether by
agreement to purchase the indebtedness of any other Person, agreement for
the furnishing of funds to any other Person through the furnishing of
goods, supplies or services, by way of stock purchase, capital
contribution, advance or loan, for the purpose of paying or discharging (or
causing the payment or discharge of) the Indebtedness of any other Person,
or otherwise, except for the endorsement of negotiable Instruments by the
Borrower in the ordinary course of business for deposit or collection.
*EXCEPT AS PERMITTED IN PARAGRAPH 6.17i HEREIN,
o. (a) Sell, lease, transfer or otherwise dispose of properties and
assets having an aggregate book value of more than N/A Dollars ($_______
N/A) (whether in one transaction or in a series of transactions) except as
to the sale of Inventory in the ordinary course of business; (b) change its
name, consolidate with or merge into any other corporation, permit another
corporation to merge into it, acquire all or substantially all the
properties or assets of any other Person, enter into reorganization or
recapitalization or reclassify its capital stock, or (c) enter into any
sale-leaseback transaction;
p. Subordinate any indebtedness due to it from a person to indebtedness
of other creditors of such person;
q. Purchase or hold beneficially any stock or other securities of, or
make any investment or acquire any interest whatsoever in, any other
Person, except for the common stock of the Subsidiaries owned by the
Borrower on the date of this Agreement and except for certificates of
deposit with maturities of one year or less of United States commercial
banks with capital, surplus and undivided profits in excess of $100,000,000
and direct obligations of the United States Government maturing within one
year from the date of acquisition thereof; or
r. Allow any fact, condition or event to occur or exist with respect to
any employee pension or profit sharing plans established or maintained by
it which might constitute grounds for termination of any such plan or for
the court appointment of a trustee to administer any such plan.
6.7 Borrower is not a merchant whose sales for resale of goods for
personal, family or household purposes exceeded seventy-five percent (75%) in
dollar volume of its total sales of all goods during the 12 months preceding the
filing by Bank of a financing statement describing the Collateral. At no time
hereafter shall Borrower's sales for resale of goods for personal, family or
household purposes exceed seventy-five percent (75%) in dollar volume of its
total sales.
6.8 Borrower's sole place of business or chief executive office or
residence is located at the address indicated above and Borrower covenants and
agrees that it will not, during the term of this Agreement, without prior
written notification to Bank, relocate said sole place of business or chief
executive office or residence.
6.9 If Borrower is a corporation, Borrower represents, warrants and
covenants as follows:
a. Borrower will not make any distribution or declare or pay any
dividend (in stock or in cash) to any shareholder or on any of its capital
stock, of any class, whether now or hereafter outstanding, or purchase,
acquire, repurchase, redeem or retire any such capital stock;
b. Borrower is and shall at all times hereafter be a corporation duly
organized and existing in good standing under the laws of the state of its
incorporation and qualified and licensed to do business in California or
any other state in which it conducts its business;
c. Borrower has the right and power and is duly authorized to enter
into this Agreement; and
d. The execution by Borrower of this Agreement shall not constitute a
breach of any provision contained in Borrower's articles of incorporation
or by-laws.
6.10 The execution of and performance by Borrower of all of the terms and
provisions contained in this Agreement shall not result in a breach of or
constitute an event of default under any agreement to which Borrower is now or
hereafter becomes a party.
6.11 Borrower shall promptly notify Bank in writing of its acquisition* by
purchase, lease or otherwise of any after acquired property of the type included
in the Collateral, with the exception of purchases of Inventory in the ordinary
course of business.
*WHICH EXCEEDS $25,000.00
6.12 All assessments and taxes, whether real, personal or otherwise, due or
payable by, or imposed, levied or assessed against, Borrower or any of its
property have been paid, and shall hereafter be paid in full, before
delinquency. Borrower shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it by
law, and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof. Borrower will make timely payment
of deposit of all F.I.C.A. payments and withholding taxes required of it by
applicable laws, and will upon request furnish Bank with proof satisfactory to
it that Borrower has made such payments or deposit. If Borrower fails to pay any
such assessment, tax, contribution, or make such deposit, or furnish the
required proof, Bank may, in its sole and absolute discretion and without notice
to Borrower,
8.
<PAGE>
(i) make payment of the same or any part thereof; or (ii) set up such
reserves in Borrower's account as Bank deems necessary to satisfy the
liability therefor, or both. Bank may conclusively rely on the usual
statements of the amount owing or other official statements issued by the
appropriate governmental agency. Each amount so paid or deposited by Bank
shall constitute a Bank Expense and an additional advance to Borrower.
6.13 *There are no actions or proceedings pending by or against Borrower or
any guarantor of Borrower before any court or administrative agency and Borrower
has no knowledge of any pending, threatened or imminent litigation, governmental
investigations or claims, complaints, actions or prosecutions involving Borrower
or any guarantor of Borrower, except as heretofore specifically disclosed in
writing to Bank. If any of the foregoing arise during the term of the Agreement,
Borrower shall immediately notify Bank in writing.
*EXCEPT AS OTHERWISE DISCLOSED IN WRITING TO BANK BY BORROWER,
6.14 a. Borrower, at its expense, shall keep and maintain its assets
insured against loss or damage by fire, theft, explosion, sprinklers and
all other hazards and risks ordinarily insured against by other owners who
use such properties in similar businesses for the full insurable value
thereof. Borrower shall also keep and maintain business interruption
insurance and public liability and property damage insurance relating to
Borrower's ownership and use of the Collateral and its other assets. All
such policies of insurance shall be in such form, with such companies, and
in such amounts as may be satisfactory to Bank. Borrower shall deliver to
Bank certified copies of such policies of insurance and evidence of the
payments of all premiums therefor. All such policies of insurance (except
those of public liability and property damage) shall contain an endorsement
in a form satisfactory to Bank showing Bank as a loss payee thereof, with a
waiver of warranties (Form 438-BFU), and all proceeds payable thereunder
shall be payable to Bank and, upon receipt by Bank, shall be applied on
account of the Obligations owing to Bank. To secure the payment of the
Obligations, Borrower grants Bank a security interest in and to all such
policies of insurance (except those of public liability and property
damage) and the proceeds thereof, and Borrower shall direct all insurers
under such policies of insurance to pay all proceeds thereof directly to
Bank. BORROWER HAS PROVIDED BANK WITH COPIES OF ALL SUCH POLICIES, AND BANK
APPROVES THE FORM, CARRIERS AND LIMITS OF ALL SUCH POLICIES.
b. Borrower hereby irrevocably appoints Bank (and any of Bank's
officers, employees or agents designated by Bank) as Borrower's attorney
for the purpose of making, selling and adjusting claims under such policies
of insurance, endorsing the name of Borrower on any check, draft,
instrument or other item of payment for the proceeds of such policies of
insurance and for making all determinations and decisions with respect to
such policies of insurance. Borrower will not cancel any of such policies
without Bank's prior written consent. Each such insurer shall agree by
endorsement upon the policy or policies of insurance issued by it on
Borrower as required above, or by independent instruments furnished to
Bank, that it will give Bank at least ten (10) days written notice before
any such policy or policies of insurance shall be altered or cancelled, and
that no act or default of Borrower, or any other person, shall affect the
right of Bank to recover under such policy or policies of insurance
required above or to pay any premium in whole or in part relating thereto.
Bank, without waiving or releasing any Obligations or any Event of Default,
may, but shall have no obligation to do so, obtain and maintain such
policies of insurance and pay such premiums and take any other action with
respect to such policies which Bank deems advisable. All sums so disbursed
by Bank, as well as reasonable attorneys' fees, court costs, expenses and
other charges relating thereto, shall constitute Bank Expenses and are
payable on demand.
6.15 All financial statements and information relating to Borrower which
have been or may hereafter be delivered by Borrower to Bank are true and correct
and have been prepared in accordance with GAAP consistently applied and there
has been no material adverse change in the financial condition of Borrower since
the submission of such financial information to Bank.
6.16 a. Borrower at all times hereafter shall maintain a standard and
modern system of accounting in accordance with GAAP consistently applied
with ledger and account cards and/or computer tapes and computer disks,
computer printouts and computer records pertaining to the Collateral which
contain information as may from time to time be requested by Bank, not
modify or change its method of accounting or enter into, modify or
terminate any agreement presently existing, or at any time hereafter
entered into with any third party accounting firm and/or service bureau for
the preparation and/or storage of Borrower's accounting records without the
written consent of Bank first obtained and without said accounting firm
and/or service bureau agreeing to provide information regarding the
Receivables and Inventory and Borrower's financial condition to Bank;
permit Bank and any of its employees, officers or agents, upon demand,
during Borrower's usual business hour, or the usual business hour of third
persons having control thereof, to have access to and examine all of the
Borrower's Books relating to the Collateral, Borrower's Obligations to
Bank, Borrower's financial condition and the results of Borrower's
operations and in connection therewith, permit Bank or any of its agents,
employees or officers to copy and make extracts therefrom.
b. Borrower shall deliver to Bank within thirty (30) days after the end
of each Quarter, a COMPANY PREPARED balance sheet and profit and loss
statement covering Borrower's operations and deliver to Bank within ninety
(90) days after the end of each of Borrower's fiscal years a(n) AUDITED**
statement of the financial condition of the Borrower for each such fiscal
year, including but not limited to, a balance sheet and profit and loss
statement and any other report requested by Bank relating to the Collateral
and the financial condition of Borrower, and a certificate signed by an
authorized employee of Borrower to the effect that all reports, statements,
computer disk or tape files, computer printouts, computer runs, or other
computer prepared information of any kind or nature relating to the
foregoing or documents delivered or caused to be delivered to Bank under
this subparagraph are complete, correct and thoroughly present the
financial condition of borrower and that there exists on the date of
delivery to Bank no condition or event which constitutes a breach or Event
of Default under this Agreement.
**CONSOLIDATED & CONSOLIDATING
9.
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c. In addition to the financial statements requested above, the
Borrower agrees to provide Bank with the following schedule: SEE EXHIBIT
"A" ATTACHED HERETO AND MADE A PART HEREOF
6.17 Borrower shall maintain the following financial ratios and covenants
on a consolidated and non-consolidated basis:
a. Working Capital in an amount not less than N/A
b. Tangible Effective Net Worth in an amount not less than
$2,500,000.00, DEFINED AS NET WORTH MINUS INTANGIBLE ASSETS, INVESTMENT AND
SUBSIDIARY AND NOTES RECEIVABLE FROM SHAREHOLDERS.
c. a ratio of Current Assets to Current Liabilities of net less than
N/A
d. a quick ratio of cash plus securities plus Receivables to Current
Liabilities of not less than 0.38:1.00, DEFINED AS: CASH AND CASH
EQUIVALENTS PLUS NET ACCOUNTS RECEIVABLE DIVIDEND BY CURRENT LIABILITIES.
e. a ratio of Total Liabilities (less debt subordinated to Bank) to
Tangible Effective Net Worth of less than 2.25:1.00
f. a ratio of Cash Flow to Fixed Charges of not less than 1.35:1.00,
(3/31/98 - 9/30/98) TO STEP UP TO 1.50:1.00 (12/31/98 - MATURITY); DEFINED
AS NET INCOME PLUS DEPRECIATION AND AMORTIZATION LESS DIVIDENDS CALCULATED
ON A ROLLING 4-QUARTER BASIS DIVIDEND BY CURRENT PORTION OF LONG TERM DEBT.
g. Net Income after taxes of N/A
h. Borrower shall not without Bank's prior written consent acquire or
expend for or commit itself to acquire or expend for fixed assets by lease,
purchase or otherwise in an aggregate amount that exceeds N/A Dollars
($__________) in any fiscal year; and
i. MAXIMUM ANNUAL CAPITAL EXPENDITURES $4,500,000.00; J) INVESTMENT IN
SUBSIDIARIES NOT TO EXCEED $4,000,000.00; K) DOWNSTREAMING OF FUNDS TO
SUBSIDIARIES NOT TO EXCEED $400,000.00; L) MAXIMUM OTHER INDEBTEDNESS
$6,500,000.00; M) DIVIDENDS ALLOWED TO PAY SUB-S TAX LIABILITIES BUT CAPPED
AT 50% OF NET INCOME; N) SEMI-ANNUAL A/R AUDITS
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from affiliates (including officers, directors and
shareholders) shall be excluded from Borrower's assets for all purposes
hereunder.
6.18 Borrower shall promptly supply Bank (and cause any guarantor to supply
Bank) with such other information (including tax returns) concerning its
financial affairs (or that of any guarantor) as Bank may request from time to
time hereafter, and shall promptly notify Bank of any material adverse change in
Borrower's financial condition and of any condition or event which constitutes a
breach of or an event which constitutes an Event of Default under this
Agreement.
6.19 Borrower is now and shall be at all times hereafter solvent and able
to pay its debts (including trade debts) as they mature.
6.20 Borrower shall immediately and without demand reimburse Bank for all
sums expended by Bank in connection with any action brought by Bank to correct
any default or enforce any provision of this Agreement, including all Bank
Expenses; Borrower authorizes and approves all advances and payments by Bank for
items described in this Agreement as Bank Expenses.
6.21 Each warranty, representation and agreement contained in this
Agreement shall be automatically deemed repeated with each advance and shall be
conclusively presumed to have been relied on by Bank regardless of any
investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Borrower shall give, or cause to be given, to Bank, either now or hereafter.
6.22 Borrower shall keep all of its principal bank accounts with Bank and
shall notify the Bank immediately in writing of the existence of any other bank
account, deposit account, or any other account into which money can be
deposited.
6.23 Borrower shall furnish to the Bank: (a) as soon as possible, but in no
event later than thirty (30) days after Borrower knows or has reason to know
that any reportable event with respect to any deferred compensation plan has
occurred, a statement of the chief financial officer of Borrower setting forth
the details concerning such reportable 10.
<PAGE>
event and the action which Borrower proposes to take with respect thereto,
together with a copy of the notice of such reportable event given to the Pension
Benefit Guaranty Corporation, if a copy of such notice is available to Borrower;
(b) promptly after the filing thereof with the United States Secretary of Labor
or the Pension Benefit Guaranty Corporation, copies of each annual report with
respect to each deferred compensation plan; (c) promptly after receipt thereof,
a copy of any notice Borrower may receive from the Pension Benefit Guaranty
Corporation or the Internal Revenue Service with respect to any deferred
compensation plan; provided, however, this subparagraph shall not apply to
notice of general application issued by the Pension Benefit Guaranty Corporation
or the Internal Revenue Service; and (d) when the same is made available to
participants in the deferred compensation plan, all notices and other forms of
information from time to time disseminated to the participants by the
administrator of the deferred compensation plan.
6.24 Borrower is now and shall at all times hereafter remain in compliance
with all federal, state and municipal laws, regulations and ordinances relating
to the handling, treatment and disposal of toxic substances, wastes and
hazardous material and shall maintain all necessary authorizations and permits.
6.25 Borrower shall maintain insurance on the life of N/A in an amount not
to be less than no/100 Dollars ($0.00) under one or more policies issued by
insurance companies satisfactory to Bank, which policies shall be assigned to
Bank as security for the Obligations and on which Bank shall be named as sole
beneficiary.
6.26 Borrower shall limit direct and indirect compensation paid to the
following employees: N/A, N/A, N/A, N/A, to an aggregate of N/A Dollars
($________ N/A) per N/A.
7. EVENTS OF DEFAULT
Any one or more of the following events shall constitute a default by
Borrower under this Agreement:
a. If Borrower fails or neglects to perform, keep or observe any term,
provision, condition, covenant, agreement, warranty or representation
contained in this Agreement, or any other present or future agreement
between Borrower and Bank;
b. If any representation, statement, report or certificate made or
delivered by Borrower, or any of its officers, employees or agents to Bank
is not true and correct;
c. If Borrower fails to pay when due and payable or declared due and
payable, all or any portion of the Borrower's Obligations (whether of
principal, interest, taxes, reimbursement of Bank Expenses, or otherwise);
d. If there is a material impairment of the prospect of repayment of
all or any portion of Borrower's Obligations or a material impairment of
the value or priority of Bank's security interest in the Collateral;
e. If all or any of Borrower's assets are attached, seized, subject to
a writ or distress warrant, or are levied upon, or come into the possession
of any Judicial Officer or Assignee and the same are not released,
discharged or bonded against within ten (10) days thereafter;
f. If any Insolvency Proceeding is filed or commenced by or against
Borrower without being dismissed within ten (10) days thereafter;
g. If any proceeding is filed or commenced by or against Borrower for
its dissolution or liquidation;
h. If Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs;
i. If a notice of lien, levy or assessment is filed of record with
respect to any or all of Borrower's assets by the United States Government,
or any department, agency or instrumentality thereof, or by any state,
county, municipal or other government agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a
lien, whether choate or otherwise, upon any or all of the Borrower's assets
and the same is not paid on the payment date thereof;
j. If a judgment or other claim becomes a lien or encumbrance upon any
or all of Borrower's assets and the same is not satisfied, dismissed or
bonded against within ten (10) days thereafter;
k. If Borrower's records are prepared and kept by an outside computer
service bureau at the time this Agreement is entered into or during the
term of this Agreement such an agreement with an outside service bureau is
entered into, and at any time thereafter, without first obtaining the
written consent of Bank, Borrower terminates, modifies, amends or changes
its contractual relationship with said computer service bureau or said
computer service bureau fails to provide Bank with any requested
information or financial data pertaining to Bank's Collateral, Borrower's
financial condition or the results of Borrower's operations;
l. If Borrower permits a default in any material agreement to which
Borrower is a party with third parties so as to result in an acceleration
of the maturity of Borrower's indebtedness to others, whether under any
indenture, agreement or otherwise;
11.
<PAGE>
m. If Borrower makes any payment on account of indebtedness which has
been subordinated to Borrower's Obligations to Bank;
n. If any misrepresentation exists now or thereafter in any warranty or
representation made to Bank by any officer or director of Borrower, or if
any such warranty or representation is withdrawn by any officer or
director;
o. If any party subordinating its claims to that of Bank's or any
guarantor of Borrower's Obligations dies or terminates its subordination or
guaranty, becomes insolvent or an Insolvency Proceeding is commenced by or
against any such subordinating party or guarantor;
p. If Borrower is an individual and Borrower dies;
q. If there is a change of ownership or control of N/A percent (N/A
_______%) or more of the issued and outstanding stock of Borrower; or
r. If any reportable event, which the Bank determines constitutes
grounds for the termination of any deferred compensation plan by the
Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer any
such plan, shall have occurred and be continuing thirty (30) days after
written notice of such determination shall have been given to Borrower by
Bank, or any such Plan shall be terminated within the meaning of Title IV
of the Employment Retirement Income Security Act ("ERISA"), or a trustee
shall be appointed by the appropriate United States District Court to
administer any such plan, or the Pension Benefit Guaranty Corporation shall
institute proceedings to terminate any plan and in case of any event
described in this Section 7.0, the aggregate amount of the Borrower's
liability to the pension Benefit Guaranty Corporation under Sections 4062,
4063 or 4064 of ERISA shall exceed five percent (5%) of Borrower's Tangible
Effective Net Worth.
Notwithstanding anything contained in Section 7 to the contrary, Bank shall
refrain from exercising its rights and remedies and Event of Default shall
thereafter not be deemed to have occurred by reason of the occurrence of any of
the events set forth in Sections 7.e, 7.f or 7.j of this Agreement if, within
ten (10) days from the date thereof, the same is released, discharged,
dismissed, bonded against or satisfied; provided, however, if the event is the
institution of Insolvency Proceedings against Borrower, Bank shall not be
obligated to make advances to Borrower during such cure period.
8. BANK'S RIGHTS AND REMEDIES
8.1 Upon the occurrence of an Event of Default by Borrower under this
Agreement, Bank may, at its election, without notice of its election and without
demand, do any one or more of the following, all of which are authorized by
Borrower:
a. Declare Borrower's Obligations, whether evidenced by this Agreement,
installment notes, demand notes or otherwise, immediately due and payable
to the Bank;
b. Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, or any other agreement between Borrower and
Bank;
c. Terminate this Agreement as to any future liability or obligation of
Bank, but without affecting Bank's rights and security interests in the
Collateral, and the Obligations of Borrower to Bank;
d. Without notice to or demand upon Borrower or any guarantor, make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to
assemble the collateral if Bank so requires and to make the Collateral
available to Bank as Bank may designate. Borrower authorizes Bank to enter
the premises where the Collateral is located, take and maintain possession
of the Collateral and the premises (at no charge to Bank), or any part
thereof, and to pay, purchase, contest or compromise any encumbrance,
charge or lien which in the opinion of Bank appears to be prior or superior
to its security interest and to pay all expenses incurred in connection
therewith;
e. Without limiting Bank's rights under any security interest, Bank is
hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets,
trade names, trademarks and advertising matter, or any property of a
similar nature as it pertains to the Collateral, in completing production
of, advertising for sale and selling any Collateral and Borrower's rights
under all licenses and all franchise agreement shall inure to Bank's
benefit, and Bank shall have the right and power to enter into sublicense
agreements with respect to all such rights with third parties on terms
acceptable to Bank;
f. Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sales and sell (in the manner provided for herein) the
Inventory;
g. Sell or dispose the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
is commercially reasonable in the opinion of Bank. It is not necessary that
the Collateral be present at any such sale;
h. Bank shall give notice of the disposition of the Collateral as
follows:
12.
<PAGE>
(1) Bank shall give the Borrower and each holder of a security
interest in the Collateral who has filed with Bank a written request
for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some disposition other than a
public sale is to be made of the Collateral, the time on or after which
the private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower's address appearing in the Agreement, at least
five (5) calendar days before the date fixed for the sale, or at least
five (5) calendar days before the date on or after which the private
sale or other disposition is to be made, unless the Collateral is
perishable or threatens to decline speedily in value. Notice to persons
other than Borrower claiming an interest in the Collateral shall be
sent to such addresses as they have furnished to Bank;
(3) If the sale is to be a public sale, Bank shall also give notice
of the time and place by publishing a notice one time at least five (5)
calendar days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held; and
(4) Bank may credit bid and purchase at any public sale.
i. Borrower shall pay all Bank Expenses incurred in connection with
Bank's enforcement and exercise of any of its rights and remedies as herein
provided, whether or not suit is commenced by Bank;
j. Any deficiency which exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third parties, to
Borrower by Bank, or, in Bank's discretion, to any party who Bank believes,
in good faith, is entitled to the excess; and
k. Without constituting a retention of Collateral in satisfaction of an
obligation within the meaning of 9505 of the Uniform Commercial Code or an
action under California Code of Civil Procedure 726, apply any and all
amounts maintained by Borrower as deposit accounts (as that term is defined
under 9105 of the Uniform Commercial Code) or other accounts that Borrower
maintains with Bank against the Obligations.
8.2 Bank's rights and remedies under this Agreement and all other
agreements shall be cumulative. Bank shall have all other rights and remedies
not inconsistent herewith as provided by law or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of any
default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election or acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY.
If Borrower fails to pay promptly when due to another person or entity, monies
which Borrower is required to pay by reason of any provision in this Agreement,
Bank may, but need not, pay the same and charge Borrower's account therefor, and
Borrower shall promptly reimburse Bank. All such sums shall become additional
indebtedness owing to Bank, shall bear interest at the rate hereinabove
provided, and shall be secured by all Collateral. Any payments made by Bank
shall not constitute (i) an agreement by it to make similar payments in the
future; or (ii) a waiver by Bank of any default under this Agreement. Bank need
not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance or lien and the receipt of the usual official notice of
the payment thereof shall be conclusive evidence that the same was validly due
and owing. Such payments shall constitute Bank Expenses and additional advances
to Borrower.
10. WAIVERS.
10.1 Borrower agrees that checks and other instruments received by Bank in
payment or on account of Borrower's Obligations constitute only conditional
payment until such items are actually paid to Bank and Borrower waives the right
to direct the application of any and all payments at any time or times hereafter
received by Bank on account of Borrower's Obligations and Borrower agrees that
Bank shall have the continuing exclusive right to apply and reapply such
payments in any manner as Bank may deem advisable, notwithstanding any entry by
Bank upon its books.
10.2 Borrower waives demand, protest, notice of protest, notice of default
or dishonor, notice of payment and nonpayment, notice of any default, nonpayment
at maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments chattel paper, and guarantees
at any time held by Bank on which Borrower may in any way be liable.
10.3 Bank shall not in any way or manner be liable or responsible for (a)
the safekeeping of the Inventory; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency or other person whomsoever. All risk of loss, damage or
destruction of Inventory shall be borne by Borrower.
10.4 Borrower waives the right and the right to assert a confidential
relationship, if any, it may have with any accountant, accounting firm and/or
service bureau or consultant in connection with any information requested by
Bank pursuant to or in accordance with this Agreement, and agrees that a Bank
may contact directly any such accountants, accounting firm and/or service bureau
or consultant in order to obtain such information.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRAIL BY JURY IN ANY ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION HEREUNDER, OR
CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT OR BREACH OF DUTY
CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND BORROWER.
13.
<PAGE>
10.6 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or fails to
pursue or enforce any terms, such waiver, delay or failure to pursue or enforce
shall only be effective with respect to that single act and shall not be
construed to affect any subsequent transactions or Bank's right to later pursue
such rights and remedies.
11. ONE CONTINUING LOAN TRANSACTION.
All loans and advances heretofore, now or at any time or times hereafter made by
Bank to Borrower under this Agreement or any other agreement between Bank and
Borrower, shall constitute one loan secured by Bank's security interests in the
Collateral and by all other security interests, liens, encumbrances heretofore,
now or from time to time hereafter granted by Borrower to Bank.
Notwithstanding the above, (i) to the extent that any portion of the Obligations
are a consumer loan, that portion shall not be secured by any deed of trust or
mortgage on or other security interest in the Borrower's principal dwelling
which is not a purchase money security interest as to that portion, unless
expressly provided to the contrary in another place, or (ii) if the Borrower (or
any of them) has (have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure the loan
and any other Obligation of the Borrower (or any of them), unless expressly
provided to the contrary in another place.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by either
party on the other relating to this Agreement shall be in writing and sent by
regular United States mail, postage prepaid, properly addressed to Borrower or
to Bank at the addresses stated in this Agreement, or to such other addresses as
Borrower or Bank may from time to time specify to the other in writing. Requests
to Borrower by Bank hereunder may be made orally.
13. AUTHORIZATION TO DISBURSE.
Bank is hereby authorized to make loans and advances hereunder upon telephonic
or other instructions received from anyone purporting to be an officer,
employee, or representative of Borrower, or at the discretion of Bank if said
loans and advances are necessary to meet any Obligations of Borrower to Bank.
Bank shall have no duty to make inquiry or verify the authority of any such
party, and Borrower shall hold Bank harmless from any damage, claims or
liability by reason of Bank's honor of, or failure to honor, any such
instructions.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
Any documents, schedules, invoices or other papers delivered to Bank, may be
destroyed or otherwise disposed of by Bank six (6) months after they are
delivered to or received by Bank, unless Borrower requests, in writing, the
return of the said documents, schedules, invoices or other papers and makes
arrangements, at Borrower's expense, for their return.
15. CHOICE OF LAW.
The validity of this Agreement, its construction, interpretation and
enforcement, and the rights of the parties hereunder and concerning the
Collateral, shall be determined according to the laws of the State of
California. The parties agree that all actions of proceedings arising in
connection with this Agreement shall be tried and litigated only in the state
and federal courts in the Northern District of California or County of Santa
Clara.
16. GENERAL PROVISIONS.
16.1 This Agreement shall be binding and deemed effective when executed by
the Borrower and accepted and executed by Bank at its Headquarter Office.
16.2 This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties, provided, however, that Borrower
may not assign this Agreement or any rights hereunder without Bank's prior
written consent and any prohibited assignment shall be absolutely void. No
consent to an assignment by Bank shall release Borrower or any guarantor from
their Obligations to Bank. Bank may assign this Agreement and its rights and
duties hereunder. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in Bank's rights
and benefits hereunder. In connection therewith, Bank may disclose all documents
and information which Bank now or hereafter may have relating to Borrower or
Borrower's business.
16.3 Paragraph headings and paragraph numbers have been set forth herein
for convenience only; unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
16.4 Neither this Agreement nor any uncertainty or ambiguity herein shall
be construed or resolved against Bank or Borrower, whether under any rule of
construction or otherwise; on the contrary, this Agreement has been reviewed by
all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto. When permitted by the context, the singular includes the
plural and vise versa.
14.
<PAGE>
16.5 Each provision of this Agreement shall be severable from every other
provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
16.6 This Agreement cannot be changed or terminated orally. Except as to
currently existing Obligations owing by Borrower to Bank, all prior agreements,
understandings, representations, warranties, and negotiations, if any, with
respect to the subject matter hereof, are merged into this Agreement.
16.7 The parties intend and agree that their respective rights, duties,
powers liabilities, obligations and discretions shall be performed, carried out,
discharged and exercised reasonably and in good faith.
IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit
Loan & Security Agreement (Accounts and Inventory) to be executed as of the date
first hereinabove written.
<TABLE>
<S> <C>
ATTEST: BORROWER: SHOWPOWER, INC.
By: /s/ Stephen R. ???????
- -------------------------------------------- -------------------------------
Title: Signature of Stephen R. ??????
Accepted and effective as of March 02, 1998 Title: Executive Vice President
at Bank's Headquarter Office ----------------------------
BY: /s/ Stephen R. ???????
-------------------------------
Signature of
Title: Chief Financial Officer
(Bank) Commercia Bank - California ----------------------------
By: /s/ Joseph P. Yurosek By:
---------------------------------------- -------------------------------
Signature of JOSEPH P. YUROSEK Signature of
Title: VICE PRESIDENT Title:
------------------------------------- ----------------------------
By:
-------------------------------
Signature of
Title:
----------------------------
</TABLE>
15.
Exhibit 10.8
[logo]
VARIABLE RATE - SINGLE PAYMENT NOTE
|--------------|-----------------|---------------------|----------------------|
| AMOUNT | NOTE DATE | MATURITY DATE | TAX IDENTIFICATION #|
|$300,000.00 | March 02, 1998 | September 02, 1998 | 95-4321609 |
|--------------|-----------------|---------------------|----------------------|
On the Maturity Date, as stated above, for value received, the undersigned
promise(s) to pay to the order of Comerica Bank - California ______________
("Bank"), at any office of the Bank in the State of California, Three Hundred
Thousand and no/100 ______________________________ Dollars (U.S.) with interest
from the date of this Note at a per annum rate equal to the Bank's base rate
from time to time in effect plus 0.75% per annum until maturity, whether by
acceleration or otherwise, or until Default, as later defined, and after that at
a default rate equal to the rate of interest otherwise prevailing under this
Note plus 3% per annum (but in no event in excess of the maximum rate permitted
by by law). The Bank's "base rate" is that annual rate of interest so designated
by the Bank and which is changed by the Bank from time to time. Interest rate
changes will be effective for interest computation purposes as and when the
Bank's base rate changes. Interest shall be calculated for the actual number of
days the principal is outstanding on the basis of a 360-day year if this Note
evidences a business or commercial loan or a 365-day year if a consumer loan.
Accrued Interest on this Note shall be payable on either (i) / / the Maturity
Date or (ii) /X/ the 2nd day of each month commencing April 02, 1998, until the
Maturity Date when all amounts outstanding under this Note shall be due and
payable in full. If the frequency of interest payments is not otherwise
specified, accrued interest on this Note shall be payable monthly on the first
day of each month. If any payment of principal or interest under this Note shall
be payable on a day other than a day on which the Bank is open for business,
this payment shall be extended to the next succeeding business day and interest
shall be payable at the rate specified in this Note during this extension. A
late payment charge equal to 5% of each late payment may be charged on any
payment not received by the Bank within 10 calendar days after the payment due
date, but acceptance of payment of this charge shall not waive any Default under
this Note.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"Indebtednes") are secured by and the Bank is granted a security interest in all
items deposited in any account of any of the undersigned with the Bank and by
all proceeds of these items (cash or otherwise), all account balances of any of
the undersigned from time to time with the Bank, by all property of any of the
undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge, assignment and other security or
collateral agreement which has been, or will at any time(s) later be, executed
by any (or all) of the undersigned to or for the benefit of the Bank
(collectively "Collateral"). Notwithstanding the above, (i) to the extent that
any portion of the Indebtedness is a consumer loan, that portion shall not be
secured by any deed of trust or mortgage on or other security interest in any of
the undersigned's principal dwelling or in any of the undersigned's real
property which is not a purchase money security interest as to that portion,
unless expressly provided to the contrary in another place, or (ii) if the
undersigned (or any of them) has (have) given or give(s) Bank a deed of trust or
mortgage covering real property, that deed of trust or mortgage shall not secure
this Note or any other Indebtednes of the undersigned (or any of them), unless
expressly provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the Indebtedness ("guarantor") (i) fall(s) to pay any of the
Indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to pay
any Indebtedness owing on a demand basis upon demand; or (ii) fail(s) to comply
with any of the terms or provisions of any agreement between the undersigned (or
any of them) or any guarantor and the Bank; or (iii) become(s) insolvent or the
subject of a voluntary or involuntary proceeding in bankruptcy, or a
reorganization, arrangement or creditor composition proceeding, (if a business
entity) cease(s) doing business as a going concern, (if a natural person) die(s)
or become(s) incompetent, (if a partnership) dissolve(s) or any general partner
of it dies or becomes incompetent or becomes the subject of a bankruptcy
proceeding or (if a corporation or a limited liability company) is the subject
of a dissolution, merger or consolidation; or (a) if any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the Indebtedness shall be discovered to be untrue or
incomplete; or (b) if there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the Indebtedness; or (c) if there is any failure
by any of the undersigned or any guarantor to pay when due any of its
indebtedness (other than to the Bank) or in the observance or performance of any
term, covenant or condition in any document evidencing, securing or relating to
such Indebtedness; or (d) if the Bank deems itself insecure believing that the
prospect of payment of this Note or any of the Indebtedness is impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (e) if there
is filed or issued a levy or writ of attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or any
of the Collateral, including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without prior
notice to the undersigned (or any of them), declare any or all of the
Indebtedness to be immediately due and payable (notwithstanding any provisions
contained in the evidence of it to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the Indebtedness any amounts owing by
the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relavant Indebtedness and exercise
any one or more of the rights and remedies granated to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law. In
addition, if this Note is secured by a deed of trust or mortgage covering real
property, then the trustor or mortgagor shall not mortgage or pledge the
mortgaged premises as security for any other Indebtedness or obligations. This
Note, together with all other indebtedness secured by said deed of trust or
mortgage, shall become due and payable immediately, without notice, at the
option of the Bank, (a) if said trustor or mortgagor shall mortgage or pledge
the mortgaged premises for any other indebtedness or obligations or shall
convey, assign or transfer the mortgaged premises by deed, installment sale
contract or other instrument, or (b) if the title to the mortgaged premises
shall become vested in any other person or party in any manner whatsoever, or
(c) if there is any disposition (through one or more transations) of legal or
beneficial title to a controlling interest of said trustor or mortgagor. All
payments under this Note shall be in immediately available United States funds,
without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices, and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-605 of the California Uniform
Commercial Code and waive(s) all other suretyship defenses or right to
discharge. The undersigned agree(s) that the Bank has the right to sell, assign,
or grant particicpations, or any interest, in any or all of the Indebtedness,
and that, in connection with this right, but without limiting its ability to
make other disclosures to the full extent allowable, the Bank may disclose all
documents and information which the Bank now or later has relating to the
undersigned or the Indebtedness. The undersigned agree(s) that the Bank may
provide information relating to this Note or to the undersigned to the Bank's
parent, affiliates, subsidiaries and service providers.
This undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorney fees, whether inside or outside counsel is used, whether
or not the suit is instituted and, if suit is instituted, whether at the trial
court level, appellate level, in a bankruptcy, probate or administrative
proceeding or otherwise) incurred in colllecting or attempting to collect this
Note or incurred in any other matter or proceeding relating to this Note.
<PAGE>
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
The maximum interest rate shall not exceed the highest applicable usury ceiling.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
THIS NOTE IS SUBJECT TO THE TERMS OF A REVOLVING CREDIT LOAN & SECDURITY
AGREEMENT DATED MARCH 2, 1998 AND ANY AND ALL SUBSEQUENT MODIFICATION(S)
THEREOF.
SHOWPOWER, INC.
By: /s/ Laurence Anderson [ts:
-------------------------------------------------------------------------
SIGNATURE OF LAURENCE ANDERSON TITLE PRESIDENT
By: /s/ Stephen Bornstein [ts:
-------------------------------------------------------------------------
SIGNATURE OF STEPHEN BORNSTEIN TITLE EXECUTIVE VICE PRESIDENT
By: /s/ Michael Crabbe [ts:
-------------------------------------------------------------------------
SIGNATURE OF MICHAEL CRABBE TITLE CHIEF FINANCIAL OFFICER
By: [ts:
-------------------------------------------------------------------------
SIGNATURE TITLE
18128 SOUTH SANTA FE AVENUE RANCHO DOMINGUEZ CALIFORNIA USA 90221
- --------------------------------------------------------------------------------
STREET ADDRESS CITY STATE COUNTRY ZIP
|---------------------------------------------------------|--------------------|
| For Bank Use Only | CCAR # |
|-----------------------|------------------|--------------|--------------------|
|Loan Officers Initials |Loan Group Name |Obligor(s) Name |
|JPY |LONG BEACH |SHOWPOWER, INC. |
|-----------------------|------------------|-----------|--------|--------------|
|Loan Officer I.D. No. |Loan Group No. |Obligor # |Note # | Amount |
|48276 |96556 | | | $300,000.00 |
|-----------------------|------------------|-----------|--------|--------------|
Exhibit 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of May __,
1998, by Showpower, Inc., a Delaware corporation (the "Employer"), and Jeffrey
B. Stone, an individual resident in New York (the "Executive").
RECITALS
Executive currently serves as Chairman of the Board of the Employer
pursuant to an Employment Agreement dated May 23, 1996, the term of which
expires May 23, 1998. Employer and Executive wish to extend the term of
employment of the Executive pursuant to the terms and conditions of this
Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Section 1.
"Agreement"--this Employment Agreement, as amended from time to time.
"Basic Compensation"--Salary and Benefits.
"Benefits"--as defined in Section 3.1(b).
"Board of Directors"--the board of directors of the Employer.
"Disability"--as defined in Section 5.2.
"Effective Date"--the date stated in the first paragraph of the
Agreement.
"Employment Period"--the term of the Executive's employment under this
Agreement.
-1-
<PAGE>
"Fiscal Year"--the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"for cause"--as defined in Section 5.3.
"person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"Salary"--as defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
The Employer hereby employs the Executive, and the Executive hereby
accepts employment by the Employer, upon the terms and conditions set forth in
this Agreement.
2.2 TERM
Subject to the provisions of Section 5, the term of the Executive's
employment under this Agreement will be two years, beginning on the Effective
Date and ending on the second anniversary of the Effective Date.
2.3 DUTIES
The Executive will serve as Employer's Chairman of the Board and in
such capacity will chair meetings of the Board of Directors and stockholders and
have such duties as are assigned or delegated to the Executive by the Board of
Directors. It is understood that the Executive will devote only a portion of his
business time to the business of the Employer, which shall generally not exceed
25% of such time. The Executive will use his good faith efforts to promote the
success of the Employer's business, and will cooperate fully with the Board of
Directors in the advancement of the best interests of the Employer. Nothing in
this Section 2.3, however, will prevent the Executive from engaging in other
business activities. If the Executive serves as a director or officer of the
Employer, the Executive will fulfill his duties as such director or officer
without additional compensation.
3. COMPENSATION
3.1 BASIC COMPENSATION
-2-
<PAGE>
(A) Salary. The Executive will be paid a monthly salary of $1,000 (the
"Salary"), which will be payable in equal periodic installments according to the
Employer's customary payroll practices, but no less frequently than monthly.
(B) Benefits. The Executive will, during the Employment Period, be
permitted to participate in such pension, profit sharing, bonus, life insurance,
hospitalization, major medical, and other employee benefit plans of the Employer
that may be in effect from time to time, for its senior executives to the extent
the Executive is eligible under the terms of those plans (collectively, the
"Benefits").
3.2 INCENTIVE OPTION PLAN
The Executive will, during the Employment Period, participate in any
management incentive option plan of Employer on terms approved by the Board of
Directors.
4. FACILITIES AND EXPENSES
4.1 GENERAL
The Employer will furnish the Executive office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will pay on behalf of the Executive (or reimburse
the Executive for) reasonable expenses incurred by the Executive at the request
of, or on behalf of, the Employer in the performance of the Executive's duties
pursuant to this Agreement, and in accordance with the Employer's employment
policies, including reasonable expenses incurred by the Executive in attending
business meetings, in appropriate business entertainment activities, and for
promotional expenses. The Executive must file expense reports with respect to
such expenses in accordance with the Employer's policies.
5. TERMINATION
5.1 EVENTS OF TERMINATION
The Employment Period, the Executive's Basic Compensation and any and
all other rights of the Executive under this Agreement or otherwise as an
employee of the Employer will terminate (except as otherwise provided in this
Section 5):
(a) upon the death of the Executive;
-3-
<PAGE>
(b) upon the disability of the Executive (as defined in
Section 5.2) immediately upon notice from either party to the other;
(c) for cause (as defined in Section 5.3), immediately upon
notice from the Employer to the Executive, or at such later time as
such notice may specify; or
(d) upon not less than thirty days' prior notice from the
Executive to the Employer.
5.2 DEFINITION OF DISABILITY
For purposes of Section 5.1, the Executive will be deemed to have a
"disability" if, for physical or mental reasons, the Executive is unable to
perform the essential functions of the Executive's duties under this Agreement
for 120 consecutive days, or 180 days during any twelve month period, as
determined in accordance with this Section 5.2. The disability of the Executive
will be determined by a medical doctor selected by written agreement of the
Employer and the Executive upon the request of either party by notice to the
other. If the Employer and the Executive cannot agree on the selection of a
medical doctor, each of them will select a medical doctor and the two medical
doctors will select a third medical doctor who will determine whether the
Executive has a disability. The determination of the medical doctor selected
under this Section 5.2 will be binding on both parties. The Executive must
submit to a reasonable number of examinations by the medical doctor making the
determination of disability under this Section 5.2, and the Executive hereby
authorizes the disclosure and release to the Employer of such determination and
all supporting medical records. If the Executive is not legally competent, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead, under this Section 5.2, for the purposes of submitting the
Executive to the examinations, and providing the authorization of disclosure,
required under this Section 5.2.
5.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 5.1, the phrase "for cause" means: (a) the
Executive's material breach of this Agreement which shall include, but not be
limited to, a determination by the Board of Directors that the Executive has
failed to devote sufficient business time to the business of the Employer; (b)
the Executive's failure to adhere to any written Employer policy if the
Executive has been given a reasonable opportunity to comply with such policy or
cure his failure to comply (which reasonable opportunity must be granted during
the ten-day period preceding termination of this Agreement); (c) the
appropriation (or
-4-
<PAGE>
attempted appropriation) of a material business opportunity of the Employer,
including attempting to secure or securing any personal profit in connection
with any transaction entered into on behalf of the Employer; (d) the
misappropriation (or attempted misappropriation) of any of the Employer's funds
or property; or (e) the conviction of, or the entering of a guilty plea or plea
of no contest with respect to, a felony, the equivalent thereof, or any other
crime with respect to which imprisonment is a possible punishment.
5.4 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be
obligated to pay the Executive (or, in the event of his death, his designated
beneficiary as defined below) only such compensation as is provided in this
Section 5.4. For purposes of this Section 5.4, the Executive's designated
beneficiary will be such individual beneficiary or trust, located at such
address, as the Executive may designate by notice to the Employer from time to
time or, if the Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such beneficiary, to
determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
(A) Termination by the Executive. If the Executive terminates this
Agreement, the Employer will pay the Executive the Executive's Salary for the
remainder, if any, of the calendar month in which such termination is effective.
(B) Termination by the Employer for Cause. If the Employer terminates
this Agreement for cause, the Executive will be entitled to receive his Salary
through the date such termination is effective.
(C) Termination upon Disability. If this Agreement is terminated by
either party as a result of the Executive's disability, as determined under
Section 5.2, the Employer will pay the Executive his Salary through the end of
the calendar month in the determination of disability is determined.
(D) Termination upon Death. If this Agreement is terminated because of
the Executive's death, the Executive will be entitled
-5-
<PAGE>
to receive his Salary through the end of the calendar month in which his death
occurs.
(E) Benefits. The Executive's accrual of, or participation in plans
providing for, the Benefits will cease at the effective date of the termination
of this Agreement, and the Executive will be entitled to accrued Benefits
pursuant to such plans only as provided in such plans.
6. GENERAL PROVISIONS
6.1 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Employer that the
execution and delivery by the Executive of this Agreement do not, and the
performance by the Executive of the Executive's obligations hereunder will not,
with or without the giving of notice or the passage of time, or both: (a)
violate any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Executive; or (b) conflict with, result in
the breach of any provisions of or the termination of, or constitute a default
under, any agreement to which the Executive is a party or by which the Executive
is or may be bound.
6.2 NON-SOLICITATION AND NON-COMPETITION AGREEMENT
In connection with his employment, the Executive is entering into as of
the date hereof, a Non-Solicitation and Non-Competition Agreement with the
Employer in the form of Attachment 1 hereto.
6.3 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by either party in
exercising any right, power, or privilege under this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right arising out of this Agreement can be discharged by one party, in whole or
in part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any obligation
of such party or of the right of the party giving such notice or demand
-6-
<PAGE>
to take further action without notice or demand as provided in this Agreement.
6.4 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors, assigns, heirs, and
legal representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
6.5 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nation-ally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer: Showpower, Inc.
18128 S. Santa Fe Ave.
Rancho Dominguez, CA 90221
Attention: Stephen R. Bernstein
Facsimile No.: (310) 604-1671
with a copy to: Facsimile No.: (914) 591-8066
If to the Executive: Jeffrey B. Stone
9 Hancock Place
Irvington, New York 10533
Facsimile No.: (914) 591-8016
6.6 ENTIRE AGREEMENT; AMENDMENTS
This Agreement supersedes and replaces all prior agreements and
understandings, oral or written, between the parties hereto with respect to the
employment of Executive by Employer. This Agreement may not be amended orally,
but only by an agreement in writing signed by the parties hereto.
6.7 GOVERNING LAW
-7-
<PAGE>
This Agreement will be governed by the laws of the State of California
without regard to conflicts of laws principles.
6.8 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
6.9 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
6.10 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
SHOWPOWER, INC.
By: /s/ John J. Campion
-------------------------- -----------------------------
John J. Campion Jeffrey B. Stone
Chief Executive Officer
-8-
<PAGE>
Attachment 1
NON-SOLICITATION and NON-COMPETITION AGREEMENT
THIS NON-SOLICITATION and NON-COMPETITION AGREEMENT is entered into as
of this 23rd day of May 1998, between Jeffrey B. Stone ("Executive") and
SHOWPOWER, INC., a corporation organized and existing under the laws of the
state of California (hereinafter called "Employer"), and is made with reference
to the following facts:
A. Employer is engaged in the business of providing temporary
electrical power and distribution and temporary temperature
control equipment and services for private, public and
spectator 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. Employee 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 Employee 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:
1. Non-Solicitation. 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, Employee 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;
<PAGE>
(b) call on, solicit, take away, or attempt to call on, solicit or take away,
any of Employer's clients on whom Employee called or with whom Employee became
acquainted during Employee's employment with Employer or induce any such client
to patronize any competitor of Employer, either on Employee'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 employees,
consultants and independent contractors with whom Employee became acquainted
during Employee'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 Employee's
behalf or that of another person, firm or corporation. The foregoing is not
intended to restrict Employee's right to call on persons in connection with
matters that are exclusively personal or social.
2. Covenant Not to Compete. To accord to Company the full value of the
Executive's time as Chairman and as material inducement to the Company to enter
into and perform the transactions contemplated that certain underwriting
agreement between the Company and Prime Charter Ltd., except as otherwise
provided hereinbelow, during the five (5) year period beginning with the date of
this Covenant Not to Compete (the "Term"), Seller 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 Purchaser's Business (as defined below), directly or indirectly (as
legal or beneficial owner, stockholder, partner, director, officer, employee,
consultant, manager, agent or associate, or otherwise), anywhere in the
Territory, except that Seller 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.
3. Employer's Business. For purposes of this Non-Solicitation Agreement, the
parties agree that Employer's Business is a full service electric power supply
company operating mobile generators and distribution equipment to provide
temporary electrical power generation and distribution equipment and services
and temporary temperature control equipment and services 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:
a. Clients engaged in the motion picture, television, entertainment and music
industries, including by way of example but not limited to: broadcast and cable
television companies; record companies; live stage shows for paying audiences;
b. Live sporting events, automobile rallies and races;
<PAGE>
trade shows and exhibitions; amateur athletic events; all video/satellite
broadcast companies; corporate and industrial theatre;
c. 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.
d. Any other event where music is incidental to, but a part of, the entire
event, where more than 300 kva of generated electrical power is provided to any
one stage (exclusive of rigging power).
e. Any temporary structure which utilizes electrical power or temperature
control services;
f. 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.
4. Compensation. For the period for which Employer wishes to enforce this
Agreement, Employer shall pay to Employee his base compensation as provided for
in the Employment Agreement between Employer and Employee of even date herewith.
5. Information Use. Employee 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 Employee's position, and shall not use such information or
training for any other purpose. Employee agrees that, during the term of
Employee's employment with Employer, Employee shall refer any inquiries and
prospects exclusively to Employer. In addition, Employee shall comment favorably
regarding Employer and Employer's conduct of Employer's Business if asked by any
third party.
6. Confidentiality.
a. Employee 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 Employee'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.
b. Employee acknowledges and agrees that the names, addresses, preferences and
all documentation of Employer, whether
<PAGE>
prepared by Employee 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 Employee during Employee'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.
Employee shall not, in any way, infringe upon this secrecy by engaging in unfair
competition with Employer.
c. 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 Employee 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.
d. All obligations of Employee 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.
7. 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, Employee 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 Employee 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,
Employee 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.
8. Successors and Assigns. This Non-Solicitation Agreement and
<PAGE>
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, Employee may not assign any rights, nor
delegate any duties under, this Non-Solicitation Agreement.
9. Severability. The covenants and other provisions contained herein shall cover
the activities of Employee 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 Employer's Business, each capacity in which Employee 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.
10. 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 Employee, to Employee'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.
11. Other Restrictions. The restrictions, covenants and agreements contained
herein, are in addition to, and Employee shall
<PAGE>
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 Employee.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
<PAGE>
IN WITNESS WHEREOF, this Non-Solicitation Agreement has been duly executed
on the date first above written.
EMPLOYEE: EMPLOYER:
JEFFREY B. STONE BY: /s/ JOHN J. CAMPION
---------------------------
ITS: CHIEF EXECUTIVE OFFICER
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.
<PAGE>
SHOWPOWER, INC.
COMPUTATION OF INCOME PER COMMON SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net income (loss)..................................................................... $ (39,252) $ 85,381
Weighted average shares outstanding................................................... 1,159,080 1,913,080
Dilutive effect of restricted stock after application of treasury stock method........ -- 105,048
Shares used in calculating diluted income per share................................... 1,159,080 2,018,128
Basic net income (loss) per share..................................................... $ (0.03) $ 0.04
Diluted net income (loss) per share................................................... $ (0.03) $ 0.04
Pro forma:
Pro forma net income (loss)........................................................... $ (41,708) $ (19,330)
Weighted average shares outstanding................................................... 1,159,080 1,913,080
Dilutive effect of restricted stock after application of treasury stock method*....... -- --
Shares used in calculating diluted income per share................................... 1,159,080 1,913,080
Pro forma basic net income (loss) per share........................................... $ (0.04) $ 0.01
Pro forma diluted net income (loss) per share......................................... $ (0.04) $ 0.01
</TABLE>
- ------------------
* Restricted shares are antidilutive for pro forma diluted and supplemental EPS
as a result of pro forma loss.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-50595 of Showpower, Inc. on Form SB-2 of our report dated March 6, 1998,
except for Note 17, as to which the date is May 19, 1998, (which expresses an
unqualified opinion and includes an explanatory paragraph relating to a change
in 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, and 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
May 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000828360
<NAME> SHOWPOWER
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<EXCHANGE-RATE> 1 1
<CASH> 485,788 277,093
<SECURITIES> 0 0
<RECEIVABLES> 1,388,480 1,345,796
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,340,958 2,336,168
<PP&E> 12,056,711 14,590,042
<DEPRECIATION> (4,026,299) (4,338,590)
<TOTAL-ASSETS> 11,724,658 14,286,602
<CURRENT-LIABILITIES> 3,948,408 4,196,224
<BONDS> 2,196,938 4,402,033
0 0
0 0
<COMMON> 6,678,491 6,714,070
<OTHER-SE> (1,372,119) (1,306,486)
<TOTAL-LIABILITY-AND-EQUITY> 11,724,658 14,286,602
<SALES> 0 0
<TOTAL-REVENUES> 17,294,036 4,273,058
<CGS> 0 0
<TOTAL-COSTS> 9,790,219 2,452,455
<OTHER-EXPENSES> 6,285,816 1,662,509
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 203,667 102,897
<INCOME-PRETAX> 1,047,166 43,573
<INCOME-TAX> 116,562 (41,808)
<INCOME-CONTINUING> 930,604 85,381
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 930,604 85,381
<EPS-PRIMARY> 0.54 0.04
<EPS-DILUTED> 0.52 0.04
</TABLE>
